TaxTMI 
TaxTMI 
2014 (6) TMI 969
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....r dated 30.12.2009 passed by the Assessing Officer u/s 143(3) of the Income-tax Act,1961 (in short "the Act"). 3. The Grounds of Appeal raised in the appeal of the assessee are as follows :- "Based on the facts and circumstances of the case, Bajaj Auto Finance Ltd. [hereinafter referred to as 'Appellant'] respectfully submits that the Hon'ble CIT(A) erred in disposing the appeal of the Appellant, on the following grounds which are without prejudice to each other: 1. DEPRECIATION ON THE ASSETS GIVEN ON LEASE UNDER FINANCIAL LEASE The Hon'ble CIT(A) erred in upholding the action of the Assessing Officer in disallowing depreciation on the assets given on lease under financial lease agreements amounting to Rs. 21,76,76,824/-. 2. ADHOC DISALLOWANCE OUT OF COMMISSION PAID 2.1 The Hon'ble CIT (A) erred in confirming the action of the Assessing Officer in disallowing commission on an adhoc basis to the extent of Rs. 1,01,70,446/- being 2% of the total commission paid of Rs. 51,35,22,303/-. 2.2 The Hon'ble CIT(A) erred in not following his predecessor's order for AY 2006-07, wherein, under similar facts & circumstances, the addition was totally....
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....e company as a part of it's business leased out it's vehicles to the customers and has no physical affiliation with the Vehicles. In fact, lessees were registered as the owners of the vehicles, in the certificate of registration issue under the Motor Vehicles Act, 1988. The assessee company claimed the depreciation on the vehicles which were claimed to have been leased out and finance by the assesse. Moreover, the depreciation was also claimed at higher rate by taking the stand that the vehicles were used in the business of running them on hire. The Assessing Officer disallowed the claim of the depreciation on the leased vehicles. 8. When the matter reached before the Hon'ble Supreme Court it is held that the assessee did use the vehicles in the course of it's leasing business and the trucks were not used by the assessee is not relevant for the purpose of Sec. 32 of the Income-tax Act. On the requirement of the issue of the ownership, the Hon'ble Supreme Court held that the assessee is the owner of the vehicles and as the owner, it use the assets in the course of it's business and satisfy both the requirements of Sec. 32 of the Act and is entitled to claim depreciation in....
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....under financial lease. Thus, assessee succeeds on first Ground. 8. The second Ground raised by the assessee relates to an ad-hoc disallowance of Rs. 1,01,70,446/- sustained by the CIT(A) out of commission expenditure. In this context, it may be noted that the Assessing Officer made a total disallowance of Rs. 2,56,76,115/- against which the CIT(A) deleted a sum of Rs. 1,54,05,669/- and retained the balance addition of Rs. 1,01,70,446/-. On this aspect, Revenue is also aggrieved and by way of Ground of Appeal No.3 in cross-appeal, it has assailed the part-relief allowed by the CIT(A). In this background, the Ground of Appeal No.2 of the assesse and the Ground of Appeal No.3 of the Revenue are cross-grounds, which relate to the same issue and are thus taken-up together. 9. Briefly put, the relevant facts are that assessee had claimed marketing commission of Rs. 29,81,36,221/- and recovery commission of Rs. 21,53,86,082/- aggregating to Rs. 51,35,22,303/-. During the course of assessment proceedings, the Assessing Officer required the assessee to furnish the name and addresses of the parties, where the receipt of commission exceeded Rs. 25,000/-. In response, assessee furnished the ....
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....ment order, are stated to be those parties with whom assessee has undertaken transactions of commission payments in the immediately preceding assessment year 2006-07 as well as in the subsequent assessment year 2008-09. The learned counsel pointed out that the disallowance of payment to such parties made in the preceding assessment year of 2006-07 stood deleted by the then CIT(A) and so far as the subsequent assessment year 2008-09 is concerned, no such disallowance has been made by the Assessing Officer himself. It was therefore contended that the part disallowance made by the CIT(A) was unjustified and rather the entire expenditure was allowable. 12. On the other hand, the learned Departmental Representative appearing for the Revenue assailed the order of the CIT(A) and submitted that the Assessing Officer was justified in making disallowance to the extent of 5% of the total expenditure as a test check of the parties revealed that the assessee could not obtain the requisite confirmations for 13 out of 22 parties. 13. We have carefully considered the rival submissions. Undisputedly, the expenditure on account of commission payments has been incurred by the assessee is in the cou....
