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Before: Shri V. Durga Rao & Shri Manoj Kumar Aggarwal
आयकर अपीलीय अिधकरण, ‘सी’ �ायपीठ, चे�ई IN THE INCOME-TAX APPELLATE TRIBUNAL ‘C’ BENCH, CHENNAI �ी वी. दुगा� राव, �ाियक सद� एवं �ी मनोज कुमार अ�वाल, लेखा सद� के सम� । Before Shri V. Durga Rao, Judicial Member & Shri Manoj Kumar Aggarwal, Accountant Member आयकर अपील सं./I.T.A. Nos.3168 and 3255/Chny/2018 िनधा�रण वष�/Assessment Years: 2012-13 and 2014-15 M/s. Shriram Capital Limited, The Deputy Commissioner of Vs. Shriram House, 1st Floor, No. 4, Income Tax, Burkit Road, T. Nagar, Corporate Circle 6(1), Chennai 600 017. Chennai 600 034. [PAN:AABCS2726B] (अपीलाथ�/Appellant) (��थ�/Respondent) आयकर अपील सं./I.T.A. Nos.3216 and 3217/Chny/2018 िनधा�रण वष�/Assessment Years: 2012-13 and 2014-15 The Deputy Commissioner of Vs. M/s. Shriram Capital Limited, Shriram House, 1st Floor, No. 4, Income Tax, Corporate Circle 6(1), Burkit Road, T. Nagar, Chennai 600 034. Chennai 600 017. (अपीलाथ�/Appellant) (��थ�/Respondent) Assessee by : Shri R. Sivaraman, Advocate Department by Shri Darzakhum Songate, CIT : सुनवाई की तारीख/ Date of hearing : 03.01.2022 घोषणा की तारीख /Date of Pronouncement : 18.02.2022 आदेश /O R D E R PER V. DURGA RAO, JUDICIAL MEMBER: Both the cross appeals filed by the assessee as well as Revenue are directed against different orders of the ld. Commissioner of Income Tax (Appeals) 15, Chennai dated 29.08.2018 relevant to the
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assessment year 2012-13 and order dated 27.08.2018 for the assessment year 2014-15. First, we shall take up the cross appeals for the assessment year 2012-13 for adjudication. I.T.A. Nos. 3168 and 3216/Chny/2018 [ AY: 2012-13] 2. Brief facts of the case are that it is a second round of litigation. The assessment under section 143(3) of the Act was completed on 02.02.2015 on a total income of ₹.3,48,31,838/- after making disallowance of ₹.34,28,05,564/- under section 14A r.w. Rule 8D. The disallowance also made for ₹.34,28,05,564/- while computing book profit under section 115JB of the Act towards expenditure related to exempt income. On appeal, the ld. CIT(A) directed the Assessing Officer to exclude the investments made by the assessee in subsidiary companies after proper verification from the calculations in the Rule 8D(2) r.w. section 14A in computing the regular income. As regards the disallowance made under section 14A r.w. Rule 8D in computing the book profit under section 115JB of the Act, the ld. CIT(A) deleted the addition. Against the order passed by the ld. CIT(A), the assessee as well as Revenue preferred appeal before the Tribunal. Vide order in I.T.A. No. 326/Mds/2016 dated 05.08.2016, the Tribunal remitted the matter back to the file of the Assessing Officer for re-examination.
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2.2 In view of the order of the Tribunal, the Assessing Officer issued a notice to the assessee for hearing. After considering the submissions of the assessee and examination of the details filed, the Assessing Officer has completed the assessment under section 143(3) r.w.s. 254 of the Act by recomputing the income of the assessee at ₹.3,48,31,838/- after making disallowance under section 14A by applying Rule 8D as well as under section 115JB of the Act.
2.3 The assessee carried the matter in appeal before the ld. CIT(A). After considering the submissions of the assessee, facts of the case and by following the decision of the Hon’ble Delhi High Court in the case of Joint Investments Pvt. Ltd. v. CIT 372 ITR 694 (Delhi), the ld. CIT(A) directed the Assessing Officer to restrict the disallowance under section 14A r.w. Rule 8D to ₹.17,10,42,084/- as well as directed to exclude the disallowance under section 14A of the Act while computing the book profit under section 115JB of the Act for the assessment year 2012-13.
On being aggrieved, the assessee is in appeal before the Tribunal against the restriction of disallowance under section 14A of the Act. The ld. Counsel for the assessee has submitted that in the return of income, the assessee has suo motu disallowed ₹.8,000/- under section 14A of the Act
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towards expenses incurred for earning the exempt income. It was further submission that the Assessing Officer has not recorded any satisfaction on the correctness or otherwise of the suo motu disallowance of expenses under section 14A of the Act and made additional disallowance of ₹.34,28,05,564/- under section 14A of the Act is against the law laid down by the Hon’ble Supreme Court in the case of Maxopp Investment Ltd. v. CIT (2018) 402 ITR 640. By relying on the decision of the Tribunal in assessee’s own case for the assessment year 2013-14 in I.T.A. No. 1766/Chny/2019 dated 16.12.2019, the ld. Counsel for the assessee prayed that the same may be followed for the assessment year under appeal.
