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Income Tax Appellate Tribunal, ‘C’ BENCH, CHENNAI
Before: SHRI N.R.S. GANESAN & SHRI A. MOHAN ALANKAMONY
आदेश /O R D E R
PER N.R.S. GANESAN, JUDICIAL MEMBER:
Both the appeals of the Revenue and assessee are directed against very same order of the Commissioner of Income Tax (Appeals) - 15, Chennai, dated 28.08.2017 and pertain to assessment year 2014-15.
We heard both the appeals together and disposing of the same by this common order.
Let’s first take Revenue’s appeal in I.T.A. No.2572/Chny/2017.
The first issue arises for consideration is disallowance of ₹18,82,690/- towards payment of royalty.
We heard Shri Sailendra Mamidi, the Ld. Departmental Representative and Shri R. Sivaraman, the Ld.counsel for the assessee.
It was brought to the notice of the Bench that a similar royalty paid by the assessee was considered by this Tribunal for assessment year 2012-13 in a copy of which is available at page 32 of the paper-book and found that the payment was made for the right to use the Logo, hence it has to be allowed as revenue expenditure. In view of the order of this Tribunal for assessment year 2012-13 in the assessee's own case, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed.
The next issue arises for consideration is disallowance made by the Assessing Officer under Section 14A of the Income-tax Act, 1961 (in short 'the Act').
Shri Sailendra Mamidi, the Ld. Departmental Representative, submitted that the Assessing Officer disallowed ₹1,52,36,898/- by applying Rule 8D(2) of the Income-tax Rules, 1962. However, on appeal by the assessee, the CIT(Appeals) directed the Assessing Officer to restrict the disallowance upto the exempted income. Referring to Section 14A and Rule 8D(2), the Ld. D.R. pointed out that there is no provision in the Act and Rules to restrict the disallowance to the extent of exempted income. According to the Ld. D.R., when the assessee incurred expenditure for earning exempted income, irrespective of the income earned by the assessee, the entire expenditure has to be disallowed by applying the procedure provided in Rule 8D(2). According to the Ld. D.R., merely because there was no exempted income, it does not mean that the expenditure incurred by the assessee is for business purpose.
According to the Ld. D.R., Section 37 of the Act specifically provides for allowance of expenditure relatable to business profit, which is a taxable one. In respect of expenditure for earning the exempted income, according to the Ld. D.R., whether the assessee earns the income or not, the same has to be disallowed even before introduction of Section 14A and Rule 8D(2). According to the Ld. D.R., the Parliament by way of Section 14A of the Act has made it clear that the expenditure incurred with an intention to earn exempted income cannot be allowed, hence the disallowance was made as per the method prescribed under Rule 8D(2).
Therefore, according to the Ld. D.R., the direction given by the CIT(Appeals) to restrict the disallowance to taxable income is not justified.
We heard Shri R. Sivaraman, the Ld.counsel for the assessee also. The Madras High Court in the case of Redington (India) Ltd. v.
Addl. CIT (2017) 77 taxmann.com 257 observed that tax cannot be levied in vacuum. In case no income was earned, there cannot be any disallowance under Section 14A of the Act. Therefore, the CIT(Appeals) restricted the disallowance to the income earned by the assessee. In view of the judgment of Madras High Court in Redington (India) Ltd. (sura), this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed.
Now coming to the assessee’s appeal in I.T.A.
No.2636/Chny/2017, the first ground of appeal is with regard to disallowance of Reserve Fund under Section 45-IC of the Reserve Bank of India Act.
We heard Shri R. Sivaraman, the Ld.counsel for the assessee and Shri Sailendra Mamidi, the Ld. D.R. The Ld.counsel for the assessee very fairly agreed that this issue was considered by this Tribunal and it was decided against the assessee in I.T.A.
No.2407/Mds/2016.
We have carefully gone through the order of this Tribunal in the case of Shriram Capital Ltd. in dated 01.05.2017. This Tribunal by placing reliance on I.T.A. No.454/Mds/2016 dated 24.08.2016, found that transfer of funds as required under Section 45-IC of the Reserve Bank of India Act is only application of income, therefore, it is liable for taxation. In view of the above, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed.
The next issue arises for consideration is levy of interest under Section 234D of the Act.
Shri R. Sivaraman, the Ld.counsel for the assessee, submitted that this issue was decided by this Tribunal against the assessee in I.T.A.
No.2407/Mds/2016. We have carefully gone through the order of this Tribunal in I.T.A. No.2407/Mds/2016. The Tribunal found that the interest was charged on the excess amount refunded by the assessee while processing return under Section 143(1) of the Act. While proceeding under Section 143(1) of the Act, the amount refunded to the assessee was considered as non-payment of tax and interest was charged for the period for which the assessee was holding the amount. Therefore, this Tribunal confirmed similar order of the CIT(Appeals). Therefore, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed.
The next issue arises for consideration is disallowance made under Section 14A of the Act.
While considering the Revenue’s appeal, this Tribunal in the earlier part of this order found that in view of the judgment of Madras High Court in Redington (India) Ltd. v. Addl. CIT (2017) 77 taxmann.com 257, the Assessing Officer has to restrict the disallowance to the exempted income earned by the assessee. In fact, the CIT(Appeals) directed the Assessing Officer to restrict the disallowance to the exempted income earned. Therefore, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed.
The next issue arises for consideration is computation of income under Section 115JB of the Act.
Shri R. Sivaraman, the Ld.counsel for the assessee, submitted that the amount transferred to the Statutory Reserve under Section 45-IC of the Reserve Bank of India Act does not form part of real income of the assessee, therefore, it cannot form part of book profit while computing income under Section 115JB of the Act. This Tribunal is of the considered opinion that the transfer of funds to the Reserve under Section 45-IC of the Reserve Bank of India Act is only application of income, therefore, it is a profit of the assessee. Hence, the same was rightly taken as income while computing book profit under Section 115JB of the Act. Therefore, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed.
In the result, both the appeals of the Revenue and assessee stand dismissed.
Order pronounced on 24th May, 2018 at Chennai.