9911796707
TMI Blog2025 (2) TMI 328X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee is engaged in eligible business and its receivables are in respect of loans granted for housing purposes, part of which has undergone securitisation arrangement. In this respect, risk continues to remain with the assessee since in the event of default by the borrowers, it is assessee who is responsible to make good the default to banks. Securitisation amount represents nothing but interest on housing loans which is discounted to the present net value. Hence, this surplus of securitisation amount is the income of the assessee from long term housing loans disbursed by it for which it has received its discounted present value. Income earned by the assessee through PTC-B securitisation also represents loans originating from other housing finance companies, who also have their underlying assets in the form of long-term housing finance. We allow the claim of deduction u/s. 36(1)(viii) on the aspect. Disallowance u/s. 14A r.w.r.8D - HELD THAT:- In the given set of undisputed and verifiable facts, whereby owned funds i.e., share capital and reserves and surplus available with the assessee far exceeded the amounts invested in securities yielding tax free income and in view of the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tive satisfaction "having regard to the accounts of the assessee" for rejecting the suo moto disallowance made by the assessee. AO is directed to take into account investments which have actually yielded exempt income during the year for the purpose of making disallowance u/s. 14A. For this purpose, we draw our force from the decision of Vireet Investments Pvt. Ltd. [2017 (6) TMI 1124 - ITAT DELHI] Increasing the book profits computed u/s. 115JB by the amount disallowed u/s. 14A - CIT(A) correctly held that amount disallowed u/s. 14A r.w.r. 8D cannot be added to the book profit computed u/s. 115JB. Facts relating to the issue under consideration are undisputed. We note that grounds raised by the Revenue are no longer res integra as held in plethora of decisions that disallowance made u/s. 14A r.w.r.8D under the normal provisions of the Act cannot be read into the provisions of Section 115JB for computing book profit since there is no express provision in clause (f) of Explanation 1 to Section 115JB to this effect. Discount on grant of stock options to employees - HELD THAT:- The issue is covered by the order of Co-ordinate Bench of ITAT Mumbai in assessee's own case for Assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 98-99. Assessee had explained this aspect before the ld. AO by clarifying that special reserve had been created over the years out of the profits and "Special Reserve No. I Account" relates to amount which had been transferred up to financial year 1997-98. Thus, it is not as though assessee has surreptitiously transferred any amount nor it is a case of Revenue that transfer of such fund from the special reserve was in any manner contrary to any law. No infirmity in the conclusion drawn by the ld. CIT(A) granting relief to the assessee. Disallowance of entrance fees and subscription paid to clubs -Assessee has claimed deduction u/s. 37(1) towards club entrance fees and subscription to enable the benefit of such facility to its employees - HELD THAT:- We note that though entrance fee is a one-time payment, regular payment of annual subscription is an essential condition for continuance of such club membership. Thus, unless such annual subscription is paid, there is no enduring benefit to the assessee. Accordingly, it cannot be treated as capital expenditure. Decision of Otis Elevators [1991 (4) TMI 53 - BOMBAY HIGH COURT] was considered and followed in the case of CIT v. Groz Becker ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... According to the assessee, the difference is on account of cost incurred by India Value Fund for which assessee had not passed certain entries in its books of account. Assessee has reported the income as certified by India Value Fund in terms of Form 64 which is not in dispute. However, for the difference, assessee has expressed its inability to explain the same owing to passage of time. In the given set of facts and circumstances, what the assessee has returned is the correct amount of income as communicated by India Value Fund and nothing contrary has been placed on record to dis-prove the same except for the entry in the books of account. Income really accruing or arising to or received by the assessee as contained in section 115U(1) as long-term capital gain duly substantiated by communication received from India Value Fund as prescribed in Form 64.Thus we delete the addition. Addition on account of receipts as per the ITS details not found recorded in the books of account of assessee - HELD THAT:- We note that assessee had discharged its onus by reconciling substantial amount of ITS/AIR data with its books of account. No addition can be made solely on the basis of ITS/AIR in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mity in the findings arrived at by ld. CIT(A) of directing AO to grant refund of the excess DDT paid by the assessee. Accordingly, ground raised the Revenue is dismissed. Transfer pricing adjustment in respect of specified domestic transactions covered by section 40A(2)(b) - HELD THAT:- We note that there is no dispute in respect of impugned transactions falling within the definition of SDT under clause (i) of section 92BA, prior to its omission. Since the said provision has been omitted by the Finance Act, 2017, it has to be treated as if it never existed on the statute. This position stands accepted in the case of Texport Overseas Pvt. Ltd. [2019 (12) TMI 1312 - KARNATAKA HIGH COURT]. Accordingly, grounds taken by the Revenue are dismissed. Disallowance of year-end provisions - HELD THAT:- As correctly helf by CIT(A) none of the provisions made represents ad-hoc provisions or are in respect of any unascertained liability. According to him, assessee is regularly following the practice of year end provision for various expenses, which is reversed on 1st April of next year and that expenses are considered on the basis of actual payment in the subsequent year placing reliance on HD ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is issue and documents provided by the assessee in respect of sample parties, since volume being large with 624 parties/individuals having bad loans, directed the ld. Assessing Officer to verify the claim and allow bad debts written off to the extent same could be linked to the provisions created up to 31.03.2016. For assessee failing to do so in enabling the said examination, ld. Assessing Officer was further directed to adjust the bad debts written off against section 36(1)(viia)(d) account. While giving the said direction, ld. CIT(A) arrived at a view that bad debts written off during Assessment Year 2018-19 should be allowed if the same is out of provisions created upto 31.03.2016 as well as if the same was never claimed as a deduction. In absence of fulfilment of this requirements, bad debts written off should be adjusted against credit balance in the account relating to section 36(1)(viia)(d) and claim of bad debt should be allowed when the bad debts exceed the credit balance in the account created in respect of deduction u/s. 36(1)(viia)(d). Penalty imposed u/s. 271(1)(c) on disallowance on deduction u/s. 36(1)(viii) - HELD THAT:- In the given set of facts and elaborate dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 09 Addl. CIT, Range 1(1), Mumbai 17.12.2007 143(3) 2005-06 Revenue 9. 5033/Mum/2010 CIT(A)-1/IT-323/09-10 25.03.2009 Addl. CIT, Range 1(1), Mumbai 24.12.2008 143(3) 2006-07 Assessee 10. 5707/Mum/2010 CIT(A)-1/IT-568/09-10 25.03.2010 Addl. CIT, Range 1(1), Mumbai 24.12.2008 143(3) 2006-07 Revenue 11. 5442/Mum/2011 CIT(A)-1/IT-568/09-10 01.02.2010 Addl. CIT, Range 1(1), Mumbai 23.12.2009 143(3) 2007-08 Assessee 12. 5005/Mum/2011 CIT(A)-1/IT-568/09-10 01.02.2011 Addl. CIT, Range 1(1), Mumbai 23.12.2009 143(3) 2007-08 Revenue 13. 2868/Mum/2012 CIT(A)-1/IT-747/2010-11 08.02.2012 Addl. CIT, Range 1(1), Mumbai 10.12.2010 143(3) 2008-09 Assessee 14. 2093/Mum/2017 CIT(A)-2/IT-131/2011-12 06.02.2016 Addl. CIT, Range 1(1), Mumbai 21.12.2011 143(3) 2009-10 Assessee 15. 2326/Mum/2017 CIT(A)-2/IT-131/2011- 06.12.2016 Addl. CIT, Range 1(1), Mumbai 21.12.2011 143(3) 2009-10 Revenue 16. 5885/Mum/2017 CIT(A)-2/IT-91/2012-13 27.06.2017 DCIT, Range 1(1), Mumbai 22.02.2013 143(3) 2010-11 Assessee 17. 5673/Mum/2017 CIT(A)-2/IT-91/2012-13 27.06. