TaxTMI 
TaxTMI 
2013 (4) TMI 864
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....e Rs. 39,46,89,769/- in compliance with the mandatory provisions of Reserve Bank of India; and ii) the application of Rule 8D of Income-tax Rules in computing disallowance u/s.14A of the Act. in arriving at the income under the regular provisions of the Income-tax Act, 1961; and iii) not allowing the appellant's claim for deduction of Rs. 23,40,00,000/- transferred to Reserve Fund; and iv) confirming the applicability of Rule 8D of Income-tax Rules in computing the disallowance u/s.14A of the Act. in arriving at the income u/s.115JB of the Income-tax Act, is against law and facts of the case." But for the above, the ground is similarly worded in the case of assessee Shriram Transport Finance Company Ltd. as well. Learned A.R. of the assessees, at the outset, submitted that the issues were covered by order of this Tribunal in assessees' own case for assessment year 2008-09 in I.T.A. No. 701/Mds/2012 and I.T.A. No. 702/Mds/2012. According to him, very similar grounds were raised in the said appeals. Learned D.R. fairly agreed that similar issues were dealt with by this Tribunal in assessees' appeals for 2008-09. 3. Vis-à-vis the disallowance made under Sec....
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....s erred in confirming the addition of amount transferred to Statutory Reserve as per Reserve Bank of India guidelines. 3. At the time of hearing, the learned counsel for the assessees relied on the grounds of appeal and reiterated the same as his submission. 4. On the other hand, the learned D.R. filed on record copies of the orders dated 6th February, 2009 and 6th May, 2009 of ITAT, Chennai in I.T.A. Nos. 570, 571, 806 & 807/Mds/2008 and I.T.A. Nos. 1944 to 1946/Mds/2008 respectively, in the assessees' own case. By placing the above orders, the learned D.R. submitted that an identical issue has been considered by the Tribunal in the said orders and the assessee's appeals were dismissed by upholding the orders of the lower authorities. 5. We have heard the rival submissions and considered the facts and material on record including the orders of this Tribunal cited supra. We find that an identical issue had been considered by this Tribunal in the said orders and the appeals of the assessees were dismissed. In I.T.A. Nos. 570, 571, 806 & 807/Mds/2008, while dismissing the appeals of the assessee, the Tribunal has observed as follows: "2.11 Now, we examine the present ....
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.... .. ..... ....... ....... ...... ...... ..... ... .... .... .... .... 2.17 Moreover, as discussed earlier, this is only an appropriation of profits for purposes which have not yet been specified. Moreover, amount involved is very much under the control of the assessee and is lying in its business. Hence, in the background of aforesaid discussion and precedents, we uphold the well reasoned order of the learned Commissioner of Income Tax (Appeals) in this regard and decide the issue against the assessees." 6. Since the facts in the present case on our hand are identical to that of the case dealt with by the Tribunal in the said orders, following the same, we are dismissing the appeals of the assessees. 7. In the result, the appeals filed by the assessees are dismissed." 6. Respectfully following the order of this Tribunal in I.T.A. No. 235/Mds/2009 dated 16.07.2009, we dismiss the grounds of a....
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....issue and held that satisfaction of the Assessing Officer is a pre-requisite to invoke the provision of Rule 8D of the Income Tax Rules. While holding so, the Tribunal observed as under: "10. Now. Coming to ground No.3, the Department alleges that the CIT(A) has erred in restricting the addition u/s 14A of the Act to Rs. 19,43,022, as against that of Rs. .31,01,542/- made by the AO. This issue was also there before the Tribunal in the assessee's case for assessment year 2007-08. On behalf of the assessee, it has been contended that Rule 8D of the I.T. Rules was not applicable for that year; that however, in the year under consideration, no satisfaction has been recorded by the AO as to how the assessee's calculation is not correct; that however, the AO still went on to apply Rule 8D to the case; that the ld. CIT(A) also applied Rule 8D but gave only part relief to the assessee by reducing the interest, whereas regarding 0.5% of exempt investments, he approved the action of the AO; and that once Rule 8D cannot be applied, the assessee's working is to be accepted. 11. The ld. DR, on the other hand, has strongly supported the impugned order in this regard also, conte....