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....tire addition. In the result, whereas the Ground of Appeal No.2 of the assessee is allowed the Cross-ground of Appeal No.3 of the Revenue is dismissed. 14. Thus, the appeal of the assessee in ITA No.1175/PN/2012 for assessment year 2007-08 is allowed. 15. Now, we may take-up the cross-appeal of the Revenue for assessment year 2007-08, wherein the following Ground of Appeal have been raised :- "1. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the addition of Rs. 11,83,05,574/- made on account of Bad debts by overlooking the fact that the assessee company could not prove the Bonafide of the said bad debts and the accounting entries thereof. 2. Whether on the facts and circumstances of the case, the Ld. CIT(A) was justified in deleting the addition of Rs. 5,76,03,086/- made on account of interest on Non-Performing Assets? 3. Whether on the facts and circumstances of the case, the Ld. CIT(A) was justified in restricting the disallowance of Rs. 2,56,76,115/- made on account of commission paid of Rs. 1,01,70,446/-." 16. In the appeal of the Revenue, the first Ground relates to the disallowance of bad debts written-o....
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....had become bad in the preceding assessment year of 2005-06 itself but the same have been written off during the current assessment year i.e., A.Y. 2006-07 and that assessee cannot choose the year of write-off, thirdly that it was not known as to what efforts were made by the assessee to recover such bad debts. The CIT(A) has since allowed the claim of the assessee. While doing so, the CIT(A) considered the Remand Report of the Assessing Officer and thereafter concluded that the claim of the assessee was allowable in terms of the judgment of the Hon'ble Supreme Court in the case of TRF Ltd. Vs. CIT 323 ITR 397 (SC) and that of the Hon'ble Bombay High Court in the case of DIT Oman International Bank 313 ITR 128 (Bom). Against the aforesaid decision of the CIT(A), Revenue is in appeal before us. 45. Before us, the point made out by the Ld. DR is that the Assessing Officer was justified in disallowing the claim on the ground that assessee could not prove that the debts had become bad in the year under consideration. According to the Ld. DR, the bonafides of the claim also could not be proved and therefore, the Assessing Officer had rightly disallowed the claim. 46. On the other han....
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....t customers. Explaining the recovery efforts, the learned counsel explained that the assessee has a countrywide network of recovery agencies and Direct Market Agents (i.e. DMAs) coupled with its own in-house collection teams. It has also been explained that the majority of debts written-off is on account "loss on sale of seized goods" which represent cases of defaulting hirers from whom the assets were seized and thereafter sold. The loss arising on sale of such assets is written-off as bad debts. According to the learned counsel, the fact that the maturity of bad debts written-off is on account of loss on sale of seized goods, the same shows that assessee has a recovery mechanism in relation to collection of outstanding debts. In this manner, the learned counsel has submitted that having regard to the facts and circumstances of the present year, the entire claim is allowable keeping in mind the precedent in the assessee's own case pertaining to assessment year 2006-07 (supra). It was also asserted in the course of hearing that the order of the Tribunal for assessment year 2006-07 (supra) on this aspect has been accepted by the Revenue, since no appeal has been filed on this aspect....
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.... assessee and held that the sum of Rs. 12,87,37,505/- was assessable as income of the assessee. The CIT(A) has deleted the addition by making following discussion :- "12. I have carefully considered the facts of the case as well as reply of the appellant. It is seen that In A.Y. 2006-07, the appeal was dismissed on this ground relying upon the judgement of the Hon'ble Supreme Court in the case of Southern Technologies Limited reported in 320 ITR 527 for the proposition that RBI directions have nothing to do with the computation of income. This judgement of the Hon'ble Apex Court was further analysed by the Hon'ble Delhi High Court in the case of CIT Vs. Vasisth Chay Vyapar Ltd. reported in 330 1TR 440 (Del) and decided the issue in favour of the assessee. Recently, Pune Tribunal in the case of DCIT Vs. Alfa Laval Financial Services Ltd. in ITA No. 138/PN/06 for A.Y. 2001-02 held that the judgement of Hon'ble Supreme Court in Southern Technologies Ltd. (supra) stands on a different footing than the judgement of the Hon'ble Delhi High Court in the case of Vasistha Chay Vyapar Ltd. (supra). The aforesaid two decisions operate in different fields in as much ....