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re, Delhi 28.09.2021 143(3) r.w.s. 144B 2018-19 Assessee 34 2047/Mum/2023 ITBA/NFAC/S/250/2022-23/1051778098((1) 31.03.2023 National Faceless Assessment Centre, Delhi 28.09.2021 143(3) r.w.s. 144B 2018-19 Revenue 35 1893/Mum/2023 ITBA/NFAC/S/250/2022-23/1051780215(1) 31.03.2023 National Faceless Assessment Centre, Delhi 28.09.2021 143(3) r.w.s. 144B 2019-20 Assessee 36 2048/Mum/2023 ITBA/NFAC/S/250/2022-23/1051780215((1) 31.03.2023 National Faceless Assessment Centre, Delhi 28.09.2021 143(3) r.w.s. 144B 2019-20 Revenue 37 3717/Mum/2023 ITBA/NFAC/S/250/2023-24/1055381637(1) 24.08.2023 Assessment Unit 28.09.2022 143(3) r.w.s. 144B 2020-21 Assessee 38 2597/Mum/2024 ITBA/NFAC/S/250/2023-24/1055381637(1) 24.08.2023 Assessment Unit 28.09.2022 143(3) r.w.s. 144B 2020-21 Revenue Assessee [Appeals against Penalty Order passed u/s. 271(1)(c)] 39 4313/Mum/2010 CIT(A)-I/IT-378/2009-10 09.03.2010 DCIT, Range 1(1), Mumbai 30.03.2009 271(1)(c) 2002-03 40 4314/Mum/2010 CIT(A)-I/IT-374/2009-10 09.03.2010 DCIT, Range 1(1), Mumbai 30.03.2009 271(1)(c) 2003-04 41 2866/M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c and also secures loans from various international agencies. 2.3. Facts and submission for each issue is taken from the first year in which the respective issue arose for the sake of brevity and avoiding duplicity. Our observations and findings on each of the issue arrived at for the first year shall apply mutatis mutandis in respect of other years wherever applicable except when there is variation on fact or applicable law, for which specific observation and finding is given for that specific year. For this, tabulation is done on each of the issue, spread over their respective assessment years, where the grounds have been raised on that issue and presented while dealing with each of the said issue. 2.4. We have heard both the parties at length with hearings spread over several days and perused the material placed on record including tabulated details, synopsis, detailed written submissions, judicial precedents and paper books. We place on record our appreciation, both for the ld. Counsels for the assessee and the ld. CIT DR for their effective representations in assisting the Bench to take up this voluminous bunch of 42 appeals spread over 19 assessment years involving multiple ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vidend distribution tax (DDT). XVII. Transfer pricing adjustment in respect of specified domestic transactions (SDT) covered by section 40A(2)(b). XVIII. Disallowance of year-end provisions. XIX. Increasing the book profit computed u/s. 115JB by the amount disallowed as year-end provisions. XX. Deduction in respect of expenditure incurred on Employee Stock Option Scheme ('ESOS'). XXI. Deduction of provision for bad and doubtful debts u/s. 36(1)(viia) of the Act. XXII. Deduction of bad debts u/s. 36(1)(vii) of the Act. XXIII. Addition of interest income on income-tax refund. XXIV. Dropping penalty proceeding initiated u/s. 270A of the Act. XXV. Penalty imposed u/s. 271(1)(c) on disallowance on deduction u/s. 36(1)(viii) 3. Relevant grounds for each of the assessment years, both in the case of appeals by assessee and by Revenue for each of the issue is tabulated while dealing with that issue (including additional grounds, if any). We will deal with these above listed issues seriatim which will cover the grounds raised by both, the assessee and the Department in their respective appeals (including additional grounds, if any) for covering relevant assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eturn filed for Assessment Year 2002-03 on 30.10.2002 reporting total income at Rs. 280,52,78,320/-, assessee determined income from housing finance at Rs. 401,20,50,141/- by claiming deduction u/s. 36(1)(viii) @ 40% of the said amount at Rs. 160,48,20,056/-. For the two streams of income mentioned at Sr. No.4(a)(i) and (ii) i.e., profits derived from housing loans for a period less than 5 years and profits derived from loans given for non-residential purposes, deduction was not claimed in the computation of total income but was made by way of a separate note below the computation of total income. In the said note, it was stated that profits derived from the 'business of long-term finance' includes income earned on housing loans for residential purposes for a period of less than 5 years which amounts to Rs. 33,92,56,891/- and for non-residential housing loans amounting to Rs. 165,07,33,573/- and fee income amounting to Rs. 13,37,12,633/-. Business of assessee is predominantly that of providing long term finance for residential purpose. In the course of carrying on such business, assessee also gives finance for a period of less than 5 years as well as for non-residential housing. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rency borrowings ought to be allocated between income eligible for claiming deduction u/s. 36(1)(viii) and income not so eligible. For other expenses also, he submitted that these should be allocated in the same ratio as finally determined after giving effect to the findings of the Tribunal with respect to characterization of income from eligible business and those from ineligible business. On this also, he referred to the findings given by the Co-ordinate Bench in assessee's own case for Assessment Year 1998-99 and 1999-2000 (supra), wherein direction had been given to the ld. Assessing Officer to re-compute the profits eligible for deduction u/s. 36(1)(viii) and thereafter allocation be done. 5.4. In the aforesaid two orders of the Co-ordinate Bench for Assessment Year 1998-99 and 1999-2000, it was observed and held that section 36(1)(viii) grants deduction in respect of profits derived from "business of providing long term finance". The word "business of" is of wider import, which cannot be restricted to profits from each transaction of lending long term housing finance. Granting loans for a period less than five years and otherwise cannot be regarded as two different businesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d as forming part of income derived from business of providing long term housing finance eligible for deduction u/s. 36(1)(viii). The said claim is restricted by the assessee to income from current investments and is not claimed in respect of income from securities/debentures held as permanent investment. 5.6. For the issue at Sr. no.4(b) towards allocation of entire interest cost on foreign currency borrowing and provisions for contingencies, the Co-ordinate Bench had given the direction to make the allocation towards the income which would be eligible and ineligible in the ratio as finally determined after giving effect to the findings arrived by it with respect to characterisation of income from eligible and ineligible business. Similar direction was given for allocation of administrative expenses against the ad-hoc ratio of 80:20 applied by the ld. Assessing Officer. 5.7. In the above paragraphs, the observations and findings of the Coordinate Bench in assessee's own case for Assessment Year 1998-99 and 1999-2000 (supra) have been recapitulated which applies to the present set of facts in the appeals before us on the issues listed at Sr.No.4(a) and 4(b). From the perusal of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Year 2008-09, ld. Assessing Officer denied the claim of the assessee inter alia holding that assessee has only one reportable segment of housing finance business. Thus, the special reserve created and maintained by it u/s. 36(1)(viii) is only in respect of business of providing long term finance for development of housing in India. According to him, assessee is not engaged in providing long term finance for infrastructure facility in India and therefore loan given to NTPC Ltd. does not qualify as a loan given for development of infrastructure facility, thereby disallowing the claim. 6.2. In this respect, assessee contended that it has fulfilled the requirement of creation of special reserve with respect to profits derived from long term finance for development of housing as well as development of infrastructure facility in India. In aggregation, deduction claimed is restricted to special reserve so created in the year. According to the assessee, it qualifies as a "specified entity" for the purpose of clause (a) of Explanation to section 36(1)(viii), falling within sub-clause (vi) as "any other financial corporation including a public company". It also submitted that NTPC Ltd., was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngly, we allow the claim of the assessee on this aspect for Assessment Year 2008-09 in order to rectify an inadvertent conclusion drawn of disallowing the claim, though referring to the reasoning of the predecessor as the basis. In respect of claim for Assessment Year 2009-10 to 2014-15 for which Revenue is in appeal, the same stands dismissed in view of our finding given hereinabove for Assessment Year 2008-09. Further, this issue has been raised by the Revenue in its appeals for Assessment Year 2015-16 and Assessment Year 2018-19 to 2020-21 though this issue is not involved in the impugned assessment orders or first appellate orders for the said Assessment Years. Having perused the orders in this respect for the said Assessment Years, the grounds so raised by the Revenue in its appeal for Assessment Year 2015-16 and 2018-19 to 2020-21 are dismissed as not arising in the present appeals. 