Shriram Transport Finance Company Limitedno v. Income Tax Officer (Osd)Company Circle Vi (2)Chennai - 600 034

TCA No. 755 of 2009 etc. batch IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 30.06.2022 CORAM THE HONOURABLE MR. JUSTICE R. MAHADEVANand THE HONOURABLE MR. JUSTICE J.SATHYA NARAYANA PRASAD Tax Case Appeal Nos. 755, 756, 883, 884, 885, 886, 1263, 1264, 1265 of 2009, 215 of 2011, 118, 119, 120, 278 and 279 of 2012,371 & 622 of 2013360, 361, 913, 914, 915 and 916 of 2014, 124, 125, 126, 127, 128, 129, 130, 131 and 717 of 2017 &406, 407, 413, 414 and 416 of 2019 T.C.A.No.755 of 2009 Shriram Transport Finance Company LimitedNo.123, Angappa Naicken StreetChennai - 600 004 .. Appellant Versus Income Tax Officer (OSD)Company Circle VI (2)Chennai - 600 034 .. Respondent -Prayer: Appeal filed under Section 260A of The Income Tax Act against the order dated 06.02.2009 in ITA No.570/Mds/2008 on the file of Income Tax Appellate Tribunal, Chennai "D" Bench. T.C.A.No.756 of 2009 Shriram Investments Limited(since amalgamated with Shriram Transport Finance Company Limited)No.123, Angappa Naicken StreetChennai - 600 001 .. Appellant .. Appellant https://www.mhc.tn.gov.in/judis Versus TCA No. 755 of 2009 etc. batch Income Tax Officer (OSD)Company Circle VI (2)Chennai - 600 034 .. Respondent -Prayer: Appeal filed under Section 260A of The Income Tax Act against the order dated 06.02.2009 in ITA No.571/Mds/2008 on the file of Income Tax Appellate Tribunal, Chennai "D" Bench. T.C.A.No.883 of 2009 Shriram Overseas Finance Limited,(Since Amalgamated withShriram Transport Finance Company Limited),No.123, Angappa Naicken Street,Chennai - 600 004. .. Appellant Versus Joint Commissioner of Income Tax,Range-I,Madurai. .. Respondent -Prayer: Appeal filed under Section 260A of The Income Tax Act against the order dated 24.03.2009 in ITA No.1234/Mds/2008 on the file of Income Tax Appellate Tribunal, Chennai "C" Bench. T.C.A.No.884 of 2009 Shriram Transport Finance Company Limited,No.123, Angappa Naicken Street,Chennai - 600 004. .. Appellant Income Tax Officer (OSD)Company Circle VI (2)Chennai - 600 034. Versus .. Respondent TCA No. 755 of 2009 etc. batch -Prayer: Appeal filed under Section 260A of The Income Tax Act against the order dated 06.05.2009 in ITA No.1944/Mds/2008 on the file of Income Tax Appellate Tribunal, Chennai "C" Bench. T.C.A.No.885 of 2009 Shriram Investments Limited,(Since Amalgamated withShriram Transport Finance Company Limited),No.123, Angappa Naicken Street,Chennai - 600 001. .. Appellant Versus Income Tax Officer (OSD)Company Circle VI (2)Chennai - 600 034. .. Respondent -Prayer: Appeal filed under Section 260A of The Income Tax Act against the order dated 06.05.2009 in ITA No.1945/Mds/2008 on the file of Income Tax Appellate Tribunal, Chennai "C" Bench. T.C.A.No.886 of 2009 Shriram City Union Finance Limited,No.123, Angappa Naicken Street,Chennai - 600 004. .. Appellant Versus Income Tax Officer (OSD)Company Circle VI (2)Chennai - 600 034. .. Respondent -Prayer: Appeal filed under Section 260A of The Income Tax Act against the order dated 06.05.2009 in ITA No.1946/Mds/2008 on the file of Income Tax Appellate Tribunal, Chennai "C" Bench. TCA No. 755 of 2009 etc. batch T.C.A.No.1263 of 2009 Shriram Investments Limited, (Since Amalgamated with Shriram Transport Finance Company Limited),No.123, Angappa Naicken Street,Chennai - 600 001. .. Appellant Versus Additional Commissioner of Income Tax,Company Rang VI,Chennai-600 034. .. Respondent -Prayer: Appeal filed under Section 260A of The Income Tax Act against the order dated 16.07.2009 in ITA No.234/Mds/2009 on the file of Income Tax Appellate Tribunal, Chennai "C" Bench. T.C.A.No.1264 of 2009 Shriram Transport Finance Company Limited,No.123, Angappa Naicken Street,Chennai - 600 