ACIT CORPORATE CIRCLE 6(1), CHENNAI vs. M/S, SHRIRAM CITY UNION FINANCE CO. LTD., CHENNAI

PER G.MANJUNATHA, AM:

These cross appeals filed by the assessee and revenue

are directed against the order passed by the learned CIT(A)-15,

Chennai dated 30.01.2019 and pertains to assessment year

2014-15. Since, facts are identical and issues are common, for

the sake of convenience, these appeals were heard together

and are being disposed off by this consolidated order.

2 ITA No.1251 & 1298/Chny/2019

ITA No.1251/Chny/2019 (Assessee appeal):-

ground No.A(i) to A(v) of the assessee appeal is disallowance

of amount transferred to reserve fund u/s.45IC of the RBI Act,

for Rs.1,54,61,33,983/-. At the outset, the learned A.R for the

assessee at the time of hearing submitted that this issue is

covered against the assessee by an order of the Tribunal in

assessee’s group company case in M/s.Shriram Transport

Finance Company Ltd. in ITA No.2572 & 2636/Chny/2017 dated 24.05.2018 for assessment year 2014-15, where an

identical issue has been considered by the Tribunal and held

that amount transferred to reserve fund, as per provisions of

section 45IC of the RBI Act is appropriation of profits, which is

not deductible while computing profits & gains from business or

profession.

issue is covered against the assessee.

available on record and gone through orders of the authorities below. We find that an identical issue has been considered by

the Tribunal in the case of Shriram Transport Finance Company

3 ITA No.1251 & 1298/Chny/2019

Ltd. in ITA No.2572 & 2636/Chny/2017 dated 24.05.2018,

where the Tribunal by following its earlier order in the case of

M/s. Shriram Transport Finance Co.Ltd. in ITA

No.454/Mds/2016 dated 24.08.2016 held that transfer of funds

as required u/s.45IC of the RBI Act, is only application of

income, therefore, it is liable for taxation. The facts are being

identical for year under consideration and thus, consistent with

view taken by the co-ordinate Bench in the cases discussed

hereinabove, we are inclined to uphold findings of the learned CIT(A) and reject ground taken by the assessee.

ground no.3 of assessee appeal is alternative claim of

depreciation on royalty amount disallowed in assessment year

2006-07 to 2013-14. We find that learned CIT(A) has rejected

alternative plea taken by the assessee claiming depreciation

on royalty on the ground that when royalty expenses has been

held to be revenue in nature and deductible, then alternative

plea of the assessee for claiming depreciation on said expenditure is infructuous and hence, not maintainable. The

fact remains unchanged. The assessee failed to bring on record

4 ITA No.1251 & 1298/Chny/2019

any valid reason to take a different view from the view taken by

the learned CIT(A) and hence, we are inclined to uphold

findings of the learned CIT(A) and reject ground taken by the

assessee.

ground No.III (A) (i& ii) of assessee appeal is recomputation of

book profit u/s.115JB of the Income Tax Act, 1961, by making

additions towards amount transferred to statutory reserve

amounting to Rs.1,04,40,00,000/-. The counsel for the

assessee as well as DR for the revenue have agreed that this

issue is covered against the assessee by the decision of the

Tribunal in appellant’s group company case of M/s. Shriram

Transport Finance Co.Ltd./ Shriram Investments Ltd. in ITA

Nos.806 & 807/Mds/2008, where under identical set of facts, it

was held that amount transferred to reserve fund as required

u/s. 45IC of RBI Act, is only an appropriation of income and

thus, same cannot be deductible while computing book profit

u/s.115JB of the Income Tax Act, 1961.

available on record, we find that the Tribunal has considered

5 ITA No.1251 & 1298/Chny/2019

identical issue and held that amount transferred to special

reserve fund as required under section 45IC of the RBI Act, is

only appropriation of profits below the line in the profit & loss

account and thus, same is not deductible while computing book

profit u/s.115JB of the Income Tax Act, 1961. Therefore,

consistent with view taken by co-ordinate Bench, we are

inclined to uphold findings of the learned CIT(A) and reject

ground taken by the assessee .