7. With respect to the issue as referred to in paragraph 4(d) hereinabove, being grant of deduction u/s. 36(1)(viii) of the Act in respect of interest arising from securitization of debt or such income earned by virtue of holding of PTCs of Securitization Trusts, the assessment years including th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome from business from long term finance and claimed deduction u/s. 36(1)(viii). Assessee has securitised long term housing loans from its pool of retail housing loans which constitute its receivables and a portion of loan portfolio securitised is retained were from interest is earned. In consideration of such securitisation, assessee received discounted value of the future receivables together with interest. The surplus received by it over the principal amount of the loan represented net present value of interest on the housing loans so securitised. Assessee claimed deduction in respect of such surplus. It is claimed that share of assessee in the loan portfolio is represented by PTC which has the loans as underlying asset. Similarly, assessee has also invested in loans originating from other housing finance companies yielding income, categorised 'Income from securitised debt". It is claimed that these assets have residential loans as underlying assets and therefore the same has been considered for arriving at qualifying amount for deduction u/s. 36(1)(viii). 7.4. Ld. Assessing Officer in this respect held that such income does not have immediate nexus with the business of long- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 20-21 1.1 & 1.2 - 8.1. Appeals before us, both by the assessee and Revenue on the issue of disallowance u/s. 14A covers the entire range of 19 Assessment Years from 2002-03 to 2020-21. To delve on the issue, we will take up the entire range of Assessment Years in two parts, viz., first from Assessment Year 2002-03 to 2007-08 which relates to period prior to introduction of Rule 8D of Income-Tax Rules, 1962 (the Rules) and second from Assessment Year 2008-09 to 2020-21 which is post introduction of Rule 8D. 8.2. We first take up appeals relating to period prior to introduction of Rule 8D of the Rules, i.e. Assessment Year 2002-03 to 2007-08. During AY 2002-03 assessee earned income by way of dividend from companies and units of mutual funds which during the year under consideration was exempt u/s. 10(33) and interest on tax free bonds which was exempt u/s. 10(15)/10(23G) of the Act. Details relating to investments which yielded such exempt income and the interest free funds available with the assessee by way of Share capital and Reserves and surplus is tabulated below: Assessment year Investments yielding tax free income (Rs. in crores) Owned funds available being share capit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt of total interest expenditure allocated from the two said sources exceeding the total interest. Ld. CIT(A) in his appellate order for Assessment Year 2002-03 has taken note of this contradiction in para 4.2 and para 4.4. Further, while deciding the first appeal for Assessment Year 1999-2000, ld. CIT(A) has held that once the Assessing Officer himself admitted the fact of not allocating any interest cost to earn exempt income, then there is no justification for making disallowance u/s. 14A towards interest cost. 8.5. In the given set of undisputed and verifiable facts, whereby owned funds i.e., share capital and reserves and surplus available with the assessee far exceeded the amounts invested in securities yielding tax free income and in view of the decision of Co-ordinate Bench in assessee's own case for Assessment Year 1998-99 and 1999-2000, no interest cost needs to be disallowed against the exempt income. 8.6. With respect to disallowance of other expenses/administrative expenses, ld. Assessing Officer worked out pro-rata allocation of such expenses of Rs. 3,69,73,987/-, relating to exempt income which the ld. CIT(A) confirmed. It is important to note that no suo moto dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessing Officer only if, he is not satisfied with the method adopted by the assessee. In order to justify the said suo moto disallowance computed by the assessee, it gave the following explanations, which is extracted below as reproduced in the impugned assessment order from page 40 onwards: I.12. The Corporation has incurred an interest expense of Rs 5,142.87 crore during the captioned AY. It may be noted that out of the said expenditure, Rs 4,137.74 crore was incurred towards foreign and domestic borrowings. These borrowing have been made for the purpose of housing finance exclusively. The same is evident from the fact that in past assessment orders the AO has specifically stated that the domestic and foreign borrowing have been made for the purpose of housing finance. In view of the fact that the borrowing have been specifically made for the purpose of housing finance, and the interest on such borrowing have been allocated to housing finance for the purpose of computing deduction under section 36(1)(viii), it can be said that the same should be excluded while computing disallowance under section 144 of the Act. Accordingly, the Corporation has excluded interest amounting to Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orporation has worked out a ratio and Interest calculation as under: Rs in Crore Nature of Deposits 2007-08 2006-07 Average Ratio Interest Interest after SLR Exempt from maintaining SLR 4,032.85 3,770.88 3,901.87 36.05% 362.34 362.34 Not exempt from maintaining SLR 7,245.38 6,598.15 6,921.77 63.95% 642.79 562.44 11,278.23 10,369.03 10,823.63 1,005.13 924.78 I.17. On perusal of the aforesaid table it is observed that the interest expenditure to be taken into consideration for computing disallowance under section 144 is Rs 924.78 crore. I.18. We would now like to proceed with the calculation of investments yielding tax free income. It may be noted that the average investments yielding tax free income for the captioned AY amounts to Rs 3,095.11 crore. However, the said amount includes average investment amounting to Rs 1,189.79 crore made in subsidiaries. It may be noted that the intention to invest in subsidiaries is to have control on it, rather than earning dividend income from it. Accordingly, the same has been excluded from the average investments yielding tax free income for the purpose of computing disallowance under sectionn14A read with rule 8D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ars Rs in crore a) The amount of expenditure directly related to exempted income Nil b) Interest expenditure which is not directly related to exempted income (Interest expenditure Average value of investments yielding tax free income/Average value of total assets)= 5,142.88 * 3,095.11/74,995.92) 212.24 c) Amount equal to 0.5% of avg value of investments (opening value of investment + Closing value of investment)/2 = 0.5% * (4,057.46+2,132.75)/2 15.48 Total 227.72 1.25 On perusal of the above table it is observed that if Rule 8D is applied then on claiming an exemption of Rs 72.39crore in respect of dividend and interest on tax free bonds, the Corporation would have to bear a total disallowance of Rs 227.72 crores by way of 14A disallowance. Thus, the Corporation is infact losing by claiming exemption. If the Corporation had not claimed exemption then there would not be any disallowance as per section 144. It may be noted that the intent of the law is never to give exemption so that the assessee loses more than what he has gained by claiming exemption. Accordingly, it is submitted that the Corporation should not be put in a condition worse than it was had it not clai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not or shall not form part of total income have to be considered within the meaning of clauses (i) and (iil) of rule 8D(2). Therefore, the assessee's argument that it is suffering disallowance higher than the exempt income is not acceptable as there would be certain years where the disallowance of expenses would be much lower than the exempt dividends/Income. d) The assessee co. has not proved any nexus between investment in shares and its own funds. Therefore, it can be reasonably inferred that investment in shares has been made both out of its own funds and its borrowed funds. e) The Hon'ble Bombay High Court in the case of Godrej & Boyce Mfg. Co. Ltd. vs. DCIT, Range10(2), Mumbai (234CTR1) has held that dividend Income and income from mutual funds falling within the ambit of Section10(33) of the Income Tax Act 1961, as was applicable for Assessment Year 2002-03 is