DCIT CORPORATE CIRCLE 6(1) (I/C) , CHENNAI vs. SHRIRAM CREDIT COMPANY LIMITED, CHENNAI

आयकर अपीलीय अिधकरण, ’सी’ �ायपीठ, चे�ई IN THE INCOME-TAX APPELLATE TRIBUNAL ‘C’ BENCH, CHENNAI �ी वी दुगा� राव �ाियक सद� एवं �ी जी. मंजुनाथा, लेखा सद� के सम� Before Shri V. Durga Rao, Judicial Member & Shri G. Manjunatha, Accountant Member आयकर अपील सं./I.T.A. No.1199/Chny/2018 िनधा�रण वष�/Assessment Year: 2014-15 The Deputy Commissioner of Vs. M/s. Shriram Credit Company Income Tax, Corporate Circle 6(1) I/c, Limited, Shriram House, No. 4, Aayakar Bhavan, Wanaparthy Burkit Road, T. Nagar, Block, 7th Floor, 121, M.G. Road, Chennai 600 042. Chennai 600 034. [PAN:AAGCS4497N] (अपीलाथ�/Appellant) (��थ�/Respondent) आयकर अपील सं./I.T.A. No.1307/Chny/2018 िनधा�रण वष�/Assessment Year: 2014-15 M/s. Shriram Credit Company Vs. The Deputy Commissioner of Limited, Mookambika Complex, Income Tax, No. 4, Lady Desika Road, Corporate Circle 6(1), Mylapore, Chennai 600 004. Chennai 600 034. (अपीलाथ�/Appellant) (��थ�/Respondent) Department by : Shri P. Sajit Kumar, JCIT Assessee by : Shri R.Sivaraman, Advocate सुनवाई की तारीख/ Date of hearing : 30.03.2022 घोषणा की तारीख /Date of Pronouncement : 13.04.2022 आदेश /O R D E R PER V. DURGA RAO, JUDICIAL MEMBER: Both the appeals filed by the Revenue as well as assessee are directed against the order of the ld. Commissioner of Income Tax (Appeals) 15, Chennai dated 26.12.2017 relevant to the assessment

2 I.T.A. Nos.1199 & 1307Chny/18

year 2014-15.

3.1 Brief facts relating to the above ground are that in the assessment order, the Assessing Officer has noted that the assessee has investments to the tune of ₹.46,97,86,620/-. The assessee has received dividend income of ₹.1,49,15,940/- and has disallowed expenses to the tune of ₹86,400/- under section 14A of the Act as expenses relating to exempt income. Since the disallowance under section 14A of the Act was not made by the assessee by following Rule 8D, the Assessing Officer worked out the disallowance under section 14A of the Act of ₹.50,41,454/- after taking into account an amount of ₹.86,400/- already disallowed by the assessee.

3.2 The assessee carried the matter in appeal before the ld. CIT(A). After considering the observations of the Assessing Officer and revised

3 I.T.A. Nos.1199 & 1307Chny/18

working of disallowance under section 14A of the Act submitted by the assessee, the ld. CIT(A) directed the Assessing Officer to verify the same with reference to assessment record and to restrict to ₹.24,24,160/-, by observing as under:

“I have carefully gone through the observation of the AO in the assessment order as mentioned above under para 4.1 and the appellant’s submission before the CIT(A) under para 4.2. 4.3.1 After noticing that the appellant earned income from mutual fund of ₹.1.49 crores, which was declared as exempt, the AO made the aforesaid disallowance u/s 14A by applying Rule 8D. Before the CIT(A), the appellant’s AR has submitted that the AO ought to have excluded investment in subsidiary companies while computing disallowance under Rule 8D. The AR has further submitted that as no dividend was earned from growth oriented mutual fund, th same should have been excluded while working out the disallowance under Rule 8D. In support of his claim, the AR has relied on several decisions mentioned above under para 4.2, which are directly applicable to the appellant’s case. In view of the decisions relied on, appellant’s submission is prima facie acceptable. However, since the AO has not considered these points and the decisions relied on by the appellant, the AO is directed to recompute disallowance u/s 14A under Rule 8D after excluding the above investments. The appellant’s submission of revised working of disallowance u/s 14A r.w. Rule 8D is enclosed as Annexure to this order. The AO is directed to verify the same with reference to assessment record and to restrict to ₹.24,24,160/- if the appellant’s computation is in line with the decisions relied on as above. 4.3.2 In view of the above remarks, the appellant’s ground on this issue is partly allowed.” 3.3 Aggrieved, both the assessee and Revenue are in appeal before the Tribunal. The ld. Counsel for the assessee has submitted that the Assessing Officer has not recorded ay findings as to the correctness or otherwise of the claim of assessee company and prayed for deleting

