Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, ‘B’ 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 assessee and Revenue are directed against the same order of the Commissioner of Income Tax (Appeals)-15, Chennai, dated 24.09.2015 and pertains to assessment year 2012-13. Therefore, we heard both the appeals together and disposing of the same by this common order.
Let’s first take the assessee’s appeal in I.T.A.
No.454/Mds/2016.
The first issue arises for consideration is disallowance of `375,10,96,984/- transferred to Reserve Fund under Section 45-IC of Reserve Bank of India Act.
Shri R. Sivaraman, the Ld.counsel for the assessee, submitted that the assessee transferred a sum of `375,10,96,984/- to Reserve Fund as required under Section 45-IC of the Reserve Bank of India Act and claimed the same as appropriation of funds by overriding title. However, the Assessing Officer disallowed the claim of the assessee by holding the same as application of income.
The CIT(Appeals) also confirmed the order of the Assessing Officer by placing reliance on the orders of this Tribunal in the assessee's own case for assessment years 2003-04 to 2009-10. The Ld.counsel submitted that the assessee has already filed an appeal before the High Court and the same is pending. According to the Ld. counsel, it is only an appropriation of profit as per the statutory requirement under Section 45-IC of the Reserve Bank of India Act, therefore, it cannot be held as application of income at all.
On the contrary, Dr. U. Anjaneyalu, the Ld. Departmental Representative, submitted that a similar claim of transfer to Reserve Fund was made by the assessee for assessment years 2003-04 to 2009-10. The matter had come upto Tribunal and now the matter is before the High Court. According to the Ld. D.R., the Tribunal consistently found that the funds transferred to Reserve Fund, as required under Section 45-IC of the Reserve Bank of India Act, is only an application of income, therefore, it is liable for taxation.
According to the Ld. D.R., the CIT(Appeals) by placing reliance on the orders of this Tribunal in the assessee's own case for assessment years 2003-04 to 2009-10, has confirmed the order of the Assessing Officer.
We have considered the rival submissions on either side and perused the relevant material available on record. Admittedly, the assessee has transferred a sum of `375,10,96,984/- to Reserve Fund as required under Section 45-IC of the Reserve Bank of India Act. The assessee claims that it is only an appropriation of funds by overriding title. This Tribunal examined the very same issue for assessment years 2003-04 to 2009-10 and found that the transfer of funds, as required under Section 45-IC of the Reserve Bank of India Act, is only an application of income, therefore, liable for taxation.
In view of the decision of this Tribunal in the assessee's own case, for assessment years 2003-04 to 2009-10, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed.
The next ground of appeal is with regard to levy of penalty under Section 234D of the Income-tax Act, 1961 (in short 'the Act') to the extent of `3,48,13,498/-.
Shri R. Sivaraman, the Ld.counsel for the assessee, submitted that the Department charged interest on the refund made to the assessee. This interest charged by the Revenue under Section 234D of the Act was claimed as deduction under Section 37 of the Act, otherwise the interest is an allowable expenditure under Section 36(1)(iii) of the Act. The Ld.counsel submitted that the interest paid by the assessee on the amount refunded by the Department has to be taken as loan.
On the contrary, Dr. U. Anjaneyalu, the Ld. Departmental Representative, submitted that the interest charged under Section 234D of the Act cannot be equated to the interest paid on the loan borrowed by the assessee. It is not a loan which was availed by the assessee from the Department. Prima facie, the Department found that there was an excess payment, therefore, the same was refunded to the assessee. On completion of assessment, the Revenue found that what was refunded to the assessee was not correct. Therefore, the interest was charged on the income-tax which is due from the assessee. The tax was not collected on the amount refunded to the assessee. What was collected from the assessee is the tax which was otherwise expected to be paid by the assessee. Since the assessee enjoyed the money due to the Department, interest was charged under Section 234D of the Act, therefore, it is not an allowable expenditure while computing the taxable income.