not includible in computing the total income of the assessee. Consequently, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to such income which does not form part of the total income under the Act, by virtue of the provisions of Section 14A(1); f) It has als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of dividend yielding Investments to the total assets would be much lower than the total interest as computed later. j) The assessee's contention that Investments in subsidiaries or other Investments should not be considered for specific reasons is not correct as under Rule 8D all investments yielding/likely to yield exempt dividends have to be considered. The assessee's stand in applying percentage lower than than 0.5% prescribed under Rule SD(2)(1) is not correct as the rule does not specify any exceptions where a lower percentage can be adopted. k) The assessee's working of interest to be allocated in relation to the Income not forming part of the total income based only on interest payable on public deposits and that too after excluding a hypothetical part attributable to SLR Is not correct as the entire interest is not attributable to any particular source of income and in such cases the entire interest has to be considered for the purpose of allocation as per Rule SD(2)(ii). In any case rule SD does not envisage disallowance of entire interest claim but only a reasonable part attributable to the investments is not admissible, I am therefore, not satisfied wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a 7 by placing reliance on its another decision in the case of PCIT vs. JSW Energy Ltd. [2023] 153 taxmann.com 208 (Bom) that "The most fundamental requirement is the Assessing Officer should record his dissatisfaction with the correctness of the claim of the assessee in respect of the expenditure and to arrive at such dissatisfaction, he should give cogent reasons." In para 11, it was observed that "The Assessing Officer has not expressed his satisfaction in the way it should have been. The Assessing Officer does not say he is not satisfied and why he is not satisfied. There are no reasons given." Ld. Counsel thus, pointed out that Hon'ble Court dismissed the appeal of the Revenue by holding that no substantial question of law arises and gave a finding that "Though the Assessing Officer has stated that assessee's explanation is not acceptable, he has not given reasons why it was not acceptable to him…..The most fundamental requirement, therefore, is the Assessing Officer should record his dissatisfaction with the correctness of the claim of assessee in respect of the expenditure and to arrive at such dissatisfaction, he should give cogent reasons." 10. We first take up ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar 2011-12. The factual position with respect to exempt income and disallowance u/s. 14A for this year is tabulated as under for ease of reference. Exempt income earned during the year Disallowance made by the AO u/s 14A Dividend 225,39,21,967 Rule 8D(2)(i) 313,59,07,682 Capital gains 55,46,81,454 Rule 8D(2)(ii) 517,18,20,270 Rule 8D(2)(iii) 43,92,65,575 TOTAL 280,86,03,421 TOTAL 874,69,93,527 (refer paragraph 4.1 on page 22 of the Assessment Order for AY 2011-12) (refer page 46 of the Assessment Order for AY 2011-12) Disallowance only considering Rule 8D(2)(i) and 8D(2)(iii) Rule 8D(2)(i) 313,59,07,682 Rule 8D(2)(iii) 43,92,65,575 TOTAL 280,86,03,421 TOTAL 357,51,73,257 10.3. On the aspect of disallowance of administrative expenses, ld. Assessing Officer has invoked provisions of Rule 8D(2)(iii). He observed that stand of assessee in applying percentage lower than 0.50% prescribed under Rule 8D(2)(iii) is not correct as the Rule does not specify any exception whereby a lower percentage can be adopted. Assessee, while computing suo moto disallowance has considered 0.40% of average value of investments, yielding tax-free income. According to the assessee, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f his order. Therein, he has given (11 reasons running from paragraph (a) to (k). In paragraph (a), reference has been made to framing of Rule 8D in accordance with the provisions of sub-sections (2) and (3) of section 14A. In paragraph (b), sub-sections (2) & (3) of section 14A have been referred to as procedural provision. The assertions in paragraphs (a) and (b) hereinabove, have no relevance. In paragraph (c), reference has been made to decision of the Special Bench of the Tribunal in the case of Daga Capital Management Pvt. Ltd. and Ors. (2009) 117 ITD 169 (Mumbai SB) for the proposition that disallowance as per Rule 8D should be made in respect of the entire investments and cannot be restricted to only those investments which have yielded exempt income during the year. It is submitted that the said decision does not lay down this proposition. The question before the Special Bench was "Whether the provisions of section 14A of the Act are applicable with respect to dividend income earned by the Assessee engaged in the business of dealing in shares and securities, on the shares held as stock-in-trade and when earning of such dividend income is, therefore, incidental to trad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ken into account for the purposes of application of Rule 8D which has no relevance to the issue under consideration. With respect to allocation of administrative expenditure, in paragraph (j), which is the only place where there is any reference to the allocation of administrative expenditure, it is observed that "the Assessee's stand in applying percentage lower than 0.5% prescribed under Rule 8D(2) (iii) is not correct as the rule does not specify any exception where a lower percentage can be adopted". This observation overlooks that the primary responsibility for making the disallowance u/s. 14A is on the Assessee. In a case where the Assessee has suo moto made a disallowance, the AO can invoke the provisions of Rule 8D for the purposes of computation of such disallowance only when there is recording of an objective dis-satisfaction to such suo moto disallowance by him. Lastly, in paragraph (k), reference has again made to working of interest disallowance which again has no relevance to the present discussion. The CIT(A) in paragraph 5.3 at pages 10 and 11 of his appellate order, has simplicitor observed that such dis-satisfaction as recorded by AO meets with the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , grounds raised by both assessee and revenue are partly allowed. 10.7. The above finding arrived at by us is fortified by the decision of Hon'ble Supreme Court in the case of Maxopp Investment Ltd. vs. CIT(A) [2018] 402 ITR 640 (SC) while emphasising on aspect of recording of satisfaction by the ld. Assessing Officer for which it observed as under: "41. Having regard to the language of section 14A(2) of the Act, read with rule 8D of the Rules, we also make it clear that before applying the theory of apportionment, the Assessing Officer needs to record satisfaction that having regard to the kind of the assessee, suo moto disallowance under section 14A was not correct. It will be in those cases where the assessee in his return has himself apportioned but the Assessing Officer was not accepting the said apportionment. In that eventuality, it will have to record its satisfaction to this effect. Further, while recording such a satisfaction, the nature of the loan taken by the assessee for purchasing the shares/ making the investment in shares is to be examined by the Assessing Officer [emphasis supplied by us by underline] 10.7.1. Further, Hon'ble Supreme Court in Go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing Officer has to record his non satisfaction with the suo moto disallowance of expenditure made towards earning exempt income by the respondent. This exercise not having been carried out by the Assessing Officer before applying Rule 8D of the Income Tax Rules, the disallowance of expenditure to earn exempt income cannot be sustained. (d) This issue is no longer res integra as the Apex Court in Godrej & Boyce Mfg. Co. Ltd. v. Dy. CIT, 394 ITR 449 decided the issue in favour of the respondent. In the above case, the Supreme Court has while considering the issue of disallowing of expenditure incurred to earn exempt income observed as under "Whether such determination is to be made on application of the formula prescribed under rule 8D or in best judgment of the Assessing Officer, what the law postulates is the requirement of a satisfaction in Assessing Officer that having regard to the accounts of the assessee, as placed before him, it is not possible to generate the requisite satisfaction with regard to the correctness of the claim of the assessee. It only thereafter that the provisions of section 14A (2) and (3) read with rule 8D of the Rules or a best judgment determination, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hora of decisions that disallowance made u/s. 14A r.w.r.8D under the normal provisions of the Act cannot be read into the provisions of Section 115JB for computing book profit since there is no express provision in clause (f) of Explanation 1 to Section 115JB to this effect. Few of the decisions on the stated issue relied upon are as under: i. CIT vs. Gokaldas Images (P.) Ltd [2020] 122 taxmann.com 160 (Kar) ii. CIT vs. Alembic Ltd. [Tax Appeal No. 1249 (Guj.) of 2014, dated 20.07.2016] iii. CIT vs. Bengal Finance & Investment (P.) Ltd. [Tax Appeal No. 337 (Bom.) of 2013, dated 10.02.2015] iv. ACIT vs. Vireet Investments (P.) Ltd [2017] 82 taxmann.com 415 (Delhi Trib.) (SB) v. 360 One WAM Ltd. vs. ACIT [ITA No. 574/Mum/2024 and Ors. dated 09.08.2024] 11.2. Considering the facts on record, relevant provisions of the Act and the judicial precedents, we do not find any infirmity in the findings of ld. CIT(A) and thus dismiss the grounds raised by the Revenue on this issue. IV. Discount on grant of stock options to employees. 