4 I.T.A. Nos.1199 & 1307Chny/18

the disallowance under section 14A of the Act by relying upon the decision of the Tribunal in assessee’s own case for the assessment year 2015-16 in I.T.A. No. 1767/Chny/2019 dated 16.12.2019, wherein, the judgement of the Hon’ble Supreme Court in the in the case of Maxopp Investment Ltd. v. CIT (2018) 402 ITR 640 (SC).

3.4 On the other hand, the ld. DR has submitted that the ld. CIT(A) has no power conferred upon him to remit the matter back to the file of the Assessing Officer to verify the assessee’s submission with reference to the assessment record and to delete the addition under section 14A of the Act.

3.5. We have heard both the sides, perused the materials available on record and gone through the orders of authorities below including paper book. In this case, the assessee is a non-banking finance company and has investments of ₹.46,97,86,620/-. The assessee has received dividend income of ₹.1,49,15,940/- and has suo motu disallowed expenses to the tune of ₹86,400/- under section 14A of the Act as expenses relating to exempt income. However, the Assessing Officer disallowed an additional amount of ₹.50,41,454/-. However, while making additional disallowance under section 14A of the Act, the

5 I.T.A. Nos.1199 & 1307Chny/18

Assessing Officer has not recorded any satisfaction as to how the claim of the assessee was incorrect and had resorted to the provisions under section 14A r.w. Rule 8D.

3.6 Similar issue on identical facts was subject matter in appeal before the Tribunal in assessee’s own case for the assessment year 2015-16 in I.T.A. No. 1767/Chny/2019 dated 16.12.2019, in which, the decision of the Hon’ble Supreme Court in the case of Maxopp Investment Ltd. v. CIT (supra) has been followed, the Tribunal has observed and held as under: “07. We heard the rival submissions and perused the material on record. The only issue in these grounds of appeal relates to whether or not, the Assessing Officer can resort to provisions of Section 14A of the Act without giving findings on the correctness or otherwise of the claim that assessee company had incurred only expenditure of Rs.72,480/- to earn exempt income. Admittedly, in this case, the assessee made claim that only expenditure of Rs.72,480/- was incurred to earn exempt income. The Assessing Officer by merely holding that the assessee itself had offered disallowances a sum of Rs.72,480/- u/s.14A of the Act, therefore the provisions of Section 14A are attracted. He had not given any findings as to the correctness or otherwise in the claim of assessee company that only expenditure of Rs.72,480/- was incurred to earn exempt income. In this absences of any findings by the Assessing Officer, resort to provisions of Section 14A of the Act cannot be made as ruled by Hon’ble Bombay High Court in the case of Reliance Capital Asset Management Ltd (supra) and the SLP against this judgment was dismissed by Hon’ble Supreme Court in 259 Taxman 83. The Hon’ble Supreme Court in the case of Maxopp Investment Ltd (supra) has upheld this principle by holding 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 motu disallowance under section 14A was not correct. It will be in those

