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Income Tax Appellate Tribunal, ‘C’ BENCH, CHENNAI
Before: SHRI A.MOHAN ALANKAMONY & SHRI DUVVURU RL REDDY
आदेश / O R D E R
Per A. Mohan Alankamony, AM:-
This appeal by the assessee and the Revenue are directed against the order passed by the learned Commissioner of Income Tax (Appeals)-15, Chennai dated 19.07.2016 in for the assessment year 2013-14 passed U/s.250(6) r.w.s. 143(3) of the Act.
The assessee has raised several grounds in its appeal, however the crux of the lone issue is that the Ld.CIT(A) has erred in partly confirming the order of Ld.AO with respect to invoking the provisions of Section 14A r.w.r 8D of the Rules towards investment made in mutual funds and shares in companies other than sister concerns.
The Revenue has also raised several elaborate grounds in its appeal; however the cruxes of the issues are that i. The Ld.CIT(A) has erred in directing the Ld.AO to delete the addition made towards royalty payments
of Rs.80,94,575/- by treating it as revenue expenditure. ii. The Ld.CIT(A) has erred in directing the Ld.AO to exclude the investment made in sister concern while computing disallowance U/s.14A r.w.r. 8D of the Rules and also to verify the calculation for making disallowance U/s.14A r.w.r. 8D. iii. The Ld.CIT(A) has erred in directing the Ld.AO for excluding the disallowance made U/s.14A of the Act, while computing book profit U/s.115JB of the Act.
The brief facts of the case are that the assessee is a limited company engaged in investment business, filed its return of income for the assessment year 2013-14 on 28.09.2013. The case was selected for scrutiny under CASS and final order U/s. 143(3) was passed on 13.03.2016 wherein the Ld.AO made several additions.
Assessee’s Appeal in Confirming the addition made by the Ld.AO U/s.14A of the Act with respect to investment made in mutual funds and investment in companies other than assessee’s sister concerns:- During the course of assessment proceedings, it was observed by the Ld.AO that the assessee has made investment to the tune of Rs.56,29,96,214/- which earns tax free income. It was also noticed by the Ld.AO that the assessee has received dividend income of Rs.1,76,66,207/- during the relevant previous year. Therefore the Ld.AO invoked the provisions of Section 14A of the Act and commuted the disallowance of Rs.80,94,575/- under rule 8D(i), (ii) & (iii) of the Rules. On appeal, the Ld.CIT(A) following the decision of its predecessor in ITA No.222/CIT(A)- 15/14-15 for the assessment year 2012-13 dated 24.09.2015 directed the AO to exclude the investments made in subsidiary companies. However, confirmed the disallowance with respect to investments made in mutual fund and other companies. Aggrieved by the order of the Ld.CIT(A), the assessee is before us. After hearing both sides, we find the issue squarely covered by the order of the Chennai Bench of the Tribunal on the identical issue in favour of the Revenue. The gist of the order is reproduced herein below for reference: M/s. SIDD Life Sciences in ITA No.3004/Mds/2016, order dated 10.04.2017:-
Therefore, following the aforesaid decision of the Tribunal, we hereby direct the learned Assessing Officer to delete the addition made on account of section 14A where investments are made in sister concerns such as equity shares and share application money. However, if the investments are made from borrowed funds, section 14A of the Act would be applicable and learned Assessing Officer shall compute the disallowance under section 14A read with rules 8D in accordance with law.”
6.1 Accordingly we hereby remit back the matter to the file of the Ld. AO to consider the issue afresh in the light of the above order of the Tribunal and pass appropriate order in accordance with merits and law. We also make it clear that for the investments made in mutual funds, provisions of Section 14A read with Rule 8D will be applicable since the assessee would incur some expenditure at least for the decision making process as to in which mutual fund the investment has to be made and at what point of time exit from such funds. It is ordered accordingly.
Considering the above ratio laid down by the Chennai Bench of the Tribunal that provisions of Section 14A r.w.r.8D is applicable in respect of investment made in mutual funds and unrelated companies wherein the income derived from which is non- taxable, we do not find any merit in the ground raised by the assessee. Accordingly we hereby confirm the order of the Ld.CIT(A) on this issue.