Against the restriction of disallowance under section 14A of the Act as well as exclusion of disallowance under section 14A of the Act while computing the book profit under section 115JB of the Act by the ld. CIT(A), the Revenue preferred further appeal before the Tribunal. The ld. DR has submitted that section 14A of the Act does not permit restriction of disallowance to the extent of exempt income earned during the relevant previous year. So far as exclusion of disallowance under section 14A of the Act while computing the book profit under section 115JB of the Act, the ld. DR has submitted that against the order of the Tribunal dated 26.06.2015, the Department preferred further appeal before the Hon’ble Jurisdictional High Court, which is still pending, it was pleaded that the order of the ld.
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CIT(A) be set aside and that of the Assessing Officer be restored.
We have heard both the sides, perused the materials available on record and gone through the orders of authorities below including the case law relied on by the assessee. In this case, the assessee is engaged in the business of investment promotion and during the year, the assessee has earned dividend income of ₹.17,10,42,084/-. In the return of income, the assessee has suo motu disallowed ₹.8,000/- under section 14A of the Act. However, the Assessing Officer disallowed an additional amount of ₹.34,28,05,564/-. However, while making additional disallowance under section 14A of the Act, the 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. By relying upon decision of the Tribunal in assessee’s own case for the assessment year 2013-14, wherein, the decision in the case of Maxopp Investment Ltd. v. CIT (supra) has been followed, the ld. Counsel for the assessee has prayed for following the order of the Tribunal for assessment year under appeal. We have gone through the order of the Tribunal in assessee’s own case for the assessment year 2013-14 in I.T.A. No. 1766/Chny/2019 vide order dated 16.12.2019, wherein, in similar facts and circumstances an identical issue was subject matter in appeal before the Tribunal and the Tribunal has observed and held as under:
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“7. We heard the rival submissions and perused the material on record. The only issue in the present appeal relates to disallowance u/s14A of the Act. Admittedly, assessee made investments which yielded dividend income of Rs.61,44,03,001/- and investments were made in subsidiary companies for strategic purpose. Admittedly, assessee itself had offered suo motu disallowance of Rs.73,602/- u/s.14A of the Act. The provisions of Sub Section (2) of Section 14A of the Act provides that resort to provisions u/s.14A of the Act can be made only if he is not satisfied with the correctness of the claim of the assessee in respect of expenditure incurred to earn exempt income. Therefore, it is mandatory on the part of the Assessing Officer to record a satisfaction as to correctness or otherwise of the claim of the assessee regarding expenditure incurred to earn exempt income. In the present case, assessee suo motu offered disallowance of Rs.73,602/-. From the perusal of the assessment order, it is clear that there is no findings by the Assessing Officer as to the correctness or otherwise of the claim of the assessee that only an expenditure of Rs.73,602/- was incurred. 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 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
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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 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 274’’. 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.73,602/- was incurred to earn exempt income. Therefore, the Assessing Officer was not justified in resort to provisions u/s.14A of the Act. Accordingly, no disallowance can be made u/s.14A of the Act. 08. It is unnecessary for us to deal with other arguments made by the assessee since we had held that no resort can be made to provisions of Section 14A of the Act.
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In the result, the appeal filed by the assessee stands allowed.” 6. 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. 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 assessee’s own case for the assessment year 2013-14 to decide the issue in favour of the assessee. Thus, respectfully following the decision of the Coordinate Benches of the Tribunal in assessee’s own case for the assessment year 2013-14 as well as the decision of the 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.
6.1 However, the only objection raised by the ld. DR is that the issue of recording satisfaction has been raised for the first time before the Tribunal and not raised earlier. Admittedly, it is second round of litigation. On going
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through the materials available on record, we find that in the first round of litigation before the Tribunal, the assessee has raised specific grounds of appeal while filing the appeal papers vide letter dated 11.02.2016. Even otherwise, by leave of the Tribunal, the assessee can raise additional legal ground and therefore, the argument of the ld. DR is rejected.