6 I.T.A. Nos.1199 & 1307Chny/18

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’’. Recently, the Co-ordinate Bench of the Tribunal to which one of us i.e. the Accountant Member is the author of the order, in the case of City Union Bank Ltd vs. Assistant Commissioner of Income Tax, (2019) 74 ITR Trib (644) Chennai held as follows:- “As regards to other limb of the argument of the assessee that in the absences of any finding by the Assessing Officer as to how the contention of the assessee that no expenditure was incurred is incorrect no disallowance should be made. We find from the assessment order that the assessee bank itself has offered a sum of ₹2,19,751/- under the provisions of Section 14A of the Act. From the perusal of the order of the Assessing Officer, it is clear that the Assessing Officer had not assigned any reason whatsoever as to how the claim of the assessee is incorrect. In the similar facts, the Hon’ble Supreme Court in the case of Maxopp Investment Ltd. vs. CIT, 402 ITR 640 held that in the absence of the finding of the Assessing Officer resort to provisions of Section 14A of the Act r.w.r 8D of the Rules cannot be made. This decision was followed by the Co- ordinate Bench of the Tribunal in the case of Karur Vysya Bank (supra) cited by holding as under:- “Ground No. 8 challenges the addition of ₹3,88,882/- invoking the provision of Section 14A of the Act. It is the contention of the appellant that the appellant had not incurred any expenditure to earn exempt income. The Assessing Officer had not given any findings as to how the claim of the assessee- bank that no expenditure was incurred to earn the exempt income was incorrect. In the absence of this finding resort to the provisions of rule 8D of the Income Tax Rules cannot be made as held by the Hon’ble Supreme Court in the case of Maxopp Investment Ltd vs. CIT (2018) 402 ITR 640. Therefore this ground of appeal filed by the assessee is allowed. Accordingly, this ground of appeal stands allowed in favour of the assessee’’. Similar view was taken up by the Hon’ble Delhi High Court in the case of CIT vs. Taikisha Engineering India Ltd, 370 ITR 338 and PCIT vs. Moonstar Securities Trading and Finance Co. (P) Ltd, 105 taxmann.com 274. The Hon’ble Delhi High Court had firmly held that mere rejection of the explanation of the assessee per se cannot be

7 I.T.A. Nos.1199 & 1307Chny/18

accepted. This decision of Delhi High Court in the case of Moonstar Securities Trading and Finance Co. (P) Ltd, was affirmed by the Hon'ble Supreme Court in the case of dismissal of SLP in PCIT vs. Moonstar Securities Trading and Finance Co. (P) Ltd, 105 taxmann.com 275’’. In the light of the above decisions, admittedly, in the present case, the Assessing Officer had not recorded any findings as to the correctness or otherwise of the claim of assessee company that only expenditure of Rs.72,480/- was incurred to earn exempt income. Therefore, the Assessing Officer was not justified in resorting to provisions u/s.14A of the Act. Accordingly, no disallowance can be made u/s.14A of the Act.” 3.7 Admittedly, in the present case also, against the voluntary disallowance made under section 14A of the Act by the assessee, the Assessing Officer has not recorded any satisfaction as to how the disallowance voluntarily made by the assessee is not correct and moreover, the Assessing Officer has not given any findings in the assessment order with regard to the correctness in respect of expenditure incurred to earn exempt income. Moreover, before the ld. CIT(A) also the assessee has revised the disallowance. The ld. DR could not controvert the decision of the Hon’ble Supreme Court in the case of Maxopp Investment Ltd. v. CIT (supra), which was followed by the Coordinate Benches of the Tribunal in the above cases to decide the issue in favour of the assessee. Thus, respectfully following the decision of the Coordinate Benches of the Tribunal in the case of Shriram Capital Limited v. DCIT (supra) as well as the decision of the

8 I.T.A. Nos.1199 & 1307Chny/18

Hon’ble Supreme Court in the case of Maxopp Investment Ltd. v. CIT (supra), we hold that the Assessing Officer was not justified in making disallowance under section 14A of the Act. Thus, the ground raised by the assessee is allowed and the ground raised by the Revenue become academic and requires no adjudication.