12. This issue arises in the following appeals: Assessment year Ground No. in Assessee's appeal Ground No. in Revenue's appeal 2002-03 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has always been included under the head 'income from other sources' u/s. 56(2) of the Act. Accordingly, the net dividend income as contemplated u/s. 80M has to be computed by allowing deduction in respect of expenditure as permissible u/s. 57(iii). This is further supported by provisions of section 80AB which provides that deductions to be made are with reference to the nature of income included in the gross total income, in accordance with the provisions of the Act. Thus, for computing the amount of net dividend income eligible for deduction u/s. 80M, gross dividend is to be reduced by any expenditure laid out or expended wholly and exclusively for the purpose of making or earning such income, not being in the nature of capital expenditure as provided in section 57(iii). 13.3. Ld. Assessing Officer by relying on section 80AB of the Act and judgment of Distributors (Baroda) Pvt. Ltd. (supra) and on the basis of pro-rata allocation of administrative expenses made in the course of impugned assessment while computing profits eligible for deduction u/s. 36(1)(viii) of the Act, allocated a sum of Rs. 7,15,62,874/- as administrative expenditure incurred for earning dividend income. Apar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... making or earning the said dividend income, thereby referring to actual expenditure. Further, from reading of section 80AB, we note that it is not open for the Assessing Officer to deduct expenditure attributable to income under one head from the income under another head. Before us, nothing has been brought on record by the Revenue to demonstrate identifiable expenditure actually incurred for the purpose of making or earning the said dividend income. Accordingly, keeping the aforesaid provisions of the Act in juxtaposition, authorities below are not justified in reducing the qualifying amount of income eligible u/s. 80M by making pro-rata allocation towards administrative expenditure. Thus, grounds taken by the Revenue are dismissed and those by the assessee are allowed. 13.6. Our findings are fortified by the following decisions: i) CIT vs. Mahendra Sobhagchand Shah, 203 ITR 178 (Bom) ii) CIT vs. United Colleries Ltd., [1993] 203 ITR 857 (Cal) iii) CIT vs. Modern Terry Towels Ltd., 357 ITR 750 (Bom) VI. Deduction of income by the amount credited to lease equalization account. 14. This issue arises in the following appeals: Assessment year Ground No. in Assessee's a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the balance sheet for the year under consideration. According to him, Section 36(1)(viii) speaks only of special reserve created under that section without making any distinction between reserve created before the amendment introduced by the Finance Act, 1997, in the said section effective from 01.04.1998 and reserve created post amendment. By referring to section 41(4A) according to which, withdrawal from the special reserve created and maintained by the assessee is chargeable to tax as income of the previous year in which such amount is withdrawn, sum of Rs. 50 Crores was added to the total income of the assessee. 15.2. It is noted that an amendment was brought into section 36(1)(viii) w.e.f. 01.04.1998 whereby assessee alongwith creation of reserve was also required to maintain the said reserve. A corresponding amendment was also brought to section 41(4A) which reads as under: "41(4A). where a deduction has been allowed in respect of any special reserve created and maintained under clause (viii) of sub-section (1) of Section 36, any amount subsequently withdrawn from such special reserve shall be deemed to be the profits and gains of business of profession and accordingly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se facts and judicial precedent, we do not find an infirmity in the conclusion drawn by the ld. CIT(A) granting relief to the assessee. Hon'ble Jurisdictional High Court of Bombay in the case of CIT vs. LIC Housing Finance Ltd. [2014] 52 taxmann.com 164 (Bom) while dealing on similar issue noted its concurrence on the view expressed by the Hon'ble Kerala High Court (supra) and which was quoted with approval by Hon'ble Delhi High Court in the case of CIT vs. IFCI Ltd. [2011] 12 taxmann.com 268 (Del). Accordingly, ground raised by the Revenue is dismissed. VIII. Disallowance of entrance fees and subscription paid to clubs. 16. This issue arises in the following appeals: Assessment year Ground No. in Assessee's appeal Ground No. in Revenue's appeal 2004-05 - 3 2005-06 - 2 2006-07 - 1 2007-08 - 2 2009-10 - 5 2010-11 - 5 2011-12 - 7 2012-13 - 7 2013-14 - 7 2014-15 - 9 & 10 2015-16 - 9 & 10 2016-17 - 4 2017-18 - 2 2018-19 - 4 2019-20 - 4 2020-21 - 4 & 5 16.1. Assessee has claimed deduction u/s. 37(1) towards club entrance fees and subscription to enable the benefit of such facility to its employees. According to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urts in respect of members of Clubs is based upon correct enunciations of the principles of law as delineated above in the judgments of the Supreme Court." [emphasis supplied by us by underline] 16.2. In the given set of facts and respectfully following the decisions of Hon'ble High Courts (supra), we do not find any infirmity in the findings arrived at by ld. CIT(A). Claim made by the assessee is thus, allowed. Grounds raised by the Revenue in this respect are dismissed. IX. Exemption under section 54EC in respect of capital gains arising on depreciable assets. 17. This issue arises in the following appeals: Assessment year Ground No. in Assessee's appeal Ground No. in Revenue's appeal 2006-07 - 2 17.1. Assessee had claimed deduction of Rs. 54,49,21,366/- u/s. 54EC in respect of short-term capital gains arrived at u/s. 50 of the Act on transfer of depreciable capital asset which was held for a period of more than 36 months. After calling for justification from the assessee, ld. Assessing Officer held that deduction u/s. 54EC is available where capital gain arises on transfer of long-term capital asset. According to him in the present case, capital gain agai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concluded in the said decision is that assessee is entitled to exemption u/s. 54E in respect of capital gains arising on transfer of a capital asset on which depreciation has been allowed. It may be noted that deduction u/s. 54E is pari-materia to the one u/s. 54EC, both requiring the assessee to make investment in specified asset/certain bonds within a period of six months after the date of transfer of the asset on which capital gain arises. In the present case, it is a claim made by assessee u/s. 54EC and thus, the aforesaid decision of the Hon'ble Supreme Court covers the case of the assessee in its favour. Respectfully following the same, ground raised by the Revenue is dismissed. X. Disallowance of FCCB issue expenses. 