ACIT, CORPORATE CIRCLE-3(1), CHENNAI vs. M/S TVS MOTOR COMPANY LIMITED, CHENNAI

PER AMITABH SHUKLA, A.M :

This appeal is filed by the Revenue contesting order of the CIT(A) in the case of M/s.TVS Motor Company Ltd for AY-2016-17 u/s 250(6) vide ITA No.584/CIT(A)-16 / 2019-20 dated 27.09.2022.

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Clauses Act, the last day has to be reckoned by inferring the word “to” mentioned thereof. However, while computing the 60 day period, for the purpose of Section 92CA(3A), the last date of limitation prescribed under the Act will have to be excluded as the section uses the phrase “prior to” the date and not merely the phrase “to” on which date the period of limitation expires. Therefore, the last date, for the purpose of computation of 60 days period, has to be computed from 30.12.2019 which is prior to 31.12.2019. While computing the 60 days backwards from 30.12.2019, the 60th day falls on 01.11.2019, including 30.12.2019 and 01.11.2019. However, the Section states that “before 60 days prior to limitation under Section 153 of the Act” which means the order of assessment should be passed before 01.11.2019, excluding the first day and as such 31.10.2019 will be the last date for the Transfer Pricing Officer to pass the Transfer Pricing Assessment Order. Therefore, the period of limitation prescribed under a statute has to be adhered to strictly without any departure therefrom….” 6. The above analogy of timelines available u/s 92CA(3) have been reiterated by the Hon’ble Jurisdictional High Court in the case of Pfizer as well as by the coordinate bench of this tribunal in its decisions including in the case of EATON Power Quality Pvt Ltd, 152 Taxmann.com 258. 7. The Ld.CIT(DR) placed reliance upon the order of the TPO and submitted that department has filed an SLP contesting the orders of Hon’ble Jurisdictional High Court. The department has however failed to show that the order in the case of Saint Gobain or Pfizer Supra has been stayed by the Hon’ble Apex Court. 8. After considering rival submission, facts of the case and judicial citation relied upon we hold the view that the statutory provisions of section 92 CA(3) are clear as far timelines of 60 days available to the TPO to pass his order, a day prior to the end of the day to pass assessment order are quite clear and there is no confusion in the same. Respectfully following the order of the Hon’ble Jurisdictional High Court as well as of the coordinate bench of this

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tribunal, we confirm the order of the CIT(A) dated 27.09.2022. The ground of appeal raised by the department is therefore dismissed. 9. The next ground of appeal is regarding the action of the Ld.CIT(A) in deleting the addition made by the AO under rule 14A and 8D(2)(ii) and 8D(2)(iii). The AO observed that the assesse has earned total exempted income of Rs.11,28,00520 in the form of dividend income and claimed it as exempt u/s 10(34). While doing so the assesse himself allowed an amount of Rs.16,452 u/s 14A r.w Rule 8D. The AO relying upon Apex Court decision in the case of MAX OPP Investments recorded his satisfaction that the provisions of section 14A r.w Rule 8D are applicable in assessee’s case and recomputed the disallowance. Thus the AO proceeded to make an addition of Rs.8,59,05,549/-. The CIT(A) while deleting the addition has recorded his findings in Para-5.3 and 5.31 of his order reproduced hereunder: “… I have carefully considered the matter. The AO had resorted to provision of Rule 8D and had disallowed proportionate interest paid amounting to Rs.5,58,74,455/- under Rule 8D(2)(ii) and half per cent of investment under Rule 8D(2)(iii) amounting to Rs.3,00,47,546/-. Appellant is assailing the disallowances. Disallowance of proportionate interest is being challenged on the reasoning that assessee’s reserve and surplus was much more than the investment and under such situation, the assesse argued that an assumption has to be made that assessee’s own interest-free fund was used for making the investment. In support of proposition that disallowance of proportionate interest is not called for, reliance was placed on decision of Hon’ble ITAT in assessee’s own case for AY-2008-09 in ITA No.1782/Mds/2012 decided on 27.04.2016. In that order, Hon’ble Jurisdictional ITAT held that when assesse got its own fund and non-interest-bearing fund were more than the investment in tax-free securities, then there is no question of deeming that assesse had used the borrowed fund for investment in tax-free securities. This decision of Hon’ble ITAT in assessee’s own case is wholly binding on me; Moreover, reliance was placed on recent decision of Hon’ble Apex Court in the case of South Indian Banks Ltd vs CIT(2021) 130 taxmann.com 178(SC). In this case, the Hon’ble