4.1 Aggrieved, the Revenue is in appeal before the Tribunal. The ld. DR has submitted that the Revenue has filed an appeal against the order of the Tribunal before the Hon’ble Madras High Court, which is still pending and pleaded for reversing the order passed by the ld. CIT(A) against which, the

9 I.T.A. Nos.1199 & 1307Chny/18

ld. Counsel for the assessee has heavily relied on the decisions of the Tribunal in assessee’s own case for the earlier assessment years.

4.2 On the other hand, the ld. Counsel for the assessee has submitted that the issue is squarely covered in favour of the assessee by the decision of the Tribunal in assessee’s own case in I.T.A. No. 727/Mds/2016 dated 29.07.2016 for the assessment year 2012-13 and I.T.A. No. 2895/Mds/2016 dated 08.06.2017 for the assessment year 2013-14 and prayed for following the same.

4.3 We have heard both the sides, perused the materials available on record and gone through the orders of authorities below. Against the disallowance of royalty payment of ₹.75,25,292/-, by following the decisions of the Tribunal in assessee’s own case for the assessment years 2012-13 and 2013-14, the ld. CIT(A) directed the Assessing Officer to allow the royalty payment by treating it as revenue expenditure.

4.4 We have perused the decision of the Tribunal for the assessment year 2012-13, wherein, the Tribunal has observed and held as under: “9. We have considered the rival submissions on either side and also perused the material available on record. During the year under consideration the assessee has paid ` 35,87,560/- to Shriram Ownership Trust for using their logo. The assessee claimed the same as revenue expenditure while computing the taxable income. The Assessing Officer disallowed the claim of the assessee on the ground that what was paid by the

10 I.T.A. Nos.1199 & 1307Chny/18

assessee is a royalty, therefore, it is in the capital filed and allowed depreciation u/s 32 of the Act. The assessee claims that Shriram Ownership Trust is one of the group concern. If the assessee claims that Shriram Ownership Trust is one of the group concern, it is not known how a Trust can be a group concern. The assessee being a company engaged in the business, a Trust cannot be a group concern of the business concern. The Trust can be an independent entity for charitable activity or other activity as per the object of the Trust. This Tribunal is of the considered opinion that a Trust cannot be construed as a group concern of a business concern. The Trust has to be always treated independently and it is an independent statutory body. The assessee now claims that the logo belongs to Shriram Ownership Trust was used by the assessee in its business activity and payment was made on turnover basis. The question arises for consideration is whether such payment is an allowable business expenditure u/s 37(1) of the Act. This Tribunal is of the considered opinion that when Shriram Ownership Trust is an independent statutory body, being a Trust, the assessee has to necessarily make payment for using the logo to Shriram Ownership Trust and such payment has to be at the market rate. Therefore, this payment of ` 35,87,560/- being an expenditure for using logo is an allowable expenditure u/s 37(1) of the Act. Therefore, this Tribunal do not find any reason to interfere with the order of the CIT(A). Accordingly, the same is confirmed.” 4.5 The ld. DR could not controvert the above decision of the Tribunal in assessee’s own case. Just because the Revenue has filed an appeal against the order of the Tribunal before the Hon’ble Madras High Court, we cannot take a different view until and unless the decision of the Tribunal has been reverted or modified. The ld. CIT(A) has rightly followed the decision of the Tribunal and thus, we find no infirmity in the order passed by the ld. CIT(A). Accordingly, the ground raised by the Revenue stands dismissed.

11 I.T.A. Nos.1199 & 1307Chny/18

Assessing Officer has noted that the assessee has not offered the entire receipts on the ground that it is classified as NPA. The details are as under: Tax Deductor Amount Amount Difference - Remarks credited in offered in amount not 16A P&L a/c offered Jinal Mercantile 13,45,752 7,84,779 5,60,973 Classified as NPA Mewhul Chinubhai 1,49,38,501 31,75,697 1,17,62,804 Classified Choksi as NPA 5.1 Since the assessee has claimed full TDS credit as in Form 26AS, the Assessing Officer has called for explanation on why the above two amounts not offered to tax should not be added to the total income. After considering the submissions of the assessee and since the assessee should not have offered the above income in the current year, the Assessing Officer disallowed the interest income not offered to tax and added to the total income of the assessee. On appeal, after considering the submissions of the assessee, the ld. CIT(A) directed the Assessing Officer to allow credit for the TDS in respect of those two parts and allowed the ground raised by the assessee.

