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TMI Blog2017 (5) TMI 1702X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A) erred in not appreciating the fact that the appellant is in the business of investment promotion, disallowance u/s.14A r.w.Rule 8D is not attracted." 2.1 On this issue of disallowance u/s.14A r.w.R 8D, the Revenue has also raised the same issue in Ground No.2.2. as follows: "2.2. The ld. Learned Commissioner of Income Tax(A) erred in directing the Learned Assessing Officer to exclude the investment made by assessee in subsidiary companies and investments which did not yield exempt income while computing the disallowance u/s.14A r.w.Rule 8D." 3. The facts of the case are that the assessee is in the business of investment promotion by making long term strategic investments on its own and also inviting others and providing a platform for attracting outside investments. Another business purpose is to acquire or to retain controlling interest in other companies. It holds long term strategic investments in various entities. The assessee is the promoter of the companies under its fold. It focuses and promotes these companies, infuses required capital and nurtures them to grow into developed business entities. It extends its support to the operating companies to identif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in dividend re-investment scheme, where daily dividend was re-invested automatically and Rule 8D cannot be applied for calculating disallowance u/s.14A of the Act. The Tribunal, in assessee's own case for the AYs 2005-06 & 2007-08 in ITA Nos.638 & 639 & 640/Mds/2015 dated 4.2.2013 has held that disallowance u/s.14A is not attracted in respect of the interest payment. Further, in the AYs 2010-11 and 2011-12, the AO made disallowance u/s.14A r.w.Rule 8D of Rs. 9,53,58,731/- and Rs. 11,56,55,300/- respectively and the amount disallowed comprised disallowance under Rule 8D(2)(ii) & (iii). However, the Tribunal in ITA Nos. 512 & 513/Mds/2015 dated 26.6.2015 has confirmed the addition to the extent of Rs. 15 lakhs for each year and deleted the balance additions. However, the AO has taken the value of the entire investments instead of taking the value of investments which have earned exempt income during the year while computing the amount to be disallowed u/s.14A r.w.Rule 8D(2)(ii) & (iii). Aggrieved, the assessee went in appeal before the CIT(Appeals), who relying on the earlier order of the Tribunal in assessee's own case in ITA Nos. 512 & 513/Mds/2015, directed the AO to restrict th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6,55,300/- for the assessment years 2010-11 & 2011-12 respectively as expenses by the Ld.CIT(A). Further, High Court of Karnataka in the case of United Breweries Ltd. Vs. DCIT in [2016] 72 Taxmann.com (Karnataka) wherein held that:- "8. So far as second question of applicability of Sec. 1 4A of the Act to the expenses incurred by the appellant towards interest and others on the loan borrowed is concerned, the finding of the Tribunal is at paragraph 11 which reads as under: "11. The revenue is in appeal and we have considered the rival contentions. IN our view, the recent judgment of the Special Bench in Bombay in ITO v. Daga Capital Management Pvt. Ltd (2009) 312 ITR (AT) 1, is applicable to the facts of the present case. In this order, it has been held that section 1 4A is applicable even where the motive in acquiring the shares was to obtain controlling interest in the companies. The finding of the Commissioner of Income-tax (Appeals) cannot, therefore, be upheld as it is contrary to the decision of the Special Bench. We, accordingly, uphold in principle the applicability of section 1 4A. However, it is for the Assessing Officer to ascertain from the facts of the case as to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whether interest bearings borrowed fund were used to acquire the shares in the companies or making advance to the subsidiaries. With this observation, we restore the issue to the file of AO for fresh consideration. 