TaxTMI 
TaxTMI 
2016 (1) TMI 1433
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.... I.T.A. Nos.711/Mds./15, 712/Mds./15, 714/Mds./15 & 715/Mds/2015 [A.Y. 2010-11 & 2011-12] 2. These appeals are filed by the assessee against the different order of the ld. CIT(A), Chennai for the above assessment years. Since issues involved in all these assessee's appeals are common in nature, these appeals are clubbed together, heard together, disposed off by this common order for the sake of convenience. 3. The first ground raised in these appeals of the assessee is with regard to confirmation of disallowance of amount transferred to Statutory Reserve in compliance with the mandatory provisions of Reserve Bank of India. Similar issue came up for consideration before this Tribunal for the assessment year 2003-04 to 2009-10 in I.T.A. No. 1744/Mds/2012 dated 11.04.2013, wherein, the Tribunal has given its findings as follows: "4. We have perused the orders and heard the rival submissions. Vis-à-vis ground taken by the assessee on transfer to Statutory Reserve and transfer to Reserve Fund while computing income under regular provisions and for arriving at the income under Section 115JB of the Act, respectively, the issues had already come up before this Tribuna....
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....he 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 case on the anvil of above. By no stretch of imagination, it can be said that the amount sought to be deducted has in fact not reached the assessee. The amount involved is only an appropriation out of company's own profits before declaration of dividend. The amount has very much reached and is in the business of the assessee. RBI has not attached any obligation that the fund be kept in any earmarked security nor the purpose of utilization of the fund has been specified. Even if some obligation is subsequently attached for specific appropriation of the fund, it will only be an application of income, which will need to be dealt with as per relevant tax law. The transfer of Reserve Fund in this cas....
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.... appeals of both the assessees on these issues both under regular computation and while computing the book profit under section 115JB of the Act." Following the above order, we dismiss the grounds of appeal of the assessees, both on the issue of regular computation and for computation of book profit insofar as it concerns transfer to Statutory Reserve and transfer to Reserve Fund respectively." 4. Respectfully following the above order, this ground of appeal of the assessee is dismissed. 5. The next ground raised in these appeals of the assessee is with regard to allowability of interest levied under section 234D of the Income Tax Act under section 36(1)(iii) or 37 of the Act whether the above amount has been utilized for the purpose of transaction. According to the assessee, the interest chargeable during the financial year 2009-10 relevant to the assessment year 2010-11 is a deduction while computing the business income. According to the assessee, interest under section 234D has been charged while withdrawing the refund already granted under section 143(1) of the Act. Since the assessee has utilized the refund amount for the purpose of business and while withdrawin....
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.... amount as indirect cost vis-à-vis the total investments made by them which gave rise to tax-free income. Nevertheless, we find that assessees had themselves made a suo motu disallowance of Rs. 36,729/- towards indirect cost. Assessing Officer had rejectedsuch amount for the sole reason that the amount considered by the assessees were very low when it compared to total investments made by them. Nevertheless, it is also noted that assessees had in addition also made a suo motu disallowance of interest expenses on loans attributable to investments made by them. As already mentioned by us, similar issue had come up before this Tribunal in assessees' own case for assessment year 2008-09. It was held by this Tribunal at paras 12 to 17 of its order (supra) as under:- "12. We have heard both sides, perused the materials available on record and the decisions relied on by both counsels. In the case of ACIT vs. SIL Investment Ltd. (supra), the Delhi Bench of the Tribunal in its order in para 27 held as under: "27. In the present case, the AO did not bring any evidence on record to establish that any expenditure had been incurred by the assessee company for earning th....
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....ments = 18,91,286/- Total disallowance u/s 14A [ (e) + (f) ] = 19,43,022/-. 13. The Tribunal (supra), for assessment year 2007-08, had held as follows:- "17. We have heard the parties on this issue and have perused the material on record. During the year, the assessee had earned exempt dividend income of Rs. 17,97,010/- in respect of investment made in mutual funds. In the return of income filed, a suo moto disallowance of expenses to the tune of Rs. 1,73,038/- had been made by the assessee u/s 14A of the Act. In the assessment order, the AO made a disallowance of Rs. 32,18,475/- by applying the method provided in Rule 8D of the I.T. Rules, 1962. This was done without pointing out any inaccuracy in the method of apportionment or allocation of expenses, as adopted by the assessee. All through, the assessee was maintained that the assessee was during the year, carrying on manufacturing activities at its manufacturing units at several places. Its head office was at Delhi. The assessee had maintained separate books of account for each unit. Common expenses incurred at the head office and the branches were attributed to all the units including the he....
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....(Del); and 3. D.J. Mehta v. ITO, 290 ITR 238(Mum.)(AT). 19. In view of the above, finding no error with the order of theCIT(A) on the point at issue, the same is hereby confirmed. Ground No.3 is thus rejected." 14. In the year under consideration, it is seen that it is not incorrect when the assessee contends that no satisfaction has been recorded by the AO regarding the assessee's calculation being incorrect. Even so, Rule 8D of the Rules has been applied. This, in our opinion, is not correct. Such satisfaction of the AO is a prerequisite to invoke the provisions of Rule 8D of the Rules. The ld. CIT(A), therefore, erred in partially approving the action of the AO." 14. The Hon'ble Delhi High Court in a batch of appeals in the case of MAXOPP Investment Ltd. vs. CIT & Others (supra) elaborately dealt the issue of applicability of provisions of section 14A read with Rule 8D for the assessment years prior to the assessment year 2008- 09 and also the applicability of the said provision for the assessment years subsequent to assessment years 2008-09. The Hon'ble High Court in paras 29 to 31 and 36 to 40 held as under: 29. Sub-section (2) of S....
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....ion to such income which does not form part of the total income under the said Act in accordance with the prescribed method. The prescribed method being the method stipulated in Rule 8D of the said Rules. While rejecting the claim of the assessee with regard to the expenditure or no expenditure, as the case may be, in relation to exempt income, the Assessing Officer would have to indicate cogent reasons for the same. Rule 8D 30. As we have already noticed, sub-section (2) of Section 14A of the said Act refers to the method of determination of the amount of expenditure incurred in relation to exempt income. The expression used is - "such method as may be prescribed". We have already mentioned above that by virtue of Notification No.45/2008 dated 24/03/2008, the Central Board of Direct Taxes introduced Rule 8D in the said Rules. The said Rule 8D also makes it clear that where the Assessing Officer, having regard to the accounts of the assessee of a previous year, is not satisfied with (a) the correctness of the claim of expenditure made by the assessee; or (b) the claim made by the assessee that no expenditure has been incurred in relation to income which does not form part ....
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....stitute the expenditure in relation to exempt income and it is this amount of expenditure which would be disallowed under Section 14A of the said Act. It is, therefore, clear that in terms of the said Rule, the amount of expenditure in relation to exempt income has two aspects - (a) direct and (b) indirect. The direct expenditure is straightaway taken into account by virtue of clause (i) of sub-rule (2) of Rule 8D. The indirect expenditure, where it is by way of interest, is computed through the principle of apportionment, as indicated above. And, in cases where the indirect expenditure is not by way of interest, a rule of thumb figure of one half percent of the average value of the investment, income from which does not or shall not form part of the total income, is taken. Do sub-sections (2) and (3) of Section 14A and Rule 8D apply retrospectively ? 32. ........ ............... ................. ................ 33. ........ ............... ................. ................ 34. ........ ............... ................. ................ 35. ........ ............... ................. ................ 36. Insofar as sub-sections (2) and....
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....penditure incurred in relation to exempt income that he must record that his dissatisfaction with the correctness of the claim of the assessee in respect of the expenditure incurred in relation to exempt income. The Hon'ble High Court held that sub-section (3) of section 14A is an offshoot of sub-section (2) of section 14A and therefore, 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 total income. The Hon'ble High Court held that sub-section (2) deals with cases, where the assessee specifies that expenditure had been incurred in relation to income, which does not form part of total income. The Hon'ble High Court held that if the Assessing Officer is not satisfied with the correctness of the claim of the assessee in both cases, the Assessing Officer gets jurisdiction to determine the amount of expenditure incurred in relation to such income, which does not form part of total income under a prescribed method, which is Rule 8D of the Income Tax Rules. The Hon'ble High Court further held that sub-sections (2) and (3) of section 14A are workable only with effect from the date of introduc....