We have considered the rival submissions on either side and perused the relevant material available on record. As rightly submitted by the Ld. D.R., interest is charged under Section 234D of the Act on the excess amount refunded to the assessee while processing a return under Section 143(1) of the Act. Even though it is an interest levied on the amount refunded to the assessee, in fact, it is an interest for delayed payment of tax. In other words, the amount refunded to the assessee while processing return under Section 143(1) of the Act was considered as non-payment of tax and interest was charged for the period in which the assessee was holding the amount. Therefore, the interest paid by the assessee cannot be construed as expenditure for earning the income or for business purpose. Therefore, this Tribunal is of the considered opinion that the CIT(Appeals) has rightly confirmed the disallowance made by the Assessing Officer.
The next ground of appeal is with regard to disallowance made under Section 14A of the Act read with Rule 8D of the Income-tax Rules, 1962.
11. Shri R. Sivaraman, the Ld.counsel for the assessee, submitted that the Assessing Officer disallowed a sum of `1,43,40,000/- under Rule 8D. The assessee claimed before the Assessing Officer that the assessee-company itself disallowed some of the amount under Section 14A of the Act, therefore, there is no need for any further disallowance. According to the Ld. counsel, the Assessing Officer computed the disallowance under Rule 8D(2)(iii) of the Income-tax Rules, 1962. In fact, the assessee earned income of `2 lakhs only. Therefore, according to the Ld. counsel, the disallowance made by the Assessing Officer is not justified. Moreover, the investment was made in the sister concern of the assessee. Therefore, there was commercial expediency in making the investment. Hence, according to the Ld. counsel, the Assessing Officer is not justified in making any disallowance.
12. On the contrary, Dr. U. Anjaneyalu, the Ld. Departmental Representative, submitted that Section 14A of the Act read with Rule 8D(2) makes it very clear that when the assessee claims that no expenditure was incurred or the Assessing Officer is satisfied that the expenditure claimed by the assessee is not correct, a disallowance can be made by estimating income under Rule 8D.
The CIT(Appeals) directed the Assessing Officer to exclude the investment made in subsidiary company, therefore, the assessee cannot have any grievance at all. The disallowance was made only in respect of investments in other companies. In fact, according to the Ld. D.R., the disallowance was computed on the average investment which yielded income at the rate of 0.5%. In view of the direction of the CIT(Appeals), according to the Ld. D.R., the assessee cannot have any grievance at all.
We have considered the rival submissions on either side and perused the relevant material available on record. The CIT(Appeals) directed the Assessing Officer to exclude the investment made by the assessee in the subsidiary company and also investments made in the unquoted investments with subordinate debts of Yes Bank Ltd. to the extent of ` 50 Crores.
The CIT(Appeals) found that unquoted investments with subordinated debts of Yes Bank Ltd. would not come within the purview of Section 14A of the Act and after the direction of the CIT(Appeals), what was disputed is in respect of the investment made by the assessee in shares and debentures of other companies. This Tribunal is of the considered opinion that the Assessing Officer has to mandatorily compute the expenditure incurred in earning income, which does not form part of total income, by applying Rule 8D(2) of the Income-tax Rules, 1962.
Therefore, the borrowed funds, direct and indirect expenditure incurred by the assessee, which is not attributable to any particular income and 0.5% of the investment, which yielded income which does not form part of total income, also has to be taken into consideration. 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 is with regard to TDS credit of `67,16,883/-.
Shri R. Sivaraman, the Ld.counsel for the assessee, submitted that the assessee claimed credit of tax deducted at source to the extent of `24,97,95,185/-. The Assessing Officer, however, allowed credit to the extent of `24,35,30,430/-. The credit to the extent of `62,64,755/- was not given by the Assessing Officer.
On verification of Form 26AS, the Assessing Officer found that the total TDS was `25,02,47,313/- as against `24,97,95,185/- claimed in the return of income. Therefore, according to the Ld. counsel, there was an omission to give credit to the extent of `67,16,883/-.