18. This issue arises in the following appeals: Assessment year Ground No. in Assessee's appeal Ground No. in Revenue's appeal 2007-08 3 - 18.1. During the relevant year, assessee had incurred expenses of Rs. 8,66,200/- in connection with issue of Foreign Currency Convertible Bonds (FCCB) for which deduction was claimed as revenue expenditure. However, ld. Assessing Officer held that FCCBs are convertible into shares and therefore, the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (2,00,000) Total gain (STT not paid) 42,83,57,354 D. Equity shares (loss) (STT paid) 11.22% (21,44,94,984) Short term Capital Gain (STT not paid) 33.66% 21,38,62,370 E. Equity shares (STT paid) 11.22% 5,43,17,485 F. Mutual funds (STT paid) 11.22% 1,10,10,067 Short term Capital Gain (STT paid) 11.22% 6,53,27,552 19.2. From the above table, it is noted that there are certain gains which have been subjected to securities transaction tax (STT) and there are others, which are not. Those gains in respect of which STT has been paid are liable to be taxed at the rate of 11.22% u/s. 111A of the Act whereas other gains which are not subjected to STT are taxed at regular rate of 33.66%. The bone of contention between the assessee and revenue is in respect of setting off STT paid short term capital loss against non STT paid short term capital gains, since this non STT-paid gain is subjected to tax at a higher rate of 33.66%. According to the ld. Assessing Officer and as confirmed by ld. CIT(A), only the balance loss of STT paid short term capital loss could be set off against the non STT paid short term capital gain. Ld. Assessing Officer has first adjusted capital loss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any improvement, if any. Computation of capital is thus, governed by section 48. As against this, rates of tax for charging the capital gain so computed is governed by section 111A falling in Chapter XII, which provides for determination of tax in certain special cases. The said chapter provides for a particular rate of tax to be applied on the incomes covered under the specific sections, individually. 19.6. In the given case before us, computation of short-term capital gain/loss whether subject to STT or not, is to be done as prescribed in section 48 which deals with "mode of computation" of income under the head 'capital gains'. Once the capital gain is computed u/s. 48, it is then subjected to specific rate of tax as individually applicable to each of the section in which such income shall fall under chapter XII. From the plain reading of section of 111A, we note that it only provides for rate of tax payable by the assessee and does not deal with computation of the said income. 19.7. Considering the discussion above, we are of the view that assessee has the choice about setting off of short-term capital loss from one set of transaction against any other short-term capital gai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al gains/loss'-on sale of shares (without STT) (Rs.) Amount paid under 'Long term capital gains'- on sale of shares (without STT) (Rs.) Amount paid as dividend (Rs.) Other income such as interest etc. paid (Rs.) Nil 13,544,411 0 0 20.3. Based on the above, assessee had reported the said amount as long-term capital gains in its return of income. 20.4. It is submitted that assessee had inter-alia invested in Venture Capital Fund being 'India Value Fund-Scheme-A'. As per sub-section (1) of section 115U of the Act, any income accruing or arising to or received by a person out of investment made inter-alia in a venture capital fund shall be chargeable to income-tax in the same manner as if it were the income accruing or arising to or received by such person, had he made investment directly in the venture capital undertaking. Therefore, pass through status is available to the income which should be taxed in the hands of the Investor and not the Venture Capital Fund. In this regard, sub-section (2) thereof mandates that the person responsible for crediting or making payment on behalf of the venture capital fund shall furnish to the person who is liable to tax in respe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rucial stage, inasmuch as, in the income tax return filed by the assessee, it chose to claim the entire expenditure in the year in which it was spent/paid by invoking the provisions of Section 36(1)(iii) of the Act. Once a return in that manner was filed, the AO was bound to carry out the assessment by applying the provisions of that Act and not to go beyond the said return. There is no estoppel against the Statute and the Act enables and entitles the assessee to claim the entire expenditure in the manner it is claimed." [emphasis supplied by us by underline] 20.7. Considering these facts and the judicial precedent, we delete the addition of Rs. 20,67,561/- made by the ld. Assessing Officer on this account. Ground raised by the assessee is allowed. XIII. Addition on account of receipts as per the ITS details not found recorded in the books of account of assessee. 21. This issue arises in the following appeals: Assessment year Ground No. in Assessee's appeal Ground No. in Revenue's appeal 2008-09 6 - 2010-11 - 6 21.1. Ld. Assessing Officer took note of various transactions for the relevant year as available on Income-tax Department system data base collected fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Branches located all over India during the year ended on 31 March 2008. The Accounts Department seeks information from all its departments to provide information for work assigned and carried out for which bills are yet to be received, so that their liability can be provided in accounts for the purposes of Closing of Accounts. It needs no elaboration that companies are required to follow Mercantile/Accrual method of Accounting. HDFC took up the process of valuation during the year ended on 31st March, 2008, but had not submitted its report and bills etc. The estate department had sent an estimated liability of Rs. 39 lakhs on an approximate value of the lands & buildings held by the company, for the work assigned during the year ended on 31st March, 2008. Accordingly, the liability of Rs. 39 lakhs was provided in its accounts for the year ended on 31st March, 2008 on your account. You are already aware that TDS has to be deducted and deposited at the time of credit or payment whenever is earlier. HDFC had submitted partial bills in August/September 2008 aggregating to Rs. 9,43,386 for such valuation. These were paid by RTGS Dated 11.09.2008 for Rs. 836500/- then. However, the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The same is deleted. Ground taken by the assessee is allowed and that by the Revenue is dismissed. XIV. Capital gains in respect of sale of property. 22. This issue is raised vide ground of appeal no. 3 by the assessee in appeal for AY 2010-11. 22.1. Brief facts relating to this issue are as below: a. Assessee acquired Tower-XIV consisting of ground plus 4 upper floors admeasuring 1,44,637.48 sq. ft. and terrace admeasuring 20,369.47 sq. ft. (aggregating to 1,65,006.95 sq. ft.) at Magarpatta City, Hadapsar, Pune vide Articles of Agreement dated 28.12.2005. At that time, the consideration paid for acquiring the property was Rs. 30,00,00,000/- @ Rs. 1,863 per sq. ft. b. Assessee granted a lease of the aforesaid premises by a deed of lease dated 04.09.2006 to John Deere India Pvt. Ltd. (JDIPL) with effective date of 09.12.2005. Lease term was fixed at an initial period of four and half years with the sole option of the lessee to renew the lease for further additional period/terms of three years each. Clause 15 of the said lease deed gave an option to the lessee to purchase the property as a whole at any time during the period of lease. At the time of commencement of lease, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sferred the said property to John Deere India Pvt. Ltd. (JDIPL) for a consideration of Rs. 47,14,67,550/-. e. The aforesaid sale consideration was worked out at Rs. 46,45,96,868/- (being Rs. 2815.62 x 1,65,006.96 sq. ft.). In addition to this amount, assessee was reimbursed an amount of Rs. 68,70,679/- which it had paid towards customs duty in respect of capital goods forming part of the assets installed at the said property. Thus, totalling to Rs. 47,14,67,550/- (Rs.46,45,96,868/- + Rs. 68,70,679/-). f. Assessee reported long-term capital gain on this transfer of the said property in its return of income computed as under: Particulars Amount (in Rs. ) Sale price (date of sale - 09.10.2009) 47,14,67,550 Cost price (date of purchase - 28.12.2005) 31,06,70,580 Add: Indexation u/s. 48 of the Act 8,43,87,381 Less: Adjusted cost 39,50,57,961 Long-term capital gain 7,64,09,589 g. In the course of assessment proceedings, assessee obtained a valuation report from a government registered valuer, valuing the said property at Rs. 46,45,96,868/-. The said valuation was derived by the Valuer based on clause 15 of the Lease Deed, as extracted above, where assessee granted an op ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has to be made between the value adopted or assessed by the stamp valuation authority and 110% of the consideration received or accruing as per sub-section (2) of the said section. However, once the matter is referred to ld. DVO and valuation is arrived at, the value as determined by the ld. DVO would be relevant for the purposes of the said section. Accordingly, consideration as received by assessee falls within the range as permitted by the third proviso to section 50C. Consideration of Rs. 47,14,67,550/- as received by it is deemed to be the full value of consideration. Long term capital gain computed by the assessee, as tabulated above, is thus, accepted and ground raised by the assessee on this issue is allowed. XV. Additional claim of the Assessee with regard to inadvertent suo moto disallowance made during the course of the assessment proceedings. 