5.2 We have heard the rival contentions and perused the orders of authorities below. In this case, the Assessing Officer has assessed the notional interest income based on TDS reflected in Form 26AS by

12 I.T.A. Nos.1199 & 1307Chny/18

observing that interest from two parties corresponding to the TDS was not admitted. Before the CIT(A), it was the submissions of the assessee that the interest income was not actually received corresponding to the TDS reflected in Form 26AS and moreover, the cheques issued by the debtors bounced as they did not have adequate bank balance. It was further submitted that there was uncertainty in realizing interest income and therefore, the interest income was not recognized. After considering the submissions of the assessee, the ld. CIT(A) has observed that as per the provision of section 198 and section 199 of the Act, an assessee can claim credit for TDS against the income declared. There is no provision under the Act to assess the notional income based on TDS which is incorrectly claimed unless the Assessing Officer has material evidence towards suppression of income. Since no material evidence towards suppression of income was brought on record and in view of the above facts, the ld. CIT(A) has rightly deleted the addition of ₹.1.23 crores made by the Assessing Officer towards undeclared interest income and further directed the Assessing Officer to assess the corresponding interest income in the relevant assessment year in which it actually arises and to allow TDS thereof in the relevant assessment year in which interest income is

13 I.T.A. Nos.1199 & 1307Chny/18

offered in respect of those two parties. Consequently, the ld. CIT(A) has also directed the Assessing Officer not to allow credit for the TDS in respect of those two parties. Hence, we find no reason to interfere with order passed by the ld. CIT(A) on this issue and thus, the ground raised by the Revenue is dismissed.

6.1 We have considered the rival contentions. So far as disallowance under section 14A of the Act while computing the book profit under section 115JB of the Act is concerned, in the recent judgement in the case of Sobha Developers Ltd. v. DCIT 434 ITR 266 (Kar), wherein,

14 I.T.A. Nos.1199 & 1307Chny/18

the Hon’ble Karnataka High Court has held that the disallowance made under section 14A of the Act could not be added to book profits of the assessee under section 115JB of the Act. The substantial question of law raised before the Hon’ble Karnataka High Court is reproduced as under: “Whether the tribunal is justified in law in holding that the indirect expenditure disallowed under Section 14A read with rule 8D(iii) of Rs.24,64,632/- in computing the total income under normal provisions of the Act, is to be added to the net profit in computation of book profit for MAT purposes under Section 115JB and thereby importing the provision of Section 14A read with rule 8D into the MAT provisions on the facts and circumstances of the case?” 6.2 After considering the arguments of the both sides, the Hon’ble Karnataka High Court has observed and held as under: “6. We have considered the submissions made on both sides and have perused the record. Before proceeding further, it is apposite to take note of relevant extract of Section 115JB of the Act, which reads as under: 115JB. (1) Notwithstanding anything contained in any other provision of this Act, where in the case of an assessee, being a company, the income-tax, payable on the total income as computed under this Act in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April, 2012, is less than eighteen and one-half per cent of its book profit, such book profit shall be deemed to be the total income of the assessee and the tax payable by the assessee on such total income shall be the amount of income-tax at the rate of eighteen and one-half per cent. (f) the amount or amounts of expenditure relatable to any income to which section 10 (other than the provisions