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....ssessee in respect of expenditure incurred in relation to income which does not form part of the assessee's total income under the Act, the AO shall determine the amount incurred in relation to such income, in accordance with such method as may be prescribed, i.e., under Rule 8D of the I.T. Rules. However, in the present case, the assessment order does not evince any such satisfaction of the AO regarding the correctness of the claim of the assessee. As such, Rule 8D of the Rules was not appropriately applied by the AO as correctly held by the CIT(A). It has not been shown by the AO that any expenditure had been incurred by the assessee for earning its dividend income. Merely, an ad hoc disallowance was made. The onus was on the AO to establish any such expenditure This onus has not been discharged. In "CIT v. Hero Cycles" (P&H) 323 ITR 518, under similar circumstances, it was held that the disallowance u/s 14A of the Act requires a clear finding of incurring of expenditure and that no disallowance can be made on the basis of presumptions in "ACIT v. Eicher Ltd." 101 TTJ (Del)369, that it was held that the burden is on the AO to establish nexus of expenses incurred with the earning ....
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....requirement of the Assessing Officer embarking upon a determination of the amount of expenditure incurred in relation to exempt income would be triggered only if the Assessing Officer returns a finding that he is not satisfied with the correctness of the claim of the assessee in respect of such expenditure. Therefore, the condition precedent for the Assessing Officer entering upon a determination of the amount of the expenditure incurred in relation to exempt income is that the Assessing Officer must record that he is not satisfied with the correctness of the claim of the assessee in respect of such expenditure. Sub-section (3) is nothing but an offshoot of sub-section (2) of Section 14A. Sub-section (3) applies to cases where the assessee claims that no expenditure has been incurred in relation to income which does not form part of the total income under the said Act. In other words, sub-section (2) deals with cases where the assessee specifies a positive amount of expenditure in relation to income which does not form part of the total income under the said Act and sub-section (3) applies to cases where the assessee asserts that no expenditure had been incurred in relation to exem....
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....see or with the correctness of the claim made by the assessee that no expenditure has been incurred. It is only when this condition precedent is satisfied that the Assessing Officer is required to determine the amount of expenditure in relation to income not includable in total income in the manner indicated in sub-rule (2) of Rule 8D of the said Rules. 31. It is, therefore, clear that determination of the amount of expenditure in relation to exempt income under Rule 8D would only come into play when the Assessing Officer rejects the claim of the assessee in this regard. If one examines sub-rule (2) of Rule 8D, we find that the method for determining the expenditure in relation to exempt income has three components. The first component being the amount of expenditure directly relating to income which does not form part of the total income. The second component being computed on the basis of the formula given therein in a case where the assessee incurs expenditure by way of interest which is not directly attributable to any particular income or receipt. The formula essentially apportions the amount of expenditure by way of interest [other than the amount of interest included in c....
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....otes on Clauses refers to clause 7 of the Bill which had sought to amend Section 14A of the said Act. It is specifically mentioned in the said Notes on Clauses that:- "This amendment will take effect from 1st April, 2007 and will, accordingly, apply in relation to the assessment year 2007-08 and subsequent years." 37. Furthermore, in the Memorandum explaining the provisions in the Finance Bill, 2006 [281 ITR (ST) at pages 281-281], it is once again stated with reference to clause 7 which pertains to the amendment to Section 14A of the said Act that:- "This amendment will take effect from 1st April, 2007 and will, accordingly, apply in relation to the assessment year 2007-08 and subsequent years." 38. We may also refer to the CBDT Circular No.14/2006 dated 28.12.2006 and to paragraphs 11 to 11.3 thereof. Paragraph 11 dealt with the method for allocating expenditure in relation to exempt income and paragraphs 11.1 and 11.2 explained the basis and logic behind the introduction of sub-section (2) of Section 14A of the said Act. Paragraph 11.3 specifically provided for applicability of the provisions of sub- section (2) and it clearly indicated that it would be applicable "f....
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....penditure is incorrect is a must for invoking the provision of sub-section (2) of section 14A of the Act. 17. Respectfully following the decision of the Hon'ble Delhi High Court in the case of MAXOPP Investment Ltd. v. CIT (supra), we hold that the Assessing Officer has to give a finding as to the correctness of the claim of the assessee before invoking the provisions of section 14A(2) read with Rule 8D for disallowing the expenditure attributable to the income exempt under the Act. No doubt, the decision of the Hon'ble High Court was rendered for the assessment years prior to the assessment year 2008-09, but the Hon'ble High Court has considered the effect of the provisions of sub-section (2) and (3) of section 14A and its applicability for the assessment year 2008-09 onwards. Therefore, in our considered view, the ratio of this decision applies to the assessment year 2008-09 and subsequent assessment years also. Further the Delhi Bench of the Tribunal in the case of DCIT v. Jindal Photo Limited (supra) has rendered its decision for the assessment year 2008-09 and is applicable for the assessment year under appeal. In the circumstances, we hold that in the assessees' case, the ....