23. This issue arises in the appeal filed by Revenue for Assessment Year 2010-11 vide ground of appeal no. 8. 23.1. In this respect, assessee claims that it made an erroneous disallowance of Rs. 11.75 Crores u/s. 14A of the Act on account of interest expenses on Zero Coupon Bonds raised for its housing finance business. Claim of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... impugned assessment, claim of refund of excess DDT paid by the assessee was ignored against which assessee went in appeal before the ld. CIT(A), who after considering the provisions of the Act, fact of the case and judicial precedent in the case of Torrent India Pvt. Ltd., vs. CIT [2013] 35 taxmann.com 300 (Guj) by Hon'ble Gujarat High Court, directed the ld. Assessing Officer to refund the excess DDT paid by the assessee. Aggrieved, Revenue is in appeal before the Tribunal. 24.3. Revenue in its ground of appeal has referred to section 115-O(4) which does not permit the grant of any excess DDT. Provisions in subsection (4) provides that DDT paid by the company shall be treated as final payment of tax and no further credit thereof shall be claimed by the company or by any other person in respect of the amount of DDT so paid. Here, it is important to note that the amount of DDT paid by the company referred in this sub-section (4) is the amount paid in accordance with provisions contained in sub-section (1) which is subjected to reduction as provided in sub-section (1A). Revenue has misconstrued the provisions of sub-section (4), since assessee has paid DDT in excess of what is c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onnel to the assessee for performing various front-office and back-office activities. Assessee had paid salary cost and management fees to HSPL for the same. A reference was made to ld. Transfer Pricing Officer (TPO) by the ld. Assessing Officer for determination of Arms' Length Price (ALP) for the aforesaid SDTs. Ld. TPO suggested transfer pricing adjustment while determining ALP for the reference made to him. Aggrieved, assessee went in appeal before the ld. CIT(A), who held that the impugned transactions fell within clause (i) of section 92BA which defined SDTs which has been omitted by the Finance Act, 2017 w.e.f. 01.04.2017. On submissions made the assessee, he held that when the said clause stands omitted, the impugned transactions cannot be subjected to transfer pricing adjustment. Thus, the adjustments made by ld. TPO and added by the ld. Assessing Officer were deleted. 25.2. We note that there is no dispute in respect of impugned transactions falling within the definition of SDT under clause (i) of section 92BA, prior to its omission. Since the said provision has been omitted by the Finance Act, 2017, it has to be treated as if it never existed on the statute. This positi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry on the above, against which assessee submitted that provision for expenses amounting to Rs. 1,64,95,500/- was made at the end of the year in respect of expenditure pertaining to previous year ending on 31.03.2014 and accounted for in accordance with accounting policies consistently followed year on year basis. Details of expenses for which provision was made is listed below: Expense Head Amount (Rs.) Office Maintenance 40,85,000 Advertisement Expenses - Others 39,01,000 Loan Processing Expenses - Other Than Manpower Supply 27,52,500 Professional Fees 10,32,000 Business Development Expenses 9,45,000 Printing & Stationery 7,53,000 Loan/Deposit Maintenance Expenses - Post Disbursement 6,04,000 Credit Rating Fees 5,50,000 Postage Expenses 5,19,000 Staff Welfare Expenses 4,28,600 Custody & Depository Charges 3,02,000 Security Charges 1,75,000 Repairs & Maintenance - Others 1,73,000 Sarfaesi Expenses 87,000 External Manpower Supply Expenses - Others 57,200 Repairs & Maintenance - Buildings 57,000 Computer Expenses 37,000 Motor Car Expenses 30,000 General Office Expenses 7,200 Grand Total 1,64,95,500 26.3. Assessee explained that it follows me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e have also deliberated on various case laws cited by Id. Representative of the parties. The AO disallowed the provision of expenses by taking view that the provisions made by assessee are adhoc provisions made at the end of the year. These provisions are contingent in nature and have to be disallowed in computing the income. The Id. CIT(A) granted relief to the assessee by taking view that the assessee is regularly following the practice of making provision for various expenses for the month of March, which is reversed on 1" April of next year and that expenses are considered on the basis of actual payment in the subsequent year. The Id. CIT(A) also concluded that these provision cannot be held to be contingent expenditure as the expenditure have already been incurred and the provision has been made on certain basis for each head of expenses so that the accounts adopted by assessee represent a true and fair affairs of business and is with consistent of accounting standard. The ld. CIT(A) also held that the assessee incurred actual expenses of Rs. 10.46 crore against the provision of Rs. 10.24 crore. The Id. CIT(A) also relied upon the decision of Delhi High Court in Triveni E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... am inclined to agree with the above submission of the appellant in the light of the decision of Mumbai ITAT in the case of Aditya Birla Nuvo Vs. DCIT (ITA No.8427/Mum/2010) dated 17.09.2014. 6.2 In view of above discussion, I find that the addition made by the AO, by treating the provisions of Rs. 10,24,36,819/-, as contingent in nature is not justified and the same is hereby deleted. 8. Before us the ld. DR for the revenue in his submissions vehemently submitted that the projected estimation of the provisions of expenses is projected purely on estimation and that there is mismatch of projected figures of expenses and the actual expenses incurred on various counts, which we have recorded above. Second contention of the Id. DR for the revenue is that no TDS was made on such provisions. The Id. DR for the revenue also relied on the decisions of Ahmedabad Tribunal in Hardik Jigishbhai Desai (supra) and the decision of Cochin Tribunal in Abad Builders (P.) Ltd. (supra). In Hardik Jigishbhai Desai (supra), the assessee debited the provision of commission expenses to the Profit & Loss Account without making TDS. The Assessing Officer disallowed the expenses by taking view that debiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppeals: Assessment year Ground No. in Assessee's appeal Ground No. in Revenue's appeal 2014-15 - Additional ground of appeal raised vide letter dated 22.10.2024 2015-16 - Additional ground of appeal raised vide letter dated 22.10.2024 2016-17 - 6 2017-18 - 4 2018-19 - 6 27.1. Ld. Assessing Officer made an addition of Rs. 1,64,95,500/- towards year-end provisions while computing book profit u/s. 115JB since he held these provisions as contingent in nature and had made the addition to the total income under the normal provisions of the Act. On this in first appeal, ld. CIT(A) had allowed the claim of the assessee by holding that these are ascertained liabilities which are paid on actual basis in subsequent year and therefore no addition is warranted while computing book profit u/s. 115JB. For Assessment Year 2014-15 and 2015-16, Revenue raised this issue by way of filing additional ground which it had inadvertently missed to take up in Form 36. Since nothing new on record is to be furnished on this issue, we admit the additional grounds so raised for adjudication. 27.2. We note clause(c) of explanation 1 to Section 115JB which provides that amount set asid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only when the discount offered is taxable as perquisite in the hands of employees and is subjected to TDS as applicable. He placed reliance on the decision of Co-ordinate Bench in the case of HDFC Bank Ltd. vs. DCIT [2015] 155 ITD 765 (Mum) for allowing the claim of assessee. He also took note of the fact about relief granted by ld. CIT(A) in assessee's own case for Assessment Years 2013-14, 2016-17 to 2020- 21. 