15 I.T.A. Nos.1199 & 1307Chny/18

contained in clause (38) thereof) or section 11 or section 12 apply; or (i) the amount or amounts set aside as provision for diminution in the value of any asset, if any amount referred to in clauses (a) to (i) is debited to the statement of profit and loss or if any amount referred to in clause (j) is not credited to the statement of profit and loss, and as reduced by,- (i) the amount withdrawn from any reserve or provision (excluding a reserve created before the 1st day of April, 1997 otherwise than by way of a debit to the statement of profit and loss), if any such amount is credited to the statement of profit and loss: (5) Save as otherwise provided in this section, all other provisions of this Act shall apply to every assessee, being a company, mentioned in this section. 7. Thus from perusal of the relevant extract of Section 115JB, it is evident that Sub-Section (1) of Section 115JB provides the mode of computation of the total income of the assessee and tax payable on the assessee under Section 115JB of the Act. Sub-Section (5) of Section 115JB provides that save as otherwise provided in this section, all other provisions of this Act shall apply to every assessee being a company mentioned in this Section. Therefore, any expenditure relatable to earning of income exempt under Section 10(2A) and Section 10(35) of the Act is disallowed under Section 14A of the Act and is added back to book profit under clause (f) of Section 115JB of the Act, the same would amount to doing violence with the statutory provision viz., Sub-Section (1) and (5) of Section 115JB of the Act. It is also pertinent to mention here that the amounts mentioned in clauses (a) to (i) of explanation to Section 115JB(2) are debited to the statement of profit and loss account, then only the provisions of Section 115JB would apply. The disallowance under Section 14A of the Act is a notional disallowance and therefore, by taking recourse to Section 14A of the Act, the amount cannot be added back to book profit under clause (f) of Section 115JB of the Act. It is also pertinent to mention here that similar view, which has been taken by this court in Gokaldas Images (P) Ltd. supra was also taken by High Court of Bombay in 'THE COMMISSIONER OF INCOME

16 I.T.A. Nos.1199 & 1307Chny/18

TAX-8 VS. M/S BENGAL FINANCE & INVESTMENTS PVT. LTD.', I.T.A.NO.337/2013. It is pertinent to note that in Rolta India Ltd., the Supreme Court was dealing with the issue of chargeability of interest under Section 234B and 234C of the ct on failure to pay advance tax in respect of tax payable under Section 115JA/ 115JB of the Act and therefore, the aforesaid decision has no impact on the issue involved in this appeal. Similarly, in MAXOPP Investment Ltd., supra the Supreme Court has dealt with Section 14A of the Act and has not dealt with Section 115JB of the Act. Therefore, the aforesaid decision also does not apply to the fact situation of the case. In view of preceding analysis, the substantial questions of law framed by a bench of this court are answered in favour of the assessee and against the revenue. In the result, the order passed by the tribunal dated 09.01.2015 insofar as it pertains to the findings recorded against the assessee is hereby quashed.” 6.3 The ld. DR could not controvert the above decision of the Hon’ble Karnataka High Court or filed any other higher Court’s decision having modified or reverted or any decision favouring the Revenue. Respectfully following the above decision in the case of Sobha Developers Ltd. v. DCIT (supra), the ground raised by the Revenue is dismissed.

17 I.T.A. Nos.1199 & 1307Chny/18

since we have confirmed the order of the ld. CIT(A) on this issue by following the decision of the Coordinate Benches of the Tribunal in assessee’s own case for the assessment year 2012-13. Accordingly, the ground raised by the assessee is dismissed.

18 I.T.A. Nos.1199 & 1307Chny/18

two parties. Consequently, the ld. CIT(A) has also directed the Assessing Officer not to allow credit for the TDS in respect of those two parties. Therefore, we are of the opinion that there is no merit in the ground raised by the assessee and accordingly, the ground raised by the assessee is dismissed.

Order pronounced on 13th April, 2022 at Chennai.

Sd/- Sd/- (G. MANJUNATHA) (V. DURGA RAO) ACCOUNTANT MEMBER JUDICIAL MEMBER Chennai, Dated, 13.04.2022 Vm/- आदेश की �ितिलिप अ�ेिषत/Copy to: 1. अपीलाथ�/Appellant, 2.��थ�/ Respondent, 3. आयकर आयु� (अपील)/CIT(A), 4. आयकर आयु�/CIT, 5. िवभागीय �ितिनिध/DR & 6. गाड� फाईल/GF.