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....mental Representative is that in the immediately preceding assessment year 2006-07, the Tribunal in the appeal of the assessee vide ITA No.1092/PN/2010 dated 31.08.2012 following the decision of the Tribunal in the assessment years 1996-97 to 1999-2000 and 2000-01 to 2003-04 vide ITA Nos.805/PN/2001 and others order dated 31.03.2010 remanded back the issue to the file of the Assessing Officer for re-adjudication. The relevant discussion in the order of the Tribunal dated 31.08.012 (supra), which is a common order for assessment years 2004-05 to 2006-07, is as under :- "22. The next ground raised by the Revenue is with regard to an addition of Rs. 1,76,99,057/- representing income on account of non- performing assets. The facts in brief are that assessee had not accounted for the interest income pertaining to certain hire purchase transactions on the ground of the same being non-performing assets following the RBI guidelines. The Assessing Officer noticed that in the past assessment years 1996-97 to 2003-04, similar issue was subject matter of consideration in the assessment proceedings, whereby the same was found to be taxable. As per the Assessing Officer, the amount of Rs....
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....of the order of the Tribunal wherein the matter has been sent back. According to him, the CIT(A) erred in deleting the addition. 26. Per contra, the learned Representative for the assessee asserted that the CIT(A) made no mistake in deleting the addition because all the aspects, including those required by the Tribunal, were indeed considered by the CIT(A) in the course of appellate proceedings and on that basis the CIT(A) has found the addition to be not maintainable. The learned counsel further pointed out that for the assessment years 2004-05 to 2006-07, the Tribunal vide order dated 31.08.2012 (supra) has required the Assessing Officer to reconsider the issue not only in the light of the judgement of the Hon'ble Supreme Court in the case of Southern Technologies Ltd. (supra) but also in the light of the judgement of the Hon'ble Delhi High Court in the case of M/s Vasisth Chay Vyapar Ltd. (supra) as well as the decision of the Pune Bench of the Tribunal in the case of Alfa Laval Financial Services Ltd. (supra). The learned counsel referred to the submissions put-up before the CIT(A) which have been reproduced in the impugned order, and on that basis it is sought to be demonstra....
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.... Ltd. (supra) to submit that there is no accrual of income in relation to assets which are classified as NPAs in terms of RBI guidelines. In this context, the CIT(A) has factually concluded that the amount of Rs. 12,87,37,505/- pertains to interest on NPAs. This finding of the CIT(A) is not disputed by the Revenue. In the background of this undisputed factual position, now we have to examine the ultimate conclusion of the CIT(A). As per the CIT(A), unrecognized income on NPAs classified in terms of RBI guidelines cannot be assessed on actual basis. The aforesaid stand of the CIT(A) is directly supported by the judgement of the Hon'ble Delhi High Court in the case of Brahamputra Capital Financial Services Ltd. (supra), which is also a case of a NBFC. The CIT(A) has also relied upon the decision of the Pune Bench of the Tribunal in the case of Alfa Laval Financial Services Ltd. (supra), which is also a copy of a NBFC. The Revenue has not brought to our notice any decision to the contrary. 29. In the above background, the learned counsel for the assessee is justified in arguing that no useful purpose would be served by remanding the issue back to the file of the Assessing Officer fol....