004. .. Appellant Versus Additional Commissioner of Income Tax,Company Range VI,Chennai-600 034. .. Respondent TCA No. 755 of 2009 etc. batch T.C.A.No.1263 of 2009 Shriram Investments Limited, (Since Amalgamated with Shriram Transport Finance Company Limited),No.123, Angappa Naicken Street,Chennai - 600 001. .. Appellant Versus Additional Commissioner of Income Tax,Company Rang VI,Chennai-600 034. .. Respondent -Prayer: Appeal filed under Section 260A of The Income Tax Act against the order dated 16.07.2009 in ITA No.234/Mds/2009 on the file of Income Tax Appellate Tribunal, Chennai "C" Bench. T.C.A.No.1264 of 2009 Shriram Transport Finance Company Limited,No.123, Angappa Naicken Street,Chennai - 600 004. .. Appellant Versus Additional Commissioner of Income Tax,Company Range VI,Chennai-600 034. .. Respondent -Prayer: Appeal filed under Section 260A of The Income Tax Act against the order dated 16.07.2009 in ITA No.235/Mds/2009 on the file of Income Tax Appellate Tribunal, Chennai "C" Bench. T.C.A.No.1265 of 2009 Shriram City Union Finance Limited,No.123, Angappa Naicken Street,Chennai - 600 004. https://www.mhc.tn.gov.in/judis .. Appellant Versus Additional Commissioner of Income Tax,Company Range VI,Chennai-600 034. .. Respondent -Prayer: Appeal filed under Section 260A of The Income Tax Act against the order dated 16.07.2009 in ITA No.236/Mds/2009 on the file of Income Tax Appellate Tribunal, Chennai "C" Bench. T.C.A.No.215 of 2011 Shriram Transport Finance Company Limited,No.123, Angappa Naicken Street,Chennai - 600 004. .. Appellant Versus Additional Commissioner of Income Tax,Company Range VI,Chennai-600 034. .. Respondent -Prayer: Appeal filed under Section 260A of The Income Tax Act against the order dated 08.12.2010 and 08.04.2011 in ITA No.503/Mds/2010 on the file of Income Tax Appellate Tribunal, Chennai "A" Bench. T.C.A.No.118 of 2012 Shriram Overseas Finance Limited,(Since amlgamated with Shriram Transport Finance Company Limited,No.4, Mookambika Complex,Lady Desika Road,Mylapore, Chennai- 600 004. .. Appellant Versus Deputy Commissioner of Income Tax,Company Circle-I,Madurai - 625 002. https://www.mhc.tn.gov.in/judis .. Respondent TCA No. 755 of 2009 etc. batch -Prayer: Appeal filed under Section 260A of The Income Tax Act against the order dated 21.12.2011 in ITA No.1255/Mds/2011 on the file of Income Tax Appellate Tribunal, Chennai "A" Bench. T.C.A.No.119 of 2012 Shriram City Union Finance Limited,No.123, Angappa Naicken Street,Chennai - 600 001. .. Appellant Versus Additional Commissioner of Income Tax,Company Range VI,Chennai-600 034. .. Respondent -Prayer: Appeal filed under Section 260A of The Income Tax Act against the order dated 10.10.2011 & 08.11.2011 in ITA No.22/Mds/2011 on the file of Income Tax Appellate Tribunal, Chennai "A" Bench. T.C.A.No.120 of 2012 Shriram Transport Finance Company Limited, Mookambika Complex, No.4, Lady Desika Road,Mylapore, Chennai - 600 004. Versus .. Appellant Additional Commissioner of Income Tax,Company Range VI,Chennai-600 034. .. Respondent -Prayer: Appeal filed under Section 260A of The Income Tax Act against the order dated 10.10.2011 & 08.11.2011 in ITA No.23/Mds/2011 on the file of Income Tax Appellate Tribunal, Chennai "A" Bench. T.C.A.No.278 of 2012 Shriram City Union Finance Limited,No.123, Angappa Naicken Street,Chennai - 600 001.https://www.mhc.tn.gov.in/judis .. Appellant Versus Assistant Commissioner of Income Tax,Company Circle VI (2),121, M.G.Road,Chennai - 600 034. TCA No. 755 of 2009 etc. batch .. Respondent -Prayer: Appeal filed under Section 260A of The Income Tax Act against the order dated 28.06.2012 in ITA No.702/Mds/2012 on the file of Income Tax Appellate Tribunal, Chennai "A" Bench. T.C.A.No.279 of 2012 Shriram Transport Finance Company Limited,Mookambika Complex,No.4, Lady