ITA No.1298/Chny/2019 ( Revenue appeal):-

ground No.2 of revenue appeal is deletion of disallowance

u/s.14A of the Act for Rs.77,36,000/-. The Assessing Officer

has disallowed expenses relatable to exempt income us/.14A

r.w.r.8D of the I.T.Rules, 1962 and determined disallowance of

Rs.77,36,000/- under rule 8D(2)(iii) of Income Tax Rules, 1962

@ .5% of average value of investments. The learned A.R for

the assessee submitted that this issue is covered in favour of

the assessee by the decision of the Hon'ble Supreme Court in

the case of CIT Vs.Chettinad Logistics Pvt.Ltd. 95 Taxmann

6 ITA No.1251 & 1298/Chny/2019

250, where it was held that section 14A cannot be invoked

where no income was earned by the assessee for relevant

assessment year .

proposition, but strongly supported order of the Assessing

Officer.

record, we find that issue of disallowance of expenses

u/s.14A r.w.r 8D of the I.T.Rules, 1962, when Nil exempt

income earned for the relevant assessment year is no longer

res integra. The Hon’ble Madras High Court in the case of

Redington India Pvt.Ltd., 392 ITR 633, had considered an

identical issue and after considering Board Circular No.5 of

2014 dated 11.02.2014 held that where there is no exempt

income in relevant year, there cannot be disallowance of

expenditure u/s.14A of the Act. The Hon'ble Supreme Court

has considered an identical issue and dismissed SLP filed by

revenue against Hon’ble Madras High Court ruling in the case

of CIT vs.Chettinad Logistics Pvt.Ltd, and held that provisions

of section 14A cannot be invoked, where no exempt income

7 ITA No.1251 & 1298/Chny/2019

was earned by the assessee for relevant assessment year . In

this case, the learned CIT(A) has recorded categorical finding

that the assessee has not earned any exempt income for

impugned assessment year and hence, deleted additions

made by the Assessing Officer towards expenses u/s.14A of

the Act. Hence, we are inclined to uphold findings of the learned

CIT(A) and reject ground taken by the revenue.

ground no.3 of revenue appeal is deletion of additions made

towards disallowance of royalty expenditure. The learned A.R

for the assessee Mr. R.Sivaraman, Advocate and learned DR

present for the revenue have agreed that this issue is covered

in favour of the assessee by the decision of Tribunal in

assessee’s own case for assessment year 2006-07 in ITA No.

726/Mds/2010 dated 16.12.2010, where the Tribunal held that

royalty paid by the assessee for using logo is not a capital

expenditure which gives enduring benefit to the assessee,

because the assessee does not acquire any intangible asset,

and further said logo is non-transferrable.

8 ITA No.1251 & 1298/Chny/2019

available on record and gone through orders of the authorities

below. We find that the Tribunal has considered an identical

issue in the case of M/s.Shriram Transport Finance Company

Ltd. in ITA No.2572 & 2636/Chny/2017 dated 24.05.2018

for assessment year 2014-15, where it was held that payment

made by the assessee for right to use logo is revenue in

nature, which is deductible while computing income from

business or profession. Further, similar issue had been considered in assessee’s own case for assessment year 2006-

07 in ITA No.726/Mad/2010. Therefore, consistent with the view

taken by co-ordinate Bench, we are of the considered view that

there is no error in the reasoning given by the learned CIT(A) to

delete additions made towards royalty and hence, we are

inclined to uphold findings of the learned CIT(A) and reject

ground taken by the revenue.

ground no.4 of revenue appeal is restricting disallowance of

commission payment u/s.40(a)(ia) of the Act, for failure to deduct TDS u/s.194H of the Act to Rs.18,44,989/-. The

Assessing Officer has disallowed commission payment of

9 ITA No.1251 & 1298/Chny/2019

Rs.99,34,513/- on the ground that the assessee has failed to

deduct TDS as per provisions of section 194H of the Act, even

though commission payment exceeds Rs.5000/- in each case.