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....ad debts in the books maintained for income-tax purposes, whereas, such bad debts were shown as provision in the books maintained under Companies Act. Provision made in the books maintained for Companies Act, which was written off in the books maintained for income-tax purposes, was on nonperforming assets. The question whether assessee could prefer different treatment in the books maintained under Income-tax Act, 1961 than the one followed by it under Companies Act, 1956, had already come up before this Tribunal in assessees' own case for assessment year 2006-07. It was held by this Tribunal at paras 5 to 9 in I.T.A. No. 726/Mds/2010 dated 16.12.2010 as under:- "5. The first issue raised, vide Ground Nos. 2.1 and 2.2, is in respect of deletion of addition of Rs. 13,57,58,000/- made after disallowing the claim of bad debts. The facts apropos this issue are that the assessee has claimed total bad debts of Rs. 83,24,39,801/-. The Assessing Officer has disallowed a sum of Rs. 13,57,58,000/- out of the total so claimed on the ground that in the books of account maintained under the provisions of Income-tax Act, the entire bad debts had been written off, but in the books maintained u....
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.... appellate authority that income computation for regular assessment is required to be done with reference to the accounts maintained for the purposes of the Income tax Act and not with reference to the set of accounts maintained for the purposes of the Companies Act and that there is no provision at all for bad debts in the income tax books on the basis of which income has to be computed. Nevertheless it is appropriate to refer to the findings of the Tribunal in its order dated 21.4.2006 in so far as the cases of Shriram Transport Finance Co Ltd, Shriram Investments Ltd and Shriram City Union Finance Ltd are concerned on the strength of which the first appellate authority has given his findings. The following findings extracted from paras 18,19, 33 and 36 of the Tribunal order dated 21.4.2006 are relevant. "18. We find that the assessee has prepared profit & loss account for the purpose of income-tax which was duly audited u/s.44AB and report in Form 3CB along with details specified in Form 3CD was filed. Some sample copies of such forms in case of three companies have been filed before us. Section 44AA requires every assessee to maintain books of accounts and if the same is rea....
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....hat bad debts have been written off. In case of Shriram Investments Ltd., from pages 11, 32, 52 & 88, it becomes clear that bad debts have been written off. 36. From the sample sheet filed before us along with copies of parties account, it becomes clear that in. the case before us the assessee has adopted a very reasonable and authentic system of writing off of bad debts. The same is being done on the basis of recoverability of a debt and after obtaining the report of the particular filed officer, who visits the particular party and then sends the recommendations accordingly. Since the assessee company is running many branches and running the business of finance, which means, the assessee has to be very careful while writing off the bad debts. The assessee company has authorized its branch managers because it is not a case of individual businessman who will exercise his judgment and therefore no intentions for claiming the bad debt just for the purpose of taxation can be imputed to the assessee. We have also gone through the decision in the case of Tamil Nadu Power Finance & Infrastructure Development Corporation Ltd., vs. JCIT(280 ITR 491) (Mad) and find that decision is not ap....
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....the income-tax cannot be conclusively determined by the manner in which accounts are presented in terms of the 1998 Directions. Though they deviate from accounting practice as provided in the Companies act, they do not override the provisions of the Income-tax Act. Therefore the decision in Southern Technologies case (supra) does not come to the aid of the Revenue. On the contrary, in the light of a proper method having been applied to identify and write off bad debts, income tax law does not envisage any further enquiry into the matter by the assessing officer as held by the courts in a number of cases. In particular, we may refer to the decision of the Supreme Court in TRF Ltd., vs CIT, Ranchi 323 ITR 397 in which it has been held that for allowance of bad debts, it is enough if bad debts are written off as irrecoverable in the accounts of the assessee and it is not necessary for the assessee to establish that the debt has in fact become irrecoverable. 9. For the foregoing reasons, we have no hesitation in upholding the deletion of Rs. 13,57,58,000/-. Consequently, the ground raised by the Revenue is dismissed." Following the above order of Tribunal, we are of the opinion t....
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....t a lump sum payment. The assessee had no other rights including the right to transfer the use of the logo. Shriram Chits & Investments Pvt. Ltd has given the right of user to other companies also which include Shriram Chits Tamilnadu Pvt. Ltd , Shriram Chits (Bangalore) Pvt. Ltd and Shriram Chits Pvt. Ltd. In assessment year 2001-02, the CIT wanted to treat the payment as capital expenditure in the case of Shriram Chits Tamilnadu Pvt. Ltd, but after hearing the assessee's objections, he dropped the proceedings initiated u/s 263 of the Act. In the case of Shriram Chits Tamilnadu Pvt. Ltd, the ld. CIT(A) has accepted the claim of the assessee by holding that this expenditure as revenue in nature and the Department has accepted this finding of the ld. CIT(A) and has not filed further appeal before the ITAT for assessment years 2004-05 and 2005-06. 18. The ld.DR has relied on the decision of Hon'ble Supreme Court in the case of Jonas Woodhead and Sons (India) Ltd vs CIT, 224 ITR 342, in support of his ground. The ld.AR has supported the order of the ld. CIT(A). 19. We have gone through the decision relied upon by the ld.DR and have found that their Lordships of Supreme Court....
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.... Bench in the case of Mashreq Bank vs Dy. CIT, 18 SOT 233. The case of the Revenue is that these contracts are derivative contracts which are foreign currency principal swap transactions and are executed as a hedge against fluctuation in the interest rate payable/receivable and hence, these transactions are speculative in nature. The ld.DR has submitted that the decisions relied on by the assessee are not applicable to the facts of the given case as they deal with foreign exchange fluctuation. On the contrary, the ld.DR has relied on the decision of Goetz (India) Ltd vs CIT (supra), in support of Assessing Officer's denial to allow the impugned relief to the assessee. 25. Before us similar stand has been maintained by the parties. After considering the rival submissions, we are of the considered opinion that the derivative contracts, foreign exchange swap transactions against fluctuations in interest rate are hedge transactions. The loss computed on market to market basis is revenue loss as per the Accounting Standards and is allowable as business loss. The decision of Hon'ble Delhi High Court rendered in the case of CIT vs Industrial Finance Corporation of India Ltd, 185 Ta....
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....r the contract, part payment was to be made in succeeding years. The expenditure under the accrual system of accounting had, thus, crystallized on the date of the contract. Normally the ordinary rule is to be applied, namely, revenue expenditure incurred in a particular year is to be allowed in that year. Thus, if the assessee claims that expenditure in that year, the IT Department cannot deny the same. However, in those cases where the assessee himself wants to spread the expenditure over a period of ensuing years, it can be allowed only if the principle of matching concept is satisfied, which upto now has been restricted to the cases of debentures.-Industrial Finance Corpn. of India Ltd. vs. Dy. CIT (2006) 101 TTJ (Del) 894 affirmed; Calcutta Co. Ltd. vs. CIT (1959) 37 ITR 1 (SC), Metal Box ComRany of India Ltd. vs. Their Workmen (1969) 73 ITR 53 (SC) and Bharat Earth Movers vs. CIT (2000) 162 CTR (SC) 325 : (2000) 245 ITR 428 (SC) applied; Madras Industrial Investment Corporation Ltd. vs. CIT (1997) 139 CTR (SC) 555 : (1997) 225 ITR 802 (SC) distinguished and explained. " 26. Therefore, the decision in the case of Goetz (India) Ltd (supra) does not apply to the type of claims....
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....uld be allowed as staff welfare expenditure, has already been answered by Hon'ble jurisdictional High Court in its decision in the case of PVP Ventures Ltd. (supra). It was held at para 11 of its order as under:- "11. As regards the second issue which is now canvassed before this Court viz., on the issue of expenditure of 66.82 lakhs towards the issue of shares to the Employees Stock Option is concerned, the Tribunal pointed out that the shares were issued to the employees only for the interest of the business of the assessee to induce employees to work in the best interest of the assessee. The allotment of shares was done by the assessee in strict compliance of SEBI regulations, which mandate that the difference between the market prices and the price at which the option is exercised by the employees is to be debited to the Profit & Loss Account as an expenditure. The Tribunal pointed out that what had been adopted was not notional or contingent as had been submitted by the Revenue. Pointing out to the Employees Stock Option Plan, the Tribunal in its order stated that it was a benefit conferred on the employee. So far as the company is concerned, once the option was given a....