The CIT(Appeals) directed the Assessing Officer to give credit after verification if permissible under the Act. According to the Ld. counsel, the tax deducted at source had to be given credit without any restriction.
On the contrary, Dr. U. Anjaneyalu, the Ld. Departmental Representative, submitted that tax deducted at source has to be taken into account as provided in Section 140A of the Act. The Ld. D.R. further submitted that the tax deducted on the income has to be offered for taxation during the year under consideration. If the assessee has not offered the income for taxation, then the corresponding tax credited cannot be given credit. Therefore, according to the Ld. D.R., there is nothing wrong in directing the Assessing Officer to allow the claim of the assessee after verification, if it is permissible under the law. According to the Ld. D.R., if it is permissible under the law, it can be allowed, otherwise tax deducted cannot be given credit.
We have considered the rival submissions on either side and perused the relevant material available on record. The tax deducted which was not given credit to the extent of `67,16,883/- is not in dispute. The assessee claims that it has to be given credit without any restriction. We have carefully gone through the provisions of Section 140A of the Act. When the self-assessment tax was to be paid, the assessee has to take into account the tax already paid and also the tax deducted or collected at source.
Therefore, when a tax was collected in respect of the income, which was accrued to the assessee during the year under consideration, the same has to be given credit. This Tribunal is of the considered opinion that the credit found in Form 26AS and the certificate issued by the deductor under Form 16A need to be verified. The Assessing Officer shall give credit in accordance with law while computing the tax liability of the assessee. Therefore, this Tribunal do not find any reason to interfere with the order of the CIT(Appeals) in which a direction was issued to give credit after verification, if permissible under the Act. This Tribunal is of the considered opinion that such direction would not prejudice the interest of the assessee in any way. Therefore, the order of the CIT(Appeals) is confirmed.
The next issue arises for consideration is disallowance of `252 Crores being the amount transferred to Statutory Reserve as
per Reserve Bank of India guidelines, while computing income under Section 115JB of the Act.
Shri R. Sivaraman, the Ld.counsel for the assessee, submitted that as per the guidelines framed by the Reserve Bank of India, the assessee has transferred a sum of `252 Crores to Statutory Reserve. The Assessing Officer, however, added the same to the total income of the assessee while computing the taxable income. According to the Ld. counsel, the Assessing Officer found that the amount was transferred to Statutory Reserve on the ground that it was a provision for non-performing assets. According to the Ld. counsel, the claim of the assessee was towards ascertainable liability, therefore, it would not form part of taxable income of the assessee. Hence, according to the Ld. counsel, the addition made by the Assessing Officer is not justified. The Ld.counsel very fairly submitted that for the assessment year 2009- 10, the very same issue came before this Tribunal in the assessee's own case and this Tribunal confirmed a similar addition made by the Assessing Officer.
We have heard Dr. U. Anjaneyalu, the Ld. Departmental Representative also. The Ld. D.R. submitted that while computing book profit under Section 115JB of the Act, the addition or deduction has to be made as provided under Explanation to Section 115JB of the Act. Once book profit was computed as per the provisions of Companies Act, no amount can be added or deducted unless it is specifically provided in Explanation to Section 115JB of the Act. In the absence of any provision in the explanation to Section 115JB of the Act to exclude the Statutory Reserve fund from the book profit, according to the Ld. D.R., the same cannot be deducted. In fact, according to the Ld. D.R., this Tribunal, for the assessment year 2009-10, in the assessee's own case by an order dated 16.07.2009 in confirmed a similar disallowance made by the Assessing Officer.