It was explanation of the assessee before the Assessing Officer

that out of total commission payment, a sum of Rs.80,89,524/-

is out of the scope of provisions of section 194H of the Act,

because each payment of commission does not exceed

Rs.5000/- to individual recipient. Insofar as, remaining

commission payment of Rs.18,44,989/-, the assessee claimed

that payment has been made before end of relevant financial

year and in light of decision of Hon’ble Allahabad High Court in

the case of CIT Vs.Vector Shipping Services Pvt.Ltd. (357 ITR

652) payment is not disallowable, if such payment is made

before end of financial year.

available on record, we find that the learned CIT(A) has

recorded a categorical finding in light of various evidences

including list of payment of commission to individual recipients

by the assessee and held that a sum of Rs.80,89,524/- is out of

scope of section 194H of the Act, because payment in respect

10 ITA No.1251 & 1298/Chny/2019

of each person does not exceed Rs.5000/- and hence, the

assessee does not require to deduct TDS, as per provisions of

section 194H of the Act, and thus, disallowance u/s.40(a)(ia) of

the Act for non-deduction of TDS cannot be made. The

revenue has failed to bring on record any evidence to counter

findings of fact recorded by the learned CIT(A), except stating

that the learned CIT(A) has accepted additional evidence in

contravention of Rule 46A of Income Tax Rules,1962.

Therefore, we are of the considered view that there is no error in the findings recorded by the learned CIT(A) to delete

additions made towards commission payment of

Rs.80,89,524/- . As regards remaining commission payment of

Rs.18,44,989/-, the assessee sought for deduction on the

ground that said payment has been made before end of

relevant financial year in light of decision of the Hon’ble

Allahabad High Court in the case of CIT Vs.Vector Shipping

Services Pvt.Ltd.(supra). The fact remains that the Hon'ble

Supreme Court has subsequently reversed decisions of various

High Courts in the case of Palam Gas Servicevs.CIT (2017) 394 ITR 300, and held that provisions of section 40(a)(ia) of the

Act, is applicable for non-deduction of TDS under respective

11 ITA No.1251 & 1298/Chny/2019

provisions of the Act, even though impugned payments are

made before end of relevant financial year. The learned

CIT(A), after considering relevant facts has rightly sustained

additions made by the Assessing Officer towards disallowance

of commission of Rs.18,44,989/-. Therefore, we are of the

considered view that there is no error in the reasoning given by

the learned CIT(A) insofar as issue of disallowance of

commission and hence, we are inclined to uphold findings of

the learned CIT(A) and reject ground taken by the revenue.

ground no.5 of revenue appeal is recomputation of book profit

u/s.115JB of the Act by making additions towards disallowance

u/s.14A r.w.r 8D of the Income Tax Rules, 1962 . We find that

this issue is squarely covered in favour of the assessee by the

decision of ITAT., Delhi Special Bench in the case of ACIT Vs. M/s.Vireet Investments Pvt.Ltd. (165 ITD 27) (SB), where it was held that computation under clause (f) of Explanation (1) to

section 115JB of the Act is to be made without resorting to

computation as contemplated u/s.14A r.w.r 8D of Income Tax Rules, 1962. The co-ordinate Bench of ITAT., Chennai in the

case of Shriram Transport Finance Company in ITA No.406 &

12 ITA No.1251 & 1298/Chny/2019

407/Mds/2017 had considered an identical issue and held that

disallowances made u/s.14A by invoking Rule 8D cannot be

added back to book profit computed u/s.115JB of the I.T Act,

1961. The learned CIT(A), after considering relevant facts has

rightly deleted additions made by the Assessing Officer towards

recomputation of book profit by making additions towards

disallowance u/s.14A r.w.r 8D of Income Tax Rules, 1962 .

Hence, we are inclined to uphold findings of the learned CIT(A)

and reject ground taken by the Revenue.

are dismissed. Order pronounced in the open court on 8th September, 2021

Sd/- Sd/- (वी.दुगा� राव) (जी.मंजुनाथ) (V.Durga Rao) (G.Manjunatha) %या�यक सद'य /Judicial Member लेखा सद'य / Accountant Member चे%नई/Chennai, *दनांक/Dated 8th September, 2021 DS आदेश क� ��त,ल-प अ.े-षत/Copy to: 1. Appellant 2. Respondent 3. आयकर आयु/त (अपील)/CIT(A) 4. आयकर आयु/त/CIT 5. -वभागीय ��त�न3ध/DR 6. गाड� फाईल/GF.