Desika Road,Mylapore, Chennai - 600 004. .. Appellant Versus Assistant Commissioner of Income Tax,Company Circle VI (2),121, M.G.Road,Chennai - 600 034. .. Respondent T.C.A.No.278 of 2012 Shriram City Union Finance Limited,No.123, Angappa Naicken Street,Chennai - 600 001.https://www.mhc.tn.gov.in/judis .. Appellant Versus Assistant Commissioner of Income Tax,Company Circle VI (2),121, M.G.Road,Chennai - 600 034. TCA No. 755 of 2009 etc. batch .. Respondent -Prayer: Appeal filed under Section 260A of The Income Tax Act against the order dated 28.06.2012 in ITA No.702/Mds/2012 on the file of Income Tax Appellate Tribunal, Chennai "A" Bench. T.C.A.No.279 of 2012 Shriram Transport Finance Company Limited,Mookambika Complex,No.4, Lady Desika Road,Mylapore, Chennai - 600 004. .. Appellant Versus Assistant Commissioner of Income Tax,Company Circle VI (2),121, M.G.Road,Chennai - 600 034. .. Respondent -Prayer: Appeal filed under Section 260A of The Income Tax Act against the order dated 28.06.2012 in ITA No.701/Mds/2012 on the file of Income Tax Appellate Tribunal, Chennai "A" Bench. T.C.A.Nos.371 and 622 of 2013 Commissioner of Income Tax,Chennai. .. Appellant in both TCAs Versus M/s.Shrirarm Transport Finance Co. Ltd.,Mookambika Complex, 3rd Floor,No.4, Lady Desika Road,Mylapore, Chennai - 600 004. .. Respondent inPAN No.AAACS7018R T.C.A.No.371 of 2013https://www.mhc.tn.gov.in/judis TCA No. 755 of 2009 etc. batch M/s.Shriram City Union Finance Co. Ltd.,Mookambika Complex 3rd Floor,No.4, Lady Desika Road,Mylapore, Chennai - 600 004. .. Respondent in T.C.A.No.622 of 2013 Prayer in T.C.A.No.371 of 2013 - Appeals filed under Section 260A of The Income Tax Act against the order dated 02.08.2012 in ITA No.924/Mds/2012, on the file of Income Tax Appellate Tribunal, Chennai "B" Bench. Prayer in T.C.A.No.622 of 2013 - Appeals filed under Section 260A of The Income Tax Act against the order dated 16.12.2010 in ITA No.726/Mds/2010, on the file of Income Tax Appellate Tribunal, Chennai "A" Bench. T.C.A.Nos.360 and 361 of 2014 Prayer in both TCAs':- Appeals filed under Section 260A of The Income Tax Act against the order dated 11.04.2013 in ITA Nos.1899/Mds/2012 and 1898/MDS/2012, on the file of Income Tax Appellate Tribunal, Chennai "B" Bench. TCA No. 755 of 2009 etc. batch T.C.A.Nos.913 and 914 of 2014 Commissioner of Income Tax,Chennai. .. Appellant in both TCAs' Versus M/s.Shriram City Union Finance Company LimitedMookambika Complex, 3[rd] FloorNo.4, Lady Desika Road, Mylapore,Chennai – 600 004... Respondent in TCA.No.913 of 2014 M/s.Shriram Transport Finance Co. Ltd.,Mookambika Complex, 3rd Floor,No.4, Lady Desika Road,Mylapore, Chennai - 600 004. .. Respondent in TCA.No.914 of 2014 Prayer : Appeals filed under Section 260A of The Income Tax Act against the order dated 10.10.2011 in ITA Nos.319 and 320/Mds/2011, on the file of Income Tax Appellate Tribunal, Chennai "A" Bench. T.C.A.Nos.915 & 916 of 2014 The Commissioner of Income Tax,Chennai...Appellant Vs. M/s.Shriram City Union Finance Co. Ltd.,Mookambika Complex, 3rd Floor,No.4, Lady Desika Road,Mylapore, Chennai - 600 004...Respondent -Prayer: Appeals filed under Section 260A of The Income Tax Act against the order dated 10.10.2011 & 08.11.2011 in ITA Nos.22/Mds/2011 and 23/Mds/2011, on the file of Income Tax Appellate Tribunal, Chennai "A" Bench. TCA No. 755 of 2009 etc. batch T.C.A.Nos.125 and 127 of 2017 Shriram Transport Finance Company LimitedMookambika Complex,No.4, Lady Desika Road,Mylapore, Chennai - 600 004. .. Appellant in both TCAs'(PAN No. ) T.C.A.Nos.129 and 131 of 2017 Shriram City Union Finance LimitedMookambika Complex,No.4, Lady Desika Road,Mylapore, Chennai - 600 004. .. Appellant in both TCAs' Versus Deputy Commissioner of Income Tax,Corporate Circle 6 (1),Chennai - 600 