We have considered the rival submissions on either side and perused the relevant material available on record. For the purpose of Section 115JB of the Act, the book profit has to be computed as
per the provisions of the Companies Act and further addition or deduction has to be made as provided under Explanation to Section 115JB of the Act. It is not the case of the assessee that the amount transferred to Statutory Reserve is an item to be reduced from the book profit computed as per the provisions of Companies Act. In the absence of any provision in Explanation to Section 115JB of the Act to reduce the amount transferred to Statutory Reserve as per the guidelines of Reserve Bank of India, this Tribunal is of the considered opinion that the CIT(Appeals) has rightly confirmed the order of the Assessing Officer by placing his reliance on the order of this Tribunal in the assessee's own case for the assessment year 2009-10. Therefore, 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 Revenue’s appeal in the first ground of appeal is with regard to deletion of bad debts to the extent of `141,94,63,000/-.
Dr. U. Anjaneyalu, the Ld. Departmental Representative, submitted that the Assessing Officer found that the debt was written off after the respective Branch Managers explored all possibilities of collection. After realizing that recovery of amount was very remote, it was written off. In fact, this amount was also classified as non- performing asset. When identical issue came before this Tribunal, for the assessment years 2007-08, 2008-09, 2009-10 and 2011-12, this Tribunal allowed similar debt as bad debt. The Assessing Officer after referring to the order of this Tribunal found that the Department has already filed an appeal before the High Court.
Therefore, according to the Ld. D.R., just to keep the matter alive, the bad debt written off was added back to the total income of the assessee.
On the contrary, Shri R. Sivaraman, the Ld.counsel for the assessee, submitted that as rightly submitted by the Ld. D.R., this Tribunal on identical set of facts, allowed the claim of the assessee.
The Assessing Officer just to keep the matter alive, added back the bad debt to the total income since there is a pendency of appeal before the High Court. According to the Ld. counsel, mere pendency of appeal before the High Court cannot be a reason to disallow the claim of the assessee. The Ld.counsel further submitted that for the assessment year 2007-08, a similar disallowance was deleted by the CIT(Appeals) and this Tribunal confirmed the order of the CIT(Appeals) in dated 02.08.2012. Similarly, for the assessment years 2010-11 and 2011-12 also similar order of the CIT(Appeals) was confirmed by this Tribunal. Moreover, the assessee has written off the bad debt to the extent of ` 572,36,31,000/-. This includes the disputed amount of ` 141,94,63,000/- which was classified as provision for non-performing asset.
We have considered the rival submissions on either side and perused the relevant material available on record. Admittedly, an identical issue came before this Tribunal for the earlier assessment year in the assessee's own case. This Tribunal, after considering the method of accounting followed by the assessee, found that the bad debt claimed by the assessee has to be allowed. Now the Revenue claims that an appeal has been filed before the High Court and the same is pending. It is not the case of the Revenue that the order of this Tribunal is stayed by the High Court. Just to keep the matter alive, the Revenue filed appeal before this Tribunal. This Tribunal is of the considered opinion that merely because an appeal is pending before the High Court that cannot be a reason to take a different view on the issue. A perusal of the order of this Tribunal shows that on verification of the computation of book profit, the CIT(Appeals) found that the assessee has written off bad debt to the extent of `572,36,31,000/- which includes a sum of `141,94,63,000/-. On identical set of facts, the CIT(Appeals) deleted the disallowance made by the Assessing Officer for earlier assessment years. This Tribunal, in fact, confirmed the 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 ground of appeal is with regard to addition made on account of royalty to the extent of `13,75,69,684/-.
27. Dr. U. Anjaneyalu, the Ld. Departmental Representative, submitted that the Assessing Officer made an addition of `15,72,22,496/- paid to Shriram Ownership Trust. The Assessing Officer treated the same as capital expenditure and allowed depreciation at the rate of 12.5%. According to the Ld. D.R., the payment made to Shriram Ownership Trust towards royalty is nothing but a capital expenditure, therefore, the Assessing Officer has rightly allowed depreciation. Hence, according to the Ld. D.R., the CIT(Appeals) is not justified in deleting the addition made by the Assessing Officer.
On the contrary, Shri R. Sivaraman, the Ld.counsel for the assessee, submitted that the assessee-Trust was using Logo of Shriram Ownership Trust for its business and paid royalty.
