ADITYA BIRLA FINANCE LIMITED,MUMBAI vs. ASSISTANT COMMISSIONER OF INCOME-TAX - 2(1)(1), MUMBAI

The grounds of appeal are as under: GROUND NO. I: ADDITION OF INTEREST ON NON-PERFORMING ASSETS AMOUNTING TO RS. 29.14.85.619/-: 1.1 On the facts and in circumstances of the case and in law, the Ld. CIT(A) erred in confirming the action of the Ld. AO of taxing the interest accrued on Non-Performing Assets (“NPAs”) amounting to Rs. 29,14,85,619/-. 1.2 The Ld. CIT(A) erred to appreciate and ought to have held that: 1.2.1 The Appellant is Non-Banking Finance Company (“NBFC”) registered with Reserve Bank of India (“RBI”) and thus has to mandatorily follow NBFC Prudential Norms (Reserve Bank) Direction, 1998 (“Directive”) issued by the RBI; 1.2.2 Income on NPA which is not recognized in the books of accounts and which is in accordance of with the RBI directives, cannot be hypothetically regarded as income chargeable to income tax under the Act; 1.2.3 It is only real income which can be taxed under the Act; 1.2.4 The principles of commercial accountancy on which the principle of real income is based ought to be followed in computing income under the Act. 1.3 The Ld. CIT(A) also failed to appreciate that the order of higher appellate authority is binding on it and therefore, erred in not following the decision of the Hon’ble Juri ictional Mumbai Tribunal in Appellant’s own case for AY 2012-13 to AY 2014-15 in respect of the issue under consideration. 1.4 The Appellant therefore prays that the aforesaid disallowance be deleted.

GROUND NO. II: DISALLOWANCE OF DEPRECIATION ON GOODWILL AMOUNTING TO RS. 6,36,37,882/-:

1 On the facts and in circumstances of the case and in law, the Ld. CIT(A) erred in confirming the action of the ld. AO in disallowing the claim for P a g e | 3 A.Y. 2017-18

GROUND NO. III: NOT ALLOWING CLAIM OF LEAVE ENCASHMENT AMOUNTING TO RS. 1,08,99,749/- AND BONUS AMOUNTING TO RS. 1.41,45,067/-U/S. 43B OF THE ACT: 3.1 On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in confirming the action of the Ld. AO in not allowing the claim of the Appellant in respect of leave encashment amounting to Rs. 1,08,99,749/- (pertaining to WMD division of ABMML) and bonus amounting to Rs. 1,41,45,067/-u/s. 43B of the Act, on the alleged ground that the same is consequential in nature and does not require separate adjudication. 3.2 The Ld. CIT(A) failed to appreciate and ought to have held that the aforesaid amounts which were disallowed in the earlier years, have been paid during the year and are accordingly allowable u/s, 43B of the Act. 3.3 The Appellant prays that leave encashment and bonus paid during the year aggregating to Rs. 2,50,44,816/-be allowed.

GROUND NO. IV: DISALLOWANCE OF DEDUCTION U/S. 80G OF THE ACT AMOUNTING TO RS. 4.75,95,190/-:

1 On the facts and in circumstances of the case and in law, the ld. CIT(A) erred in confirming the action of the Ld. AO in disallowing the deduction claimed by the Appellant u/s. 80G in respect of the donations made by it amounting to Rs. 4,75,95,190/-on the ground that:

1.1 The amount is used by the Appellant to fulfil its CSR obligations under section 135 of the Companies Act, 2013; 4.1.2 The amount so used is not a donation eligible u/s. 80G even if given to a trust eligible u/s. 80G as the recipient trust is only spending the Appellant’s CSR obligation on behalf of the Appellant. 4.2 The Ld. CIT(A) failed to appreciate that, inter alia, the restriction imposed by the Explanation 2 to section 37(1) does not bar the Appellant from claiming any deduction eligible w/s. 80G of the Act 4.3 The Appellant therefore prays that the aforesaid disallowance be deleted.

GROUND NO. V: NON-GRANTING OF CREDIT FOR TAX COLLECTED AT SOURCE (“TCS”):

1 On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in confirming the action of the Ld. AO in not granting credit for TCS amounting to Rs. 1,63,195/-. 5.2 The Ld. CIT(A) failed to appreciate that: 5.2.1 This ground is not consequential in nature, and 5.2.2 The Appellant is eligible for the credit of TCS and the same appears in Form 26AS of the Appellant. 5.3 The Appellant prays that the credit for TCS amounting to Rs. 1,63,195/- be granted.

GROUND NO. VI: SHORT CREDIT OF TAX DEDUCTED AT SOURCE (“TDS”) OF RS. 15,67,59,175/-:

1 On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in confirming the action of the ld. AO in granting TDS credit of Rs. 2,68,29,49,469/- as against Rs. 2,83,97,08,644/- claimed by the Appellant in its Return of Income which has resulted in grant of short credit amounting to Rs. 15,67,59,175/-.

2 The Ld. CIT(A) failed to appreciate and ought to have held that under section 199 of the Act read with sub-rule 3(i) of Rule 37BA of the Income- tax Rules, 1962 credit for tax deducted at source and paid to the Central Government has to be allowed for the assessment year for which the underlying sum is assessable.