So far as the ground raised in the appeal of the Revenue relating to exclusion of the disallowance under section 14A of the Act while computing the book profit under section 115JB of the Act is concerned, the exempt income claimed by the assessee was ₹.17,10,42,084/- against which the assessee’s disallowance under section 14A was ₹.8,000/-, whereas, the Assessing Officer determined the disallowance under section 14A r.w. Rule 8D at ₹.34,28,05,564/-. While computing the book profits under section 115JB of the Act, the Assessing Officer made the addition of ₹.34,28,05,564/- on account of disallowance under section 14A of the Act. On appeal, by following the decision of the Tribunal, the ld. CIT(A) directed the Assessing Officer to exclude the disallowance under section 14A of the Act while computing the book profit under section 115JB of the Act and allowed the ground raised by the assessee for the assessment year 2012-13, against which, the Revenue preferred further appeal before the Tribunal.
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7.1 Before us, the ld. DR has argued that the decision followed by the ld. CIT(A) in assessee’s own case for the assessment year 2010- 11 and 2011-12 dated 26.06.2015 in I.T.A. No. 512 & 513/Mds/2015 was not accepted and the Department preferred further appeal before the Hon’ble Madras High Court, which is still pending.
7.2 On the other hand, by filing the recent judgement of the Hon’ble Karnataka High Court in the case of Sobha Developers Ltd. v. DCIT 434 ITR 266 (Kar), wherein, it was 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 ld. Counsel for the assessee has prayed for following the same for the assessment years under appeal.
7.3 We have heard the rival contentions and perused the judgement in the case of Sobha Developers Ltd. v. DCIT (supra), wherein, 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
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provision of Section 14A read with rule 8D into the MAT provisions on the facts and circumstances of the case?” 7.4 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 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:
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(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 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.”
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7.5 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. I.T.A. Nos. 3255 and 3217/Chny/2018 [ AY: 2014-15] 8. During the assessment year 2014-15, the assessee has received dividend of ₹.58,39,68,173/- and the assessee has disallowed ₹.73,037/- towards expenses incurred for earning the exempt income. However, the Assessing Officer disallowed additional amount of ₹.11,40,06,138/- under section 14A r.w. Rule 8D. On appeal, the ld. CIT(A) confirmed the disallowance made by the Assessing Officer.
8.1 On being aggrieved, the assessee is in appeal before the Tribunal. The ld. Counsel for the assessee has submitted that the decision taken by the Tribunal for the assessment year 2012-13 shall also apply for the assessment year 2014-15 since facts are identical.
8.2 We have heard the rival contentions. In this case also, the assessee has earned dividend income of ₹.58,39,68,173/- and the
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assessee has disallowed ₹.73,037/- towards expenses incurred for earning the exempt income. However, the Assessing Officer disallowed additional amount of ₹.11,40,06,138/- under section 14A r.w. Rule 8D without recording any satisfaction on the correctness or otherwise of the suo motu disallowance of expenses made by the assessee under section 14A of the Act. Since the facts are similar as in the assessment year 2012-13, the decision of the Tribunal in the assessment year 2012-13 adjudicated hereinabove shall also apply for the assessment year 2014-15 and allow the ground raised by the assessee.
In I.T.A. No. 3217/Chny/2018, the Revenue has raised a ground relating to exclusion of the disallowance under section 14A of the Act while computing the book profit under section 115JB of the Act. On an identical issue in similar facts and circumstances, we have decided issue against the Revenue hereinabove for the assessment year 2012-13 at para 7 to 7.5. Accordingly, the ground raised by the Revenue is dismissed for the assessment year 2014-15 as well.
The next ground raised in the appeal of the Revenue for the assessment year 2014-15 relates to deleting the disallowance of royalty payments of ₹.69,81,626/-.
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9.1 In the assessment order, the Assessing Officer has disallowed the royalty [artistic copyright fee] paid by the assessee. On appeal, by following the decision of the Tribunal in assessee’s own case for the assessment year 2012-13 in I.T.A. No. 733/Mds/2016 dated 29.07.2016 and for the assessment year 2013-14 in I.T.A. No. 2502/Mds/2016 dated 01.05.2017 the ld. CIT(A) directed the Assessing Officer to allow the royalty payment by treating it as revenue expenditure.
9.2 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 ld. Counsel for the assessee has heavily relied on the decisions of the Tribunal in assessee’s own case for the earlier assessment years.
9.3 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 ₹.69,81,626/-, 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. Thus, we find no infirmity in the order passed by the ld. CIT(A). Just because the Revenue has filed an appeal against the order of the Tribunal before the Hon’ble
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Madras High Court, we cannot take a different view until and unless the decision of the Tribunal has been reverted or modified. Accordingly, the ground raised by the Revenue stands dismissed.
In the result, both the appeals filed by the assessee are allowed and the appeals filed by the Revenue are dismissed.
Order pronounced on 18th February, 2022 at Chennai.
Sd/- Sd/- (MANOJ KUMAR AGGARWAL) (V. DURGA RAO) ACCOUNTANT MEMBER JUDICIAL MEMBER Chennai, Dated, 18.02.2022 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.