According to the Ld. counsel, Shriram Ownership Trust is a separate entity. For using its Logo in the business of the assessee, a payment needs to be made and the assessee is not purchasing the Logo. What was obtained by the assessee is only the right to use Logo. Therefore, according to the Ld. counsel, it cannot be treated as capital expenditure.
We have considered the rival submissions on either side and perused the relevant material available on record. What was paid by the assessee is for the right to use the Logo belonging to Shriram Ownership Trust. When the assessee made payment for use of right, this Tribunal is of the considered opinion that the same cannot be treated as capital expenditure. Therefore, the CIT(Appeals) has rightly found that the payment made by the assessee is in the revenue field. In fact, similar addition made by the Assessing Officer for the assessment year 2002-03 was deleted by this Tribunal. The CIT(Appeals) by placing reliance on the order of this Tribunal in Shriram Tamil Nadu Pvt. Ltd., allowed the claim of the assessee. 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 ground of appeal is with regard to ESOP expenditure to the extent of `57,42,000/-.
Dr. U. Anjaneyalu, the Ld. Departmental Representative, submitted that the assessee claimed expenditure of `57,42,000/- towards ESOP. The assessee claimed before the Assessing Officer that it is a compensation made to the employees of the assessee.
Therefore, the same has to be allowed as revenue expenditure. For the purpose of allowing the claim of the assessee as revenue expenditure, according to the Ld. D.R., the assessee has to incur expenditure. In the case before us, no expenditure was incurred.
According to the Ld. D.R., the so-called ESOP expenditure goes to increase the share capital of the company. Hence, it has to be treated as capital expenditure. Therefore, the CIT(Appeals), according to the Ld. D.R., is not justified in allowing the claim of the assessee.
On the contrary, Shri R. Sivaraman, the Ld.counsel for the assessee, submitted that the Employees Stock Option Scheme, 2005 promoted by the company was implemented with effect from 13.10.2005. The object of the Scheme was to motivate the employees to achieve the business goals and to retain key talented employees in the organization. As per this Scheme, an eligible employee is entitled to own equity shares of face value of `10/- each at an excess price of `35/- on the date of grant. The issue price of `35/- per share and fair price on the date of vesting on the employee was taken as amount foregone by the assessee and the same was claimed over the period of vesting. Placing reliance on the judgment of Madras High Court in CIT v. PVP Ventures Ltd. (235 Taxmann 554), the Ld.counsel submitted that on identical set of facts, the Madras High Court allowed the claim of the assessee.
The Ld.counsel has also placed his reliance on the decision of this Tribunal in dated 11.04.2013. Referring to the Employees Stock Option Scheme, 2005, the Ld.counsel submitted that the option was given by the assessee-company directly to the employees, therefore, the difference in price has to be allowed.
We have considered the rival submissions on either side and perused the relevant material available on record. We have carefully gone through the orders of both the authorities below. The Assessing Officer found that in the assessee's own case for earlier assessment year, on the basis of very same Employees Stock Option Scheme, 2005, this Tribunal allowed the claim of the assessee for the assessment year 2009-10. The Assessing Officer found that the appeal is filed before the Madras High Court and the same is pending. The Assessing Officer also found that the Revenue has filed SLP against the judgment of Madras High Court in PVP Ventures Ltd. (supra) before the Supreme Court and the same was dismissed. Pending finality through review or curative petition, the Assessing Officer disallowed the claim of the assessee in order to protect the interest of the Revenue. This Tribunal is of the considered opinion that when the matter was finally decided by the jurisdictional High Court and the Revenue’s SLP was dismissed by the Apex Court, the Assessing Officer has to follow the judgment of Madras High Court. Moreover, for assessment year 2009-10, this Tribunal allowed similar claim of the assessee on the basis of very same Employees Stock Option Scheme, 2005. 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, appeal of the assessee is partly allowed and the appeal of the Revenue is dismissed.
Order pronounced on 24th August, 2016 at Chennai.