034. .. Respondent in all TCAs' -Prayer: Appeals filed under Section 260A of The Income Tax Act against the order dated 29.01.2016 in ITA Nos.870/Mds/2015, 871/Mds/2015, 868/Mds/2015 and 869/Mds/2015 on the file of Income Tax Appellate Tribunal, Chennai "B" Bench. TCA No. 755 of 2009 etc. batch T.C.A.Nos.125 and 127 of 2017 Shriram Transport Finance Company LimitedMookambika Complex,No.4, Lady Desika Road,Mylapore, Chennai - 600 004. .. Appellant in both TCAs'(PAN No. ) T.C.A.Nos.129 and 131 of 2017 Shriram City Union Finance LimitedMookambika Complex,No.4, Lady Desika Road,Mylapore, Chennai - 600 004. .. Appellant in both TCAs' Versus Deputy Commissioner of Income Tax,Corporate Circle 6 (1),Chennai - 600 034. .. Respondent in all TCAs' -Prayer: Appeals filed under Section 260A of The Income Tax Act against the order dated 29.01.2016 in ITA Nos.870/Mds/2015, 871/Mds/2015, 868/Mds/2015 and 869/Mds/2015 on the file of Income Tax Appellate Tribunal, Chennai "B" Bench. T.C.A.Nos.124, 126 and 717 of 2017 Shriram Transport Finance Company LimitedMookambika Complex,No.4, Lady Desika Road,Mylapore, Chennai - 600 004. .. Appellant in all TCAs' T.C.A.Nos.128 and 130 of 2017 Shriram City Union Finance LimitedMookambika Complex,No.4, Lady Desika Road,Mylapore, Chennai - 600 004. https://www.mhc.tn.gov.in/judis .. Appellant in both TCAs' Versus Deputy Commissioner of Income Tax,Corporate Circle 6 (1),Chennai - 600 034. .. Respondent in all TCAs' Prayer in Tax Case Appeal Nos.124, 126, 128, 130 of 2017:- Appeals filed under Section 260A of The Income Tax Act against the order dated 29.01.2016 in ITA Nos.711/Mds/2015, 712/Mds/2015, 714/Mds/2015 and 715/Mds/2015 on the file of Income Tax Appellate Tribunal, Chennai "B" Bench. Prayer in Tax Case Appeal No.717 of 2017:- Appeal filed under Section 260A of The Income Tax Act against the order dated 24.08.2016 in ITA No.454/Mds/2016 on the file of Income Tax Appellate Tribunal, Chennai "B" Bench. T.C.A.No.406 of 2019 Shriram City Union Finance Limited,Mookambika Complex,No.4, Lady Desika Road,Mylapore, Chennai - 600 004. .. Appellant Versus Deputy Commissioner of Income Tax,Corporate Circle 6 (1),Chennai - 600 034. .. Respondent Prayer:- Appeal filed under Section 260A of The Income Tax Act against the order dated 07.06.2017 in ITA No.506/Mds/2016 on the file of Income Tax Appellate Tribunal, Chennai "B" Bench. T.C.A.No.407 of 2019Shriram Transport Finance Company LimitedMookambika Complex,No.4, Lady Desika Road,Mylapore, Chennai - 600 004. Versus .. Appellant Deputy Commissioner of Income Tax,Corporate Circle 6 (1),Chennai - 600 034. .. Respondent Prayer:- Appeal filed under Section 260A of The Income Tax Act against the order dated 24.05.2018 in ITA No.2636/Chny/2017 on the file of Income Tax Appellate Tribunal, Chennai "C" Bench. https://www.mhc.tn.gov.in/judis TCA No. 755 of 2009 etc. batch T.C.A.No.413 of 2019 Shriram Capital Limited,Mookambika Complex,No.4, Lady Desika Road,Mylapore, Chennai - 600 004. .. Appellant Deputy Commissioner of Income Tax,Corporate Circle 6 (1),Chennai - 600 034. Versus .. Respondent Prayer:- Appeal filed under Section 260A of The Income Tax Act against the order dated 01.05.2017 in ITA No.2407/Mds/2016 on the file of Income Tax Appellate Tribunal, Chennai "A" Bench. T.C.A.No.414 of 2019 Shriram Transport Finance Company LimitedMookambika Complex,No.4, Lady Desika Road,Mylapore, Chennai - 600 004. .. Appellant Deputy Commissioner of Income Tax,Corporate Circle 6 (1),121, M.G.Road,Chennai - 600 034. Versus .. Respondent Prayer:- Appeal filed under Section 260A of The Income Tax Act against the order dated 01.05.2017 in ITA No.2370/Mds/2016 on the file of Income Tax Appellate Tribunal, Chennai "A" Bench. T.C.A.No.416 of 2019 Shriram City Union Finance Limited,No.123, Angappa Naicken