Revenue’s Appeal in Deleting the addition made by disallowing the royalty expenditure of Rs.97,89,965/- by treating it as revenue expenditure: The assessee had claimed an amount of Rs.97,89,965/- as royalty expenses. On query it was explained that the aforesaid amount was paid to M/s. Shriram Ownership Trust for using the copyright logo as per the agreement dated 22.07.2011. The assessee further pointed out that on the identical issue in the case of group company the Chennai Bench of the Tribunal allowed the claim of royalty expenses as revenue expenditure.
The assessee also relied on the decision of the Hon’ble Apex court in the CIT vs. Wavin (India) Ltd reported in 236 ITR 314, wherein the identical issue was held in favour of the assessee.
However, the Ld.AO rejected the claim of the assessee and disallowed the royalty expenses by treating it as capital expenditure but allowed depreciation @ 25%. On appeal, the Ld.CIT(A) following the decision of the Chennai Bench of the Tribunal deleted the addition made by the Ld.AO and allowed the claim of royalty expenditure as revenue expenditure by observing as under: “5.2.2.------------My predecessor vide 15/14-15 for A.Y 2012-13 dated 24.09.2015 has directed the AO to allow royalty as revenue expenditure and withdraw depreciation on it. The Hon’ble ITAT in the case of M/s. Shriram City Union Finance Ltd. vide ITA Nos.868 and 869/Mds/2015 for A.Y 2010-11 and 2011-12 along with M/s. Shriram Transport Finance vide ITA Nos.870 & 871/Mds/2015 for A.Y 2010-11 and 2011-12 dated 29.01.2016 allowed the royalty as revenue expenditure. Respectfully following the cases cite supra, I direct the AO to allow royalty as revenue expenditure and withdraw depreciation on it. This ground of appeal is allowed.”
After hearing both parties and perusing the issue in detail, we do not find it necessary to interfere with the order of the Ld.CIT(A), because on the identical issue, the matter has been already decided in favour of the assessee by the Chennai Bench of the Tribunal which the Ld.CIT(A) has only judiciously followed. Therefore we hereby confirm the order of the Ld.CIT(A) on this issue. Accordingly this issue is decided against the Revenue.
6.2 Direction of the Ld.CIT(A) to exclude the investment made in sister companies earning exempt income while computing disallowance U/s.14A r.w.r. 8D of the Rules and verify the calculation made U/s.14A of the Act:- With respect to the issue of excluding the investment made in sister companies, since the Ld.CIT(A) has followed the ratio laid down in the decision of the Chennai Bench of the Tribunal in the case of M/s. SIDD Life Sciences cited supra in the assessee’s appeal para 5 herein above, we do not find it necessary to interfere with the order of the Ld.CIT(A) on this issue. Therefore this ground raised by the Revenue does not have merit and therefore decided against it. Further we are also of the opinion that in the interest of justice there is no harm in verifying the calculation made U/s.14A of the Act as directed by the Ld.CIT(A). Therefore on this issue also, we do not find it necessary to interfere with the order of the Ld.CIT(A). Accordingly, this ground raised by the Revenue is also held against it.
6.3 Deletion of the addition made to book profits U/s.115JB of the Act:- The Ld.AO while computing the book profit of the assessee U/s.115JB of the Act made addition by disallowing the expense computed U/s.14A of the Act of Rs.80,94,575/-. On appeal the Ld.CIT(A) deleted the addition following the decision of the Chennai Bench of the Tribunal on the identical issue in the case of associated company M/s. Shriram Capital Limited in dated 26.06.2015, wherein it was held that disallowance made U/s.14A of the Act, read with rule 8D cannot be added to the book profit U/s.115JB of the Act. Since the Ld.CIT(A) has only followed the decision of the Chennai Bench of the Tribunal on the identical issue, we do not find it necessary to interfere with the order of the Ld.CIT(A) on this issue. It is also worthwhile to mention at this juncture that while interpreting fiscal statutes, on a provision of the Act with friction, another provision of the Act with friction cannot be superimposed. Therefore this ground raised by the Revenue also does not have merit and will not survive.
In the result appeal of the assessee as well as that of the Revenue are dismissed.
Order pronounced in the court on the 08th June, 2017.