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Court held that proportionate disallowance of interest is not warranted u/s 14A for investment made in tax free bonds/securities which yield tax free dividend and interest to assesse bank when interest-free fund available with assesse exceeded the investment. In coming to this decision the Hon’ble Court took into consideration various earlier decisions of Hon’ble High Courts and its own decision in the case of Maxopp Investment Ltd vs CIT(2018) 91 taxmann.com 154. The assessee’s own reserve and surplus far exceeded the investments in share and securities. In view of binding decisions of Hon’ble ITAT in assessee’s own case and decision of Hon’ble Apex Court cited above, proportionate disallowance of interest is not called for. Disallowance of Rs.5,58,74,455/-, therefore cannot be sustained. Assessee gets relief accordingly. 5.3.2 Regarding the second sum of disallowance under section 14A amounting to Rs.3,00,47,546/-, it is seen that the AO had taken the average value of investment at the beginning of the year and at the end of the year and took 0.5% of disallowance under Rule 8D(2)(iii). The appellant is challenging the disallowance on the reasoning that in reckoning the amount of investment, the AO had taken the total investment in shares and securities and not restricting to investment which had earned the exempt income. In this regard, reliance was placed on the following judicial pronouncements. i) ABC India Ltd vs ACIT(supra) ii) REI Agro Ltd vs DCIT(supra) iii) Sajjan India Ltd vs ACIT The Hon’ble ITAT, Special Bench, in the case of ACIT vs Vireet Investment (P) Ltd (2017) 82 taxmann.com 415 (Delhi-Trip) (SB) had occasion to deal with similar issue. The cross objection field in that case reads as under: “1. That the Commissioner of Income Tax (Appeals) erred on facts and in law in confirming the disallowance made by the assessing officer under section 14A the Income-tax Act, 1961 (“the Act”) to the extent of Rs.91,95,698 by observing that for the purpose of computing disallowance under Rule 8D of the Income-tax Rules, 1962(‘the Rules’), total investments as appearing in the balance sheet needs to be considered as against those investments which are capable of earning exempt income. The issue was addressed by the Bench as under: QUOTE: 7.1 In the present case, we are only concerned with clause(iii) to Rule 8D(2), reproduced above. The assessee’s first contention is that

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while considering the average value of investment only those investments are to be taken into consideration which have yielded exempt income and not those investments, which did not yield any exempt income during the year. The second contention is that phrase “shall not” in clause (iii), refers only to those investments, from which income earned can never be taxable income. The contention is that merely because the income is exempt in a particular year, but can become taxable on account of amendment in subsequent year, then the said investments are not to be taken into consideration while computing the average value of investment. 8. Ld. Counsel submitted that as regards investments, not yielding exempt income, there can be two types of investments – (a) Investment, income wherefrom is taxable. (b) Investment, income from which though not earned during the year, if earned, would have been exempt. 8.1 Ld. Counsel pointed out that as far as investments mentioned in clause (a) are concerned, the same has to be excluded while computing average value of investment in terms of rule 8D(2). However, as regards the investment contemplated in clause (b), the case of the department is that irrespective of a particular investment, capable of earning exempt income, actually fetched income during the year or not, the same is to be considered for calculating average investment under 8D of the IT Rules. 8.2 Ld. Counsel pointed out that mandate of section 14A is that expenditure incurred in relation to income, which does not form part of total income under the Act, shall not be allowed as deduction. This clearly implies that assesse should have earned some income during the relevant previous year, which does not form part of the total income under the provisions of the Act and some expenditure has been incurred by the assesse in relation to the aforesaid income, which is not included in the total income. Unless these two conditions are satisfied, the provision of section 14A cannot be invoked. 8.3. Ld counsel referred to the Collins Cobuild Student’s dictionary, wherein the expression ‘does’ refers to third person singular of the present tense of ‘do’, which means the act done in present. Therefore, the word ‘does’ refers to an act of the present and not the future. 8.4 Ld. Counsel submitted that if the department’s contention is to be accepted, then it implies that firstly the income from such investment would be earned in future and secondly such income would continue to remain exempt from tax i.e. the law at present would prevail in the subsequent year. He submitted that there is no certainty that the

