DCIT, CHENNAI vs. SHRIRAM TRANSPORT FINANCE CO. LTD., CHENNAI

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.

of Reserve Bank of India Act.

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

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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.

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.

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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.

under Section 234D of the Income-tax Act, 1961 (in short 'the Act') to the extent of `3,48,13,498/-.

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

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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.

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.

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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.

made under Section 14A of the Act read with Rule 8D of the

Income-tax Rules, 1962.

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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.

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.

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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.

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

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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.

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,

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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.

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.

perused the relevant material available on record. The tax deducted which was not given credit to the extent of `67,16,883/- is

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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.

12 I.T.A. No.454/Mds/16 I.T.A. No.728/Mds/16

per Reserve Bank of India guidelines, while computing income

under Section 115JB of the Act.

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.

Representative also. The Ld. D.R. submitted that while computing

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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 I.T.A. No.235/Mds/2009, confirmed a similar

disallowance made by the Assessing Officer.

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

14 I.T.A. No.454/Mds/16 I.T.A. No.728/Mds/16

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.

the first ground of appeal is with regard to deletion of bad debts to the extent of `141,94,63,000/-.

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

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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.

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 I.T.A. No.924/Mds/2012

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

16 I.T.A. No.454/Mds/16 I.T.A. No.728/Mds/16

amount of ` 141,94,63,000/- which was classified as provision for

non-performing asset.

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

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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.

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.

assessee, submitted that the assessee-Trust was using Logo of

Shriram Ownership Trust for its business and paid royalty.

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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.

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.

19 I.T.A. No.454/Mds/16 I.T.A. No.728/Mds/16

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.

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

20 I.T.A. No.454/Mds/16 I.T.A. No.728/Mds/16

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 I.T.A. No.1891/Mds/2012 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.

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

21 I.T.A. No.454/Mds/16 I.T.A. No.728/Mds/16

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.

appeal of the Revenue is dismissed.

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Order pronounced on 24th August, 2016 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 August, 2016.

Kri.

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. आयकर आयु�त/CIT-6, Chennai 5. �वभागीय ��त�न�ध/DR 6. गाड� फाईल/GF.