4. The next ground raised in Revenue's appeal in ITA No.2502/Mds./16 is with regard to deletion of disallowance by the ld. CIT(A) on account of payment of royalty, though it was a capital expenditure and depreciation was granted on it. 4.1 After hearing both parties, we find that similar issue was considered by the Tribunal in assessment year 2009-10 in I.T.A. No. 868 & 869/Mds/2015 dated 29.01.2016 for A.Ys. 2010-11 & 2011-12, wherein the Tribunal has observed as under: "14. We have perused the orders and heard the rival submissions. The question is regarding disallowance of royalty, which was considered by the Assessing Officer as a capital outgo. Royalty was paid by the assessee to M/s Shriram Chits and Investments for using the logo owned by the latter. On similar fact situation, in assessee's own case, for assessment year 2006-07, this Tribunal had held in its order in I.T.A. No. 726/Mds/2010 dated 16th December, 2010, as under:- "16. The next issue o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Supreme Court were actually considering a case of Composite Agreement which involved an agreement to implement a turnkey project right from providing design, etc. in establishing the factory and user of the technical know-how. Thereafter, Their Lordships of Supreme Court have clearly held that payment made for the user of the logo is always revenue in nature. While coming to the above conclusion, the Hon'ble Supreme Court has referred to its various decisions in this judgment which also favour the case of the assessee. We, therefore, do not find any force in this ground of Revenue as well." For the reasons mentioned above, we are of the opinion that disallowance of royalty was not warranted. CIT(Appeals) had justly deleted such disallowance. No interference is called for. 15. Ground No.3 is treated as dismissed." In view of the order of the Tribunal, we are inclined to dismiss the ground taken by the Revenue in this appeal. 4.2 The third ground in the appeal of Revenue is with regard to deletion of addition relating to expenditure incurred for exempt income while computing the book profit u/s.115JB. 4.3 We have heard both the parties and perused the material on rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alone is assessable to income tax. v) The learned CIT(A) failed to appreciate that it is an expenditure laid out wholly and exclusively for the purpose of carrying its business; that it cannot survive without complying to the mandatory provisions of RBI Act; and as such it is an admissible deduction u/s.37 of the Income-tax Act incurred on grounds of commercial expediency." 6. The crux of above grounds is with regard to assessee transferred a sum of Rs. 405,22,21,843/- to Reserve Fund as required under Section 45-IC of the Reserve Bank of India Act and claimed the same as appropriation of funds by overriding title. However, the Assessing Officer disallowed the claim of the assessee by holding the same as application of income. The CIT(Appeals) also confirmed the order of the Assessing Officer. Now, the assessee is in appeal before us. 7. After hearing both the parties, we are of the opinion that this issue came for consideration before the Tribunal in assessee's group case in ITA No.454/Mds/2016 dated 24.8.2016 wherein held that:- "5. We have considered the rival submissions on either side and perused the relevant material available on record. Admittedly, the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the period in which the assessee was holding the amount. Therefore, the interest paid by the assessee cannot be construed as expenditure for earning the income or for business purpose. Therefore, this Tribunal is of the considered opinion that the CIT(Appeals) has rightly confirmed the disallowance made by the Assessing Officer." 9.1 Therefore, respectfully following the above order of the Tribunal, we dismiss this ground of appeal in the above appeals. 10. The next ground in ITA No.2370/Mds/2016 is as under : "i) The CIT(A) erred in confirming part of the disallowance made u/s.14A r.w.Rule 8D ii) The CIT(A) has erred in not appreciating the fact that the Assessing Officer has not recorded with regard to accounts of the appellant, as to why he was not satisfied with the correctness of the amount disallowed by the appellant of Rs. 40,628/-. iii) The CIT(A) erred in overlooking the Hon'ble Delhi High Court decision in the cases of CIT VS Taikisha Engg India Ltd. (299 Taxman 143) and CIT Vs I P Support Services India Pvt. Ltd. (378 ITR 240)" 11. In view of our findings in earlier paras 3.2 to 3.5 of this order, this ground raised by the assessee stands partly allowed f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e expenditure u/s.40(a)(ia) though in view of amendment by Finance (No.2) Act 2014, the Assessing Officer can disallow only 30% of the expenditure." 