Madras High Court
Principal Commissioner Of Income Tax vs M/S. Hsi Automotive Limited on 10 December, 2021
Author: R.Mahadevan
Bench: R. Mahadevan, Mohammed Shaffiq
TCA No. 540 of 2021
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED : 10.12.2021
CORAM
THE HONOURABLE MR. JUSTICE R. MAHADEVAN
and
THE HONOURABLE MR. JUSTICE MOHAMMED SHAFFIQ
T.C.A. No. 540 of 2021
Principal Commissioner of Income Tax
Corporate Circle 2(2)
121, M.G.Road
Chennai – 600 034. .. Appellant
Versus
M/s. HSI Automotive Limited
Survey No.73, 'A' Block, 100
Thandalam (PO), Mevalurkuppam
Sriperumbudur
Kancheepuram 602 105. .. Respondent
Tax Case Appeal filed under Section 260-A of the Income Tax Act, 1961
against the order of the Income Tax Appellate Tribunal 'C' Bench, Chennai
dated 27.10.2017 in ITA No.1123/Mds/2017 for the assessment year 2010-11.
For Appellant : Mr. Karthik Ranganathan
JUDGMENT
(Judgment of the Court was delivered by R.MAHADEVAN, J.) This tax case appeal has been filed by the appellant/Revenue challenging the order dated 27.10.2017 passed by the Income Tax Appellate Tribunal, 'C' Bench, Chennai, in I.T.A.No.1123/Mds/2017, relating to the https://www.mhc.tn.gov.in/judis 1/6 TCA No. 540 of 2021 assessment year 2010-11, suggesting the following substantial questions of law:-
“1.Whether on the facts and circumstances of the case and in law, the Tribunal was correct in directing the AO to verify the claim of the assessee in accordance with law after ensuring that all the requirements of the relevant provisions of the Act are satisfied, when the addition was made only because of non-compliance to the provisions of Section 35(1) of the Act by the assessee.
2.Whether on the facts and circumstances of the case and in law, the Tribunal was right in holding that unless there is exempt income, there cannot be a disallowance under Section 14A of the Act, when there is no such exception provided in Rule 8D.
3.Whether on the facts and circumstances of the case and in law, the Tribunal was right in holding that depreciation @ 60% on the purchase of software i.e. ERP program is a valid claim.”
2. Insofar as the first substantial question of law is concerned, it is brought to the notice of this Court by the learned counsel for the appellant that a Co-ordinate Bench of this court by judgment dated 16.09.2020 in T.C.A. No. 11 of 2017 in respect of the assessee's own case, decided the identical question of law against the Revenue. The relevant passage of the said judgment can profitably be extracted below:
“8. Having heard the learned counsel for the parties and having gone through the orders of the two authorities as quoted above and having perused the details of the expenditure incurred to the extent of Rs.11,24,32,995/-, we are satisfied that no question of law arises in the above appeal filed by the Revenue. https://www.mhc.tn.gov.in/judis 2/6 TCA No. 540 of 2021
9. The Assessee gave up its claim of deduction under section 35 of the Act as admittedly, the conditions required for claiming the same under Section 35 was not satisfied by the Assessee. Nonetheless, the Assessee was entitled to claim the said expenditure in the '' Residuary Provisions'' of Section 37 of the Act. Section 37 permits such allowance of ''Business Provisions'' incurred in the ordinary course of business, if they are not allowed otherwise by Sections 30 to 36 of the Act. Unless the expenditure is of capital in nature, resulting in creation of assets of enduring nature, the same cannot be disallowed under Section 37 of the Act. There is no dispute that the said expenditure was incurred in the ordinary course of business. We are unable to find any material on record which would indicate any capital expenditure incurred in the details of said sum of Rs.11,24,32,995/- by the Assessee. The redesigning of the moulds to create new designs of the components manufactured by the Assessee, to the satisfaction of the customer M/s. Hyundai Motors is nothing but 'Revenue Expenditure' incurred in the ordinary course of business of the Assessee. Therefore, the finding of the learned CIT (Appeals) as well as the learned Tribunal are findings of the learned CIT (Appeals) as well as the learned Tribunal are findings of fact, which cannot be said to be wrong or perverse in any manner.”
3. As regards the second substantial question of law, the learned counsel for the appellant fairly submitted that the same is covered against the Revenue, as per the decision of this court in Marg Ltd. v Commissioner of Income Tax, Chennai, (2020) 120 Taxmann.com 84 (Madras), wherein, it was held as follows:-
“21. We cannot approve even the larger disallowance proposed by the Assessee himself in the computation of disallowance under Rule 8D made by him. These facts are akin to the case of Pragati Krishna Gramin Bank (supra) decided by Karnataka High Court. The legal position, as interpreted above https://www.mhc.tn.gov.in/judis 3/6 TCA No. 540 of 2021 by various judgments and again reiterated by us in this judgment, remains that the disallowance of expenditure incurred to earn exempted income cannot exceed exempted income itself and neither the Assessee nor the Revenue are entitled to take a deviated view of the matter. Because as already noted by us, the negative figure of disallowance cannot amount to hypothetical taxable income in the hands of the Assessee. The disallowance of expenditure incurred to earn exempted income has to be a smaller part of such income and should have a reasonable proportion to the exempted income earned by the Assessee in that year, which can be computed as per Rule 8D only after recording the satisfaction by the Assessing Authority that the apportionment of such disallowable expenditure under section 14A made by the Assessee or his claim that no expenditure was incurred is validly rejected by the Assessing Authority by recording reasonable and cogent reasons conveyed to Assessee and after giving opportunity of hearing to the Assessee in this regard.
22. We, therefore, dispose of the present appeal by answering question of law in favour of the Assessee and against the Revenue and by holding that the disallowance under rule 8D of the IT Rules read with Section 14A of the Act can never exceed the exempted income earned by the Assessee during the particular assessment year and further, without recording the satisfaction by the Assessing Authority that the apportionment of such disallowance expenditure made by the Assessee with respect to the exempted income is not acceptable for reasons to be assigned the Assessing Authority, he cannot resort to the computation method under Rule 8D of the Income-tax Rules, 1962.”
4.Regarding the third third question of law, the learned counsel for the appellant fairly submitted that in the case of CIT vs Computer Age Management Services (P.) Ltd.[2019] 109 taxmann.com 134 (Madras), a Division Bench of this Court decided this issue in favour of the assessee by https://www.mhc.tn.gov.in/judis 4/6 TCA No. 540 of 2021 allowing depreciation @ 60%.
5.In the light of the aforesaid decisions, which are squarely applicable to the facts of the present case, all the substantial questions of law are answered in favour of the assessee and against the Revenue. Accordingly, the Tax case Appeal filed by the Revenue stands dismissed. No costs.
[R.M.D., J.] [M.S.Q., J.] 10.12.2021 Index : Yes/No Speaking/Non-Speaking Order Maya/rsh To
1. Principal Commissioner of Income Tax Corporate Circle 2(2) 121, M.G.Road Chennai – 600 034.
2. The Income Tax Appellate Tribunal 'C' Bench Chennai https://www.mhc.tn.gov.in/judis 5/6 TCA No. 540 of 2021 R. MAHADEVAN, J and MOHAMMED SHAFFIQ, J Maya/rsh TCA No. 540 of 2021 10.12.2021 https://www.mhc.tn.gov.in/judis 6/6