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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 I.T.A. No.728/Mds/2016, 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.
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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
4 I.T.A. No.2572/Chny/17 I.T.A. No.2636/Chny/17
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.
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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 I.T.A. No.2407/Mds/2016 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
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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.
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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.
sd/- sd/- (ए. मोहन अलंकामणी) (एन.आर.एस. गणेशन) (A. Mohan Alankamony) (N.R.S. Ganesan) लेखा सद�य/Accountant Member �या�यक सद�य/Judicial Member चे�नई/Chennai, �दनांक/Dated, the 24th May, 2018. Kri.
8 I.T.A. No.2572/Chny/17 I.T.A. No.2636/Chny/17
आदेश क� ��त�ल�प अ�े�षत/Copy to: 1. �नधा�रती /Assessee 2. Assessing Officer 3. आयकर आयु�त (अपील)/CIT(A)-15, Chennai-34 4. Principal CIT-6, Chennai 5. �वभागीय ��त�न�ध/DR 6. गाड� फाईल/GF.