15. We have heard both the parties and perused the material on record. We have also gone through the orders of the authorities below. The main contention of the ld.A.R is that nothing is payable at the end of the close of the Financial year, as such the issue is squarely covered by the order of the Special Bench of the Tribunal in the case of Merilyn Shipping and Transports v. Addl. CIT [2012] 16 ITR (Trib) 1 (Visakhapatnam) [SB]. In our opinion, there is a force in the argument of the ld.A.R and the Special Bench cited supra considered this issue and decided the issue in favour of the assessee. Further, the Coordinate Bench of this Tribunal in the case of Shri N.Palanivelu Vs. ITO reported in [2015] 40 ITR (Trib) 325 [Chennai] vide order dated 29.04.2015 wherein held that:- "4. We have heard both sides and perused the material on record. We find that the Special Bench of the Tribunal in the case of Merilyn Shipping and Transports v. Addl. CIT [2012] 16 ITR (Trib) 1 (Visakhapatnam) [SB] and judgment of the Allahabad High Court in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ground raised by the Revenue in all these appeals stands dismissed. 18. The next common issue in ITA Nos.2502, 2503 & 2504/Mds/2016 is that the CIT(A) erred in directing the AO to disallow a lump sum amount of Rs. 15 lakhs u/s.14A overlooking the computation provisions contained in Rule 8D. 19. In conformity with above findings in paras 3.2 to 3.5 of this order, we remit this issue to the file of AO on similar directions. This ground of appeal of Revenue is partly allowed for statistical purposes. 20. The next common issue in ITA Nos.2502, 2503 & 2504/Mds/2016 is that the CIT(A) erred in deleting the addition made to book profits computed u/s.115JB being expenditure incurred to earn exempt income even though cl.(f) Explanation 1 to sec.115JB specifically provides for it. 21. We find that similar issue came for consideration before the Tribunal in assessee's own case in ITA Nos. 513/Mds/2015 dated 26.06.2015 for the AYs 2010-11. We find that this issue is already decided in assessee's group case in ITA No.2502/Mds./2016 in earlier para 4.3 of this order. Accordingly, this ground is dismissed. 22. The last common issue in ITA Nos. 2503 & 2504/Mds/2016 is with regard to del ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ). Being so, in our view, it is appropriate to remit back the entire issue to verify whether the debt is actually written off in the Audited books of accounts passing enough entries towards written off to the individual account and then only the assessee is entitled for deduction as bad debt provided the assessee fulfils the condition such as satisfaction of Income Tax Act as contemplated under section 36(2) of the Act. We, therefore, direct the Assessing Officer to verify the requirement of section 36(2) and decide thereupon. Accordingly, this issue raised by the Revenue is remitted back to the Assessing Officer for fresh consideration. 24.1 Further, the assessee filed Miscellaneous Petitions in MP Nos.31,32/Mds./16 in above cases, vide order dated 17.4.2017 wherein the Tribunal dismissed the Miscellaneous Petitions on the reason that assessee does not want to pursue the Miscellaneous Petitions and not pressed before this Tribunal. 24.2 However, ld.A.R placed strong reliance on the order of jurisdictional High Court in the case of CIT Vs. Shriram Transport Finance Co. Ltd., vide order dated 23.12.2016 in [2017] 78 Taxmann.com(Madras) wherein Madras High Court observed that:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tification set out in the e-mail is in itself, factually incorrect. The fact that the Assessee maintains two sets of books, one for the purpose of Companies Act and other for the purpose of the Income Tax Act and the differing treatment of bad debts in both was well within the knowledge of the assessing officer from 1994 when the issue was first raised as would be apparent from the orders of the Tribunal for earlier years. To say that these facts were unearthed only in the course of assessment in 2006-07 is thus factually incorrect. (Para 11) As would be apparent from the orders of the Tribunal dated 16.12.2010 and 21.4.2006 the Assessee has been consistent in the methodology followed both in respect of maintenance of books as well as the treatment of bad debts. The Supreme Court, in the case of Commissioner of Income Tax Vs Excel Industries (358 ITR 295) reiterates the proposition that an issue consistently decided in the assesse's favour for several years should not be disturbed unless there are very convincing reasons for doing so. (Para 12) 24.3 We are fully in agreement with the decision of jurisdictional High Court cited supra. However, in the present case as ob ..... X X X X Extracts X X X X X X X X Extracts X X X X
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