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....f the Act made by the Appellant in the Return of Income was reasonable. 3. NOT GRANT OF TDS CREDIT 3.1The learned CIT(A) erred in directing the AO to allow TDS credit as per Form 26AS as against TDS credit as per the TDS certificates." 34. In so far as Ground of Appeal No.1 is concerned, it relates to assessee's claim of depreciation on assets leased out in the course of business of hire-purchase and leasing. The said dispute is identical to Ground of Appeal No.1 adjudicated by us in earlier paras in assessee's appeal for assessment year 2007-08. Following the aforesaid, the Ground of Appeal is allowed. 35. By way of Ground of Appeal No.2, assessee has assailed the order of the CIT(A) upholding the action of the Assessing Officer in making a disallowance of Rs. 71,13,261/- u/s 14A of the Act r.w. rule 8D of the Income Tax Rules, 1962 (in short "the Rules"). In this context, brief facts are that the assessee company had declared an income of Rs. 1,09,58,664/-, which was exempt in terms of Chapter-III of the Act. In the computation of income filed, assessee had offered an amount of Rs. 57,600/- disallowable u/s 14A of the Act on the ground that such expenditure was incurred in ....
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....f the Hon'ble Bombay High Court in the case of Godrej & Boyce Manufacturing Co. Ltd. (supra), which is to the effect that recording of an objective satisfaction as mandated in section 14A(2) of the Act is necessary before invoking rule 8D of the Rules for the purposes of computing the disallowance u/s 14A of the Act. According to the learned counsel, in the present case, no such satisfaction has been recorded by the lower authorities and therefore the enhancement of the amount disallowable u/s 14A of the Act is untenable in the eyes of law. A reference has been made to the decision of the Pune Bench of the Tribunal in the case of Kalyani Steels Ltd. vs. Addl.CIT vide ITA No.1733/PN/2012 dated 30.01.2014, wherein following the judgement of the Hon'ble Bombay High Court in the case of Godrej & Boyce Manufacturing Co. Ltd. (supra), it has upheld the aforesaid proposition. Reliance has also been on the following decisions of the Tribunal : (i) JK Investors (Bombay) Ltd. vs. ACIT vide ITA No.7852/Mum/2011 & ITA No.7851/Mum/2011 dated 13.03.2013; and, (ii) M/s Shiva Projects Engineering & Enterprises Limited vs. ACIT vide ITA No.1896Mds/2011 dated 17.02.2012. 38. Apart from the aforesai....
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....ch disallowance on account of an application of section 14A of the Act, is the subject-matter of dispute before us. The disallowance of Rs. 57,600/- estimated by the assessee comprised of direct expenses of Rs. 7,600/- relating to Demat charges and Rs. 50,000/- based on the past assessments whereas the Revenue computed the disallowance at Rs. 71,70,861/- by invoking the computation mechanism provided in rule 8D of the Rules. 41. The action of the Assessing Officer to invoke rule 8D of the Rules for the purposes of computing the disallowance is the bone of contention before us. The power of the Assessing Officer to invoke rule 8D of the Rules in order to compute the disallowance u/s 14A of the Act is contained in sub-section (2) of section 14A of the Act. So however, invoking of rule 8D of the Rules by the Assessing Officer is subject to fulfillment of a condition prescribed in sub- section (2) of section 14A of the Act itself. Sub-section (2) of section 14A of the Act prescribes that the Assessing Officer shall determine the amount of expenditure incurred in relation to income which does not form part of the total income in accordance with such method as may be prescribed, such me....
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....gements of the Hon'ble Bombay High Court and Hon'ble Delhi High Court in the cases of Godrej & Boyce Manufacturing Co. Ltd. (supra) and Maxopp Investment Ltd. & Ors. (supra) respectively, it has to be held that resort to rule 8D of the Rules for the purposes of computing the disallowance u/s 14A of the Act is permissible only where the Assessing Officer records a finding that he was not satisfied with the correctness of the claim of the assessee in support of such expenditure, having regard to the accounts of the assessee. 42. Further, we would refer to the following discussion in the judgement of the Hon'ble Bombay High Court in the case of Godrej & Boyce Manufacturing Co. Ltd. (supra) :- "70. Now, in dealing with the challenge it is necessary to advert to the position that sub-section (2) of section 14A prescribes a uniform method for determining the amount of expenditure incurred in relation to income which does not form part of the total income only in a situation where the Assessing Officer, having regard to the accounts of the assessee is not satisfied with the correctness of the claim of the assessee in respect of such expenditure. It, therefore, merits emphasis tha....