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income which is exempt in current year will remain exempt in subsequent year. He pointed out that the term ‘shall’ in clause (iii) to Rule 8D(2) implies that in the current year one should be sure of income accruing in subsequent year to remain exempt. In support of his contention, he pointed out that dividend was first exempt from tax by insertion of sec. 10(33) by Finance Act, 1997 w.e.f 01.04.1998 by the Finance Act 2002, the exemption was removed and dividends were made taxable in the AY 2003-04. The exemption was again restored by insertion of section 10(34) by Finance Act 2003. Thus, he submitted that it is not necessary that, if, in any of the year, any item of income is exempt, then the same would continue remain exempt in future also. 8.5 Similarly, he pointed out that with respect to exemption from tax of long term capital gain the legislative history is as under: Section 10(38), providing exemption of LTCG earned on sale of equity shares / securities on which SIT is paid, was inserted by Finance Act, 2004 w.e.f. 1-4-2005. Prior thereto, such LTCG was also chargeable to tax. It is further to be noted that until amendment being made vide Finance Act 2006, w.e.f. 01.04.2007 in clause the same was exempt under normal provisions by virtue of section. 10(38) of the Act. 8.6 Ld. Counsel relied on the decision of Hon’ble Jurisdictional High Court in the case of CIT v. Holcem India (P.) Ltd. (2015) 57 taxmann.com 28(Delhi). 8.7 He pointed out that one of the assessment years involved in the above appeals before the Hon’ble High Court was assessment year 2008-09 and the Hon’ble Court has specifically considered, in the judgement, the applicability of Rule 8D for the said year. 8.8 Ld. Counsel also relied on the following decisions: - CIT v. Shivam Motors (P) Ltd. (2015) 55 taxmann.com 262/230 Taxman 63 (All.); - CIT v. Winsome Textile Industries Ltd.(2009) 319 ITR 204 (Punj. & Har.) 11.16 There, in our considered opinion, no contrary view can be taken under these circumstances. We, accordingly, hold that only those investment s are to be considered for computing average value of investment which yielded exempt income during the year. 11.17 As far as argument relating to meaning to be ascribed to the phrase ‘shall not’ used in Rule 8D(2)(iii) is concerned, the Revenue’s contention is that it refers to those investments which did not yield any exempt income during the year but if income would have been yielded it would have remain exempt. There is no dispute that if an investment has yielded exempt income in a particular year then it will enter the

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computation of average value of investments for the purposes of Rule 8D(2)(iii). The assessee’s contention that if there is no certainty that an income, which is exempt in current year, will continue to be so in future years and, therefore, that investment should also be excluded, is hypothetical and cannot be accepted. 11.18 In view of the above discussion, the matter is restored back to the file of AO for recomputing the disallowance u/s 14A in terms of above observations. Thus, revenue’s appeal is dismissed and assessee’s cross-objection, on the issue in question, stand allowed for statistical purposes, in terms indicated above.….” 10. We have considered the findings of the CIT(A) Supra in the light of facts of the case and the judicial citation relied upon and do not find any infirmity therein. The revenue has failed to adduce any satisfactory explanations so as to establish acceptance of its grounds of appeal. Accordingly, respectfully following the ratios in the cited decisions, we confirm the findings given by the CIT(A). The grounds of appeal raised by the revenue are therefore dismissed. 11. The next ground of appeal is regarding the action of the AO and treating the disallowance u/s 14A for calculation of book profit u/s 115JB of the Act. The Ld.CIT(A) in Para-6.2 of his order have observed as under:

“….I have considered the matter. Hon’ble Jurisdictional ITAT, in the case of Jayant Packaging (P) Ltd vs DCIT, Corporate Ward-2(2), Chennai(2021) 128 taxmann.com 2 (Chennai-Trib) decided on 21.04.2021) held that disallowance under section 14A should not be added to the book profit of assesse under section 115JB of the Act. Considering the binding decision, it is held that disallowance under section 14A should not be added to the book profit…”

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Sd/- Sd/- (महावीर स िंह) (श्री अमिताभ शुक्ला) (Mahavir Singh) (Amitabh Shukla) उपाध्यक्ष / Vice President लेखा सदस्य /Accountant Member चेन्नई/Chennai, ददनािंक/Dated: 29th May, 2024. KB/- आदेश की प्रततसलपप अग्रेपषत/Copy to: 1. अपीलधर्थी/Appellant 2. प्रत्यर्थी/Respondent 3. आयकर आयुक्त/CIT, Chennai / Madurai / Coimbatore / Salem 4. नवभधगीय प्रनिनिनर्/DR 5. गधर्ा फधईल/GF