28.2. In so far as this claim is concerned, the following would be relevant: i. For Assessment Year 2013-14, this issue is raised by way of filing an additional ground before the Tribunal on 13.09.2024. Additional ground was permitted to be filed by the assessee since claim made in this ground was raised originally in the appeal filed against "order giving effect" assessment made by the ld. Assessing Officer. Revenue is in appeal before the Tribunal against the "order giving effect" assessment in ITA No.4217/Mum/2023 wherein the issue contested is in respect of expenditure incurred on ESOS. The scope of making assessment for giving effect to the appellate order is limited to the findings arrived at in the said appeal. Assessee had, for the first time, raised this claim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of provision for bad and doubtful debts u/s. 36(1)(viia) of the Act. 29. This issue arises in the following appeals: Assessment year Ground No. in Assessee's appeal Ground No. in Revenue's appeal 2018-19 - 2 2019-20 - 2 2020-21 - 2 29.1. In respect of this issue, assessee in its books of account had made a provision for bad and doubtful debts of Rs. 652,35,70,210/- and capped the deduction towards the same to 5% of its total income of Rs. 9659,77,24,048/- i.e. Rs. 482,98,86,202/- u/s. 36(1)(viia)(d) of the Act in its computation of income for Assessment Year 2018-19. Assessee claimed this deduction based on amendment made by Finance Act, 2016, w.e.f. Assessment Year 2017-18 by which a new clause (d) was inserted to section 36(1)(viia) permitting Non-Banking Finance Company (NBFC) to claim such a deduction, assessee being a housing finance company falling within the meaning of NBFC assigned to it in section 45-I(f) of Reserve Bank Act, 1934. Assessee had claimed this deduction in the preceding Assessment Year 2017-18, being the first year of such a claim on account of amendment being effective from Assessment Year 2017-18 which was allowed by the ld. Assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, i. deduction is available to NBFC; ii. deduction is available in respect of provision for bad and doubtful debts; iii. deduction is limited to lower of the following: - actual provision for bad and doubtful debts, or - 5% of total income computed before making any deduction under this clause and Chapter VIA 29.5. For this purpose, NBFC shall have the meaning assigned to it in section 45-1(f) of the Reserve Bank of India Act, 1934 (refer Explanation (vii) to section 36(1)). The said definition reads as follows: "non-banking financial company means- a financial institution which is a company; a non-banking institution which is a company and which has as its principal business the receiving of deposits, under any scheme or arrangement or in any other manner, or lending in any manner, such other non-banking institution or class of such institutions, as the Bank may, with the previous approval of the Central Government and by notification in the Official Gazette, specify." 29.6. Assessee being a Housing Finance Company, is a NBEC which is regulated by National Housing Bank and is exempted from the requirement of registration with RBI. In this regard, RBI ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bove and also on perusal of material on record, we do not find any infirmity in the findings arrived at by ld. CIT(A). Ground raised by Revenue is dismissed. XXII. Deduction of bad debts u/s. 36(1)(vii) of the Act. 30. This issue arises in the following appeals: Assessment year Ground No. in Assessee's appeal Ground No. in Revenue's appeal 2018-19 - 3 2019-20 - 3 2020-21 - 1 30.1. In respect of this issue, assessee in its computation of income for Assessment Year 2018-19 had claimed a deduction of Rs. 56,16,84,279/- u/s. 36(1)(vii), towards bad debts written off which was disallowed by the ld. Assessing Officer by observing that assessee had not provided the ledger accounts creating a disability for him to examine the genuineness of the claim. Ld. Assessing Officer also observed that no clarification was provided on the distinction between the two deductions, i.e., one claimed u/s. 36(1)(viia)(d) and the other claimed u/s. 36(1)(vii). 30.2. Ld. CIT(A) after going through the provisions of the Act relating to this issue and documents provided by the assessee in respect of sample parties, since volume being large with 624 parties/individuals having bad loans, directed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct provides that the assessee, to which section 36(1)(viia) of the Act applies, should debit the amount of bad debt written off to the provision for bad and doubtful debts account made under section 36(1)(viia) of the Act. 30.4. In terms of the above provisions, assessee submitted that provisions of Sections 36(1)(vii) and 36(1)(viia) of the Act are distinct and independent items of deduction and operate in their respective fields. Bad debts written off other than those for which the provision is made under clause (viia), will be covered under the main part of Section 36(1)(vii) (for which provision was created till 31.03.2016), while the proviso to section 36(1)(vii) will operate in cases under clause (viia) so as to limit the deduction to the extent of difference between the debt or part thereof written off in the previous year and credit balance in the provision for bad and doubtful debts account made under clause (viia). 30.5. Accordingly, based on the FIFO method, bad debts of Rs. 56,16,84,279/- written off should be first adjusted against the opening balance of Rs. 2695,34,05,782/- in 'Provision for bad and doubtful debts Account' which was never claimed as a deduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of the debt must be taken into account while computing the income either during the previous year or during the earlier years. 30.8. We have perused the observations and findings of both, ld. CIT(A) and ld. Assessing Officer vis-à-vis submissions made by the assessee, elaborately discussed above. Considering the same, we do not find any reason to interfere with the observations and direction given by ld. CIT(A) to the ld. Jurisdictional Assessing Officer (JAO) for verification as noted by him in para 12.4 of his order, details of which are already discussed above. Accordingly, ground taken by Revenue is dismissed. XXIII. Addition of interest income on income-tax refund. 31. This issue arises in the following appeals: Assessment year Ground No. in Assessee's appeal Ground No. in Revenue's appeal 2004-05 5 - 2005-06 5 - 2007-08 5 - 2008-09 4 - 31.1. On this issue, assessee had received interest of Rs. 3,91,43,395/- u/s. 244A on the refund of income-tax, upon processing of its return u/s. 143(1) for Assessment Year 2003-04 which remained to be offered to tax in its return for Assessment Year 2004-05. Ld. Assessing Officer made the addition for this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to appeal before the Co-ordinate Bench and order had been pronounced on 05.07.2024. In terms of the said order, the "order giving effect" exercise at the end of ld. Assessing Officer is pending and has a direct bearing on the issue relating to addition made on account of interest income on the income-tax refund. Accordingly, ground raised by the assessee to this extent is dismissed as not pressed. XXIV. Dropping penalty proceeding initiated u/s. 270A of the Act. 32. This issue arises in the following appeals: Assessment year Ground No. in Assessee's appeal Ground No. in Revenue's appeal 2018-19 - 9 2019-20 - 6 2020-21 - 7 32.1. Ground raised by Revenue on dropping of penalty proceedings by ld. CIT(A) is pre mature and consequential to the quantum appeal which have already been dealt in this consolidated order. Accordingly, ground raised by Revenue in this respect is dismissed as pre mature and consequential. XXV. Penalty imposed u/s. 271(1)(c) on disallowance on deduction u/s. 36(1)(viii). 33. This issue arises in the following appeals: Assessment year Ground No. in Assessee's appeal Ground No. in Revenue's appeal 2005-06 1(1.1 to 1.15) - 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Supreme Court in the case of Reliance Petroproducts (P) Ltd. (supra), penalty imposed by ld. Assessing Officer u/s. 271(1)(c) on account of furnishing inaccurate particulars of income, is deleted. Grounds raised by the assessee are thus, allowed. 34. In the result, appeals of both, assessee and revenue are decided as per the table below: Sr. No. ITA No. Assessment Year Appeal by Result of the appeal 1. 4315/Mum/2007 2002-03 Assessee Partly allowed 2. 4161/Mum/2007 2002-03 Revenue Partly allowed 3. 4316/Mum/2007 2003-04 Assessee Partly allowed 4. 4162/Mum/2007 2003-04 Revenue Partly allowed 5. 3861/Mum/2009 2004-05 Assessee Partly allowed 6. 3785/Mum/2009 2004-05 Revenue Dismissed 7. 3862/Mum/2009 2005-06 Assessee Partly allowed 8. 3788/Mum/2009 2005-06 Revenue Dismissed 9. 5033/Mum/2010 2006-07 Assessee Partly allowed 10. 5707/Mum/2010 2006-07 Revenue Dismissed 11. 5442/Mum/2011 2007-08 Assessee Partly allowed 12. 5005/Mum/2011 2007-08 Revenue Dismissed 13. 2868/Mum/2012 2008-09 Assessee Partly allowed 14. 2093/Mum/2017 2009-10 Assessee Partly allowed 15. 2326/Mum/2017 2009-10 Revenue Partly allowed 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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