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....conclusiveness of an executive authority's opinion as to the existence of a matter of law or fact upon which the validity of the exercise of the power is predicated". (M. A. Rasheed v. State of Kerala [1974] AIR 1974 SC 2249*). A decision by the Assessing Officer has to be arrived at in good faith on relevant considerations. The Assessing Officer must furnish to the assessee a reasonable opportunity to show cause on the correctness of the claim made by him. In the event that the Assessing Officer is not satisfied with the correctness of the claim made by the assessee, he must record reasons for his conclusion. These safeguards which are implicit in the requirements of fairness and fair procedure under article 14 must be observed by the Assessing Officer when he arrives at his satisfaction under sub-section (2) of section 14A. As we shall note shortly hereafter, sub-rule (1) of rule 8D has also incorporated the essential requirements of sub-section (2) of section 14A before the Assessing Officer proceeds to apply the method prescribed under sub-rule (2). [underlined for emphasis by us] to infer that the satisfaction of the Assessing Officer required in terms of section 14A(2) of....
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....sessee's case. However, I do not agree with the contention of the assessee. Contextual interpretation of section 14A clearly suggests that expenditure in relating to exempted income has to be disallowed even though such expenditure would have been allowable under the computational provisions relating to various heads of income. Section 14A has an overriding effect over the computational provisions under various heads. Consequently, in the case of an assessee carrying on a business activity, any expenditure incurred by him even though allowable under section 36(1)(iii) or section 37 can be disallowed under section 14A if such expenditure has been incurred in relation to the income not forming part of total income. Reliance is placed on ITO vs. Daqa Capital 117 ITD 169 (Special Bench). Hence, a disallowance of Rs. 71,70,861/- is made u/s 14A of the IT Act, 1961. The working of the same is as per Annexure A. However, the assessee shall get a deduction of Rs. 57,600/- being the amount already disallowed by the assessee in the Statement of Total Income. Thus, effective disallowance u/s 14A would be Rs. 71,13,261/-." 44. The aforesaid discussion made by the Assessing Officer revea....
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....o be seen in the context of application of Rule 8D. There is no stipulation as to how satisfaction is to be based. Whether the satisfaction was there or not has to be seen from the action of the Assessing Officer read with the assessment order. In this case, there is assertion of the Assessing Officer that the appellant has incurred expenses for earning tax free income in the very first line of the assessment order. The Assessing Officer may not have discussed the same in details but his opening sentence itself proves that the Assessing Officer was convinced that expenditure was incurred for earning tax free income. Therefore, there is no merit in the submission of the appellant that there was no objective satisfaction by the Assessing Officer before applying Rule 8D." 46. As per the CIT(A), the use of the word "satisfaction" in section 14A(2) of the Act is to be seen in the context of application of rule 8D of the Rules and there is no stipulation as to how the satisfaction is to be based, and that the Assessing Officer need not discuss the same in detail also. 47. In our considered opinion, the CIT(A) is not correct in observing that "there is no stipulation as to how the satis....
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....l No.3 relates to the denial of credit for the tax deducted at source on behalf of the assessee. The assessee had claimed the credit in its return of income based on the TDS certificates issued by the deductors of the tax at source. The credit for a sum of Rs. 4,99,92,971/- was not allowed by the Assessing Officer on the ground that it did not match with the details mentioned in 26AS statement as available at the time of assessment. The CIT(A) has directed the Assessing Officer to allow the credit of TDS on the basis of credits available in the 26AS statement on the date of giving effect to his order. 50. Not being satisfied with the directions of the CIT(A), assessee is in appeal before us. It has been contended before us that non-availability of entire credit in the 26AS statement is on account of default on the part of the deductors of tax in filing the e-TDS returns incorrectly. However, such default on the part of the tax deductors cannot be a ground to deny credit to the assessee for the taxes deducted on its behalf, which is fully supported by the TDS certificates on record. The learned counsel for the assessee pointed out that even the CBDT vide its Instruction No.5 of 201....