3 The Appellant prays that the AO be directed to grant full credit of TDS of Rs. 2,83,97,08,644/-.

GROUND NO. VII: NON-GRANTING OF CREDIT OF TDS AMOUNTING TO RS. 1,16.80.993/-:

1 On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in confirming the action of the Ld. AO in not granting the credit of TDS amounting to Rs. 1,16,80,993/-pertaining to Wealth Management and Distribution (“WMD”) of erstwhile ABMML claimed by the Appellant by way of letter to the Ld. AO. 7.2 The Ld. CIT(A) failed to appreciate and ought to have held that WMD of ABMML now stands merged with the Appellant and thus the Appellant is eligible to claim the credit of TDS available with WMD. 7.3 The Appellant prays that it be granted claim of TDS of Rs. 1,16,80,993/- belonging to WMD.

GROUND NO. VIII: RAISING DEMAND FOR DIVIDEND DISTRIBUTION TAX (“DDT”) AMOUNTING TO RS. 23,13,292/-:

1 On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in confirming the action of the Ld. AO in raising a demand of Rs. 23,13,292/- for DDT, including interest u/s. 115P of Rs. 6,49,054/- without granting credit for the DDT actually paid by the Appellant.

2 The Ld. CIT(A) failed to appreciate and consider the explanations offered by the Appellant during the course of appellate proceedings and dismissed the ground on account of alleged non-submission of relevant details. 8.3 The Appellant therefore prays that the demand raised for DDT be deleted since the Appellant has already paid the whole amount and be directed to grant credit for the same.

GROUND NO. IX: NON-GRANT OF SET OFF OF BROUGHT FORWARD LOSSES AMOUNTING TO Rs. 115,60,62,424/- IN THE COMPUTATION SHEET:

1 On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in confirming the action of the Ld. AO in not setting off the brought forward losses while computing the total income chargeable to P a g e | 6 A.Y. 2017-18

GROUND NO. X: DEEMED TOTAL INCOME U/S. 115JB OF THE ACT COMPUTED AT RS. 8.98.23,69,725/- IN THE COMPUTATION SHEET:

1 On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in confirming the action of the Ld. AO in computing book profits at Rs. 8,98,23,69,725/- in the computation sheet as against Rs. 8,96,19,94,731/- as computed in the assessment order on the ground that no supporting documentary evidence has been furnished. 10.2 The Ld. CIT(A) failed to appreciate that: 10.2.1 A rectification order dated January 24, 2020 was passed by the Ld. AO rectifying the assessment order and computing book profits u/s. 115JB at Rs. 8,96,19,94,731/-, and 10.2.2 Basis such rectification order, the Appellant withdrew its ground taken before the Ld. CIT(A). 10.3 The Appellant prays that the ground be dismissed for being infructuous instead of dismissing for want of details.

GROUND NO. XI: CONSEQUENTIAL INCREASE IN DEDUCTION UNDER SECTION 36(1)(viia) OF THE ACT ON ACCOUNT OF INCREASE IN ASSESSED TOTAL INCOME:

1 Assuming without admitting, in case the additions/disallowances made in the assessment order are sustained, then the Ld. AO be directed to grant the consequential enhanced deduction u/s. 36(1)(viia) of the Act. 3. In ground no. I, it is claimed that the Ld. CIT(A) erred in confirming the action of the AO taxing the interest accrued on Non- Performing Assets (“NPAs”) amounting to Rs. 29,14,85,619/-. At the outset, it is claimed by the ld.AR that the issue is repetitive and is also covered by earlier years’ orders of the hon’ble ITAT in favour of the assessee itself. The assessee a Non-Banking Finance Company (‘NBFC’) registered under section 45-1 of the Reserve Bank of India Act, 1934 is engaged in the business of non-banking finance. It has been claimed that as a licensed NBFC, the assessee is required to comply with the NBFC Prudential Norms (Reserve Bank) Directions, 1998, issued by the RBI, which mandate the recognition of income on Non-Performing Assets (‘NPAs’) strictly on a cash basis. During the course of assessment proceedings, the assessee in response to query by the AO submitted details of interest on NPAs amounting to Rs. 29,14,85,619/- explaining that in all such cases, there were serious uncertainties regarding recovery of both principal and interest amounts. It was also submitted that its case is covered by the orders of Tribunal passed for prior assessment years. However, the AO disallowed the claim stating that while RBI guidelines permit recognition of interest on NPAs on a cash

Before us, the ld.AR has contented that the issue is covered in favour of the assessee by Mumbai Tribunal’s orders for AYs 2012-13, 2013-14, and 2014-15 and the relevant paragraphs of those orders were brought to our attention. It was emphasized that these orders were passed after considering the decision in Southern Technologies Ltd. and P a g e | 9 A.Y. 2017-18

1 Respectfully following the above decision, we set aside the orders of ld.CIT(A)allowing the ground no.1 and direct the AO to delete the addition.

Ground no. II pertains to the claim of depreciation on Goodwill which has been disallowed by the AO. Facts in brief are the Wealth Management and Distribution (“WMD”) division of Aditya Birla Money Mart Ltd. (“ABMML”) demerged into the assessee through a Court-approved Scheme of Arrangement under Sections 391 to 394 of the Companies Act, 1956. The scheme was approved by the hon’ble Gujarat High Court on November 24, 2016, with the appointed date