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....orrect. The factual finding in this regard has to be a reasoned one and cannot be simply based on comparison of the amount with total investments. In our opinion, just because amount of indirect cost offered by the assessees against tax-free investments was very low, vis-à-vis the total investments made by the assessee, it cannot be concluded that the claim by itself was incorrect. In such circumstances, we are of the opinion that Assessing Officer erred in rejecting the disallowance suo motu made by the assessees and imposing on them a disallowance under Rule 8D(iii) of the Act. 6. In the result, we delete the disallowance made u/s.14A while computing income, both under normal provision as well as under provisions of Section 115JB of the Act." Accordingly, this ground of the assessee is allowed. 10. In the result, the assessee's appeal in I.T.A. Nos. 711/Mds/2015, 714/Mds/2015 715/Mds/2015 are dismissed and in I.T.A. No. 712/Mds/2015 is partly allowed. I.T.A. Nos. 868/Mds/2015, 869/Mds/2015, 870/Mds/2015 &871/Mds/2015 [A.Y. 2010-11] 11. The first ground raised in the appeal of the Revenue is with regard to deletion of disallowance made by the Assessing ....
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....he 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 were actually considering a case of Composite Agreement which involved an agreement to implement a turnkey project right from providing design, etc. in establishing the factory and user of the technical know-how. Thereafter, Their Lordships of Supreme Court have clearly held that payment made for the user of the logo is always revenue in nature....
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....ther this amount has been actually written off in the books of accounts maintained and got audited by the assessee under statute by crediting each individual debit account, then, it could be allowed as bad debt as held by the Hon'ble Supreme Court in the case of TRF Ltd. v. CIT 323 ITR 397, wherein, the Hon'ble Supreme Court has held that after 01.04.1989, it is not necessary for the assessee to establish that the debt, in fact, has become irrecoverable. It is enough if the bad debt is written off as irrecoverable in the accounts of the assessee. Further, in the present case, the Assessing Officer has not examined as to whether the debt has, in fact, been written off, in the accounts of the assessee. This exercise has not been undertaken by the Assessing Officer. Hence, the matter is remitted back to the Assessing Officer for de novo consideration of the above mentioned aspect only, that too only to the extent of written off. Moreover, in our opinion, the facts of the assessee's case squarely fit into the ratio laid down by the above judgement of the Hon'ble Supreme Court rather than the order of the Tribunal in assessee's own case cited (supra). Being so, in our view, it is approp....
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....ss 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 and exercised by the employee, the liability in this behalf got ascertained. This was recognized by SEBI and the entire Employees Stock Option Plan was governed by guidelines issued by SEBI. On the facts thus found, the Tribunal held that it was not a case of contingent liability depending on the various factors on which the assessee had no control. The expenditure in this behalf was an ascertained liability, thus the expenditure incurred being on lines of the SEBI guidelines, there could be no interference in the relief granted by the Assessing Authority for the expenditure arising on account of Employees Stock Option Plan. This expenditure incurred as per SEBI guidelines and granted by the Officer could not be considered as erroneous one calling for exercise of jurisdiction under Section 263 of the Act." Considering the above decisio....
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....d to bring details of outstanding expenses or schedule of sundry creditors showing whether the amount was outstanding at the end of the close of the previous year in the name of the party or outstanding expenses. The Assessing Officer was to verify the matter and examine afresh. If no amount was outstanding at the close of the previous year in respect of the expenses either as outstanding expenses or as sundry creditors, the amount could not be disallowed. Hence the amount outstanding as payable at the end of the close of the Financial year i.e. 31st March only be disallowed by applying the provisions of Sec.40(a)(ia) of the Act. Accordingly we direct the ld. Assessing Officer to disallow the only amount which is outstanding at the end of the close of the previous year relevant to the assessment year and accordingly for limited purpose to verify the outstanding amount towards impugned amount at the end of the close of the previous year relevant to the assessment year, we remit the issue back to the file of the ld. Assessing Officer. 21. The other ground raised in the appeal of the assessee I.T.A No.717/Mds./15 is with regard to confirming the short allowance of credit for TDS. T....
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....cord, we find that the impugned payment was made to Shriram Chits & Investments Pvt. Ltd for the non-exclusive user of the logo based on turnover and was not 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....