Street,Chennai - 600 001. .. Appellant Versus Deputy Commissioner of Income Tax,Corporate Circle 6 (1),121, M.G.Road,Chennai - 600 034. https://www.mhc.tn.gov.in/judis .. Respondent TCA No. 755 of 2009 etc. batch T.C.A.No.414 of 2019 Shriram Transport Finance Company LimitedMookambika Complex,No.4, Lady Desika Road,Mylapore, Chennai - 600 004. .. Appellant Deputy Commissioner of Income Tax,Corporate Circle 6 (1),121, M.G.Road,Chennai - 600 034. Versus .. Respondent Prayer:- Appeal filed under Section 260A of The Income Tax Act against the order dated 01.05.2017 in ITA No.2370/Mds/2016 on the file of Income Tax Appellate Tribunal, Chennai "A" Bench. T.C.A.No.416 of 2019 Shriram City Union Finance Limited,No.123, Angappa Naicken Street,Chennai - 600 001. .. Appellant Versus Deputy Commissioner of Income Tax,Corporate Circle 6 (1),121, M.G.Road,Chennai - 600 034. https://www.mhc.tn.gov.in/judis .. Respondent TCA No. 755 of 2009 etc. batch Prayer:- Appeal filed under Section 260A of The Income Tax Act against the order dated 01.05.2017 in ITA No.2406/Mds/2016 on the file of Income Tax Appellate Tribunal, Chennai "A" Bench. COMMON JUDGMENT R. MAHADEVAN, J. 1.All these tax case appeals numbering 37, emanate from the different orders of the Income Tax Appellate Tribunal, out of which, 8 appeals are filed by https://www.mhc.tn.gov.in/judisthe Revenue and the remaining 29 appeals are filed by the assessees. Inasmuch as TCA No. 755 of 2009 etc. batch the issues involved herein are inter-linked and interconnected, all the appeals were clubbed together and are decided by this common judgment. The details of the cases are tabulated below: 2.All these tax case appeals were admitted by this court on the following substantial questions of law: https://www.mhc.tn.gov.in/judis TCA No. 755 of 2009 etc. batch TCA Nos.755, 756, 883 to 886, 1263 to 1265 of 2009, 215 of 2011 and 118 of 2012: (i) Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that there has been no diversion of income by overriding charge in respect of amount transferred to Statutory Reserve Fund in compliance with the mandatory provisions of Section 45 IC read with Section 45Q of the RBI Act? (ii) Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the amount transferred to Reserve Fund in compliance with the provisions of the Reserve Bank of India Act, 1934, by the appellant from its income, is not an allowable deduction in computing the assessable income under the provisions of the Income Tax Act, 1961?" TCA Nos.119, 120, 278 and 279 of 2012: (i) Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that there has been no diversion of income by overriding charge in respect of amount transferred to Statutory Reserve Fund in compliance with the mandatory provisions of Section 45 IC read with Section 45Q of the RBI Act? (ii) Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the amount transferred to Reserve Fund in compliance with the provisions of the Reserve Bank of India Act, 1934, by the appellant from its income, is not an allowable deduction in computing the assessable income under the provisions of the Income Tax Act, 1961 both in regular computation and under section 115 JB?" TCA No. 755 of 2009 etc. batch T.C.A.No.371 of 2013: "(i) Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the claim for bad debts to the extent of Rs.37,89,85,000/- is allowable as a deduction in computing the income of the assessee? (ii) Whether on the facts and circumstances of the case, the Tribunal was right in holding that the write off of diminution in the value of investments to the extent of Rs.1,05,752/- is allowable as a deduction in computing the business income of the assessee? (iii) Whether on the facts and circumstances of the case, the Tribunal was right in holding that the loss on sale of investments to the extent of Rs.2,76,120/- is allowable as a deduction in computing the business income of the assesssee? TCA No. 755 of 2009 etc. batch T.C.A.No.371 of 2013: "(i) Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the claim for bad debts to the extent of Rs.37,89,85,000/- is allowable as a deduction in computing the income of the assessee? (ii) Whether on the facts and circumstances of the case, the Tribunal was right in holding that the write off of diminution in the value of investments to the extent of Rs.1,05,752/- is allowable as a deduction in computing the business income of the assessee? (iii) Whether on the facts and circumstances of the case, the Tribunal was right in holding that the loss on sale of investments to the extent of Rs.2,76,120/- is allowable as a deduction in computing the business income of the assesssee? (iv) Whether on the facts and circumstances of the case, the Tribunal was right in holding that the loss arising out of derivatives / hedging transactions in foreign exchange to the extent of Rs.15,02,136/- is allowable as a deduction in computing the business of the assessee?" T.C.A.No.622 of 2013: "(i) Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the claim for bad debts to the extent of Rs.3,12,60,000/- is allowable as a deduction in computing the income of the assessee? (ii) Whether under the facts and circumstances of the case, the Income Tax Appellate Tribunal was correct in holding that the payment of royalty is not towards acquisition of intangible asset and is revenue expenditure?" TCA No. 755 of 2009 etc. batch T.C.A.Nos.360 and 361 of 2014: "(i) Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the claim of the assessee for bad debts is allowable as a deduction in computing the income of the assessee? (ii) Whether under the facts and circumstances of the case, the Income Tax Appellate Tribunal was correct in holding that the payment of royalty is not towards acquisition of intangible asset and is revenue expenditure? (iii) Whether under the facts and circumstances of the case, the Income Tax Appellate Tribunal was correct in holding that the loss arising out of derivative transactions in foreign exchange is allowable in computing income from non-speculation business of the assessee? (iv) Whether under the facts and circumstances of the case, the Income Tax Appellate Tribunal was correct in holding that the assessee's claim for deduction of ESOP expenses is an allowable deduction?" T.C.A.No.913 of 2014: "(i) Whether under the facts and circumstances of the case, the Income Tax Appellate Tribunal was correct in holding that the payment of royalty is not towards acquisition of intangible asset and is revenue expenditure? (ii) Whether the Income Tax Appellate Tribunal was correct in stating that the method of calculation of the disallowance set forth in Rule 8 D would be applicable only for assessment year 2008-09 and subsequent assessment years? (iii) Whether the Income Tax Appellate Tribunal was right in not holding that the method adopted by the assessing officer to TCA No. 755 of 2009 etc. batch compute the expenditure attributable to income not includable in total income is scientific and therefore, the disallowance under Section 14 A is to be sustained?" T.C.A.No.914 of 2014: "(i) Whether the Income Tax Appellate Tribunal was correct in stating that the method of calculation of the disallowance set forth in Rule 8 D would be applicable only for assessment year 2008-09 and subsequent assessment years? (ii) Whether the Income Tax Tribunal was right in not holding that the method adopted by the assessing officer to compute the expenditure attributable to income not includable in total income is scientific and therefore, the disallowance under Section 14A is to be sustained? TCA No. 755 of 2009 etc. batch compute the expenditure attributable to income not includable in total income is scientific and therefore, the disallowance under Section 14 A is to be sustained?" T.C.A.No.914 of 2014: "(i) Whether the Income Tax Appellate Tribunal was correct in stating that the method of calculation of the disallowance set forth in Rule 8 D would be applicable only for assessment year 2008-09 and subsequent assessment years? (ii) Whether the Income Tax Tribunal was right in not holding that the method adopted by the assessing officer to compute the expenditure attributable to income not includable in total income is scientific and therefore, the disallowance under Section 14A is to be sustained? (iii) Whether under the facts and circumstances of the case, the Income Tax Appellate Tribunal was correct in holding that loss arising out of derivatives / hedging transactions in foreign exchange is allowable as deduction in computing business income of the assessee? (iv) Whether under the facts and circumstances of the case, the loss arising out of derivatives / hedging transactions in foreign exchange is not a loss in speculation business which cannot be allowed in computing income from regular business of the assessee? (v) Whether under the facts and circumstances of the case, the Income Tax Appellate Tribunal erred in allowing the claim for deduction of provision for diminution in value of investments and the same is not capital loss? (vi) Whether under the facts and circumstances of the case, https://www.mhc.tn.gov.in/judisthe Income Tax Appellate Tribunal erred in allowing the claim of TCA No. 755 of 2009 etc. batch the assessee in respect of provision for diminution in value of investments and giving relief in respect of writeback of investments, though the assessee did not make claims through any valid return of income?" T.C.A.Nos.915 and 916 of 2014: "Whether on the facts and circumstances of the case, the Tribunal was right in holding that the claim for bad debts is allowable as a deduction in computing the income of the assessee?" TCA Nos.125, 127, 129 & 131 of 2017: "(i) Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in remitting back to the Assessing Officer, the issue of claim of bad debts to verify whether the debt is actually written off in the audited books of accounts passing enough entries towards the written off to the individual accounts and to verify the requirement of Section 36(2)? (ii) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in not following its own orders in the earlier years on same issue? (iii) Whether the Appellate Tribunal was right in not allowing the bad debts claimed?" T.C.A.Nos.124, 126, 128 and 130 of 2017 and 416 of 2019: "(i) Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that there has been no https://www.mhc.tn.gov.in/judisdiversion of income by overriding charge in respect of amount TCA No. 755 of 2009 etc. batch transferred to Statutory Reserve Fund in compliance with the mandatory provisions of Section 45 IC read with Section 45Q of the RBI Act? (ii) Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the amount transferred to Reserve Fund in compliance with the provisions of Reserve Bank of India Act, 1934, by the appellant from its income, is not an allowable deduction in computing the assessable income under the provisions of the Income Tax Act, 1961 both in Regular Computation and under Section 115JB? (iii) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the interest charged under Section 234D is not allowable as deduction while computing the business income" T.C.A.No.717 of 2017: transferred to Statutory Reserve Fund in compliance with the mandatory provisions of Section 45 IC read with Section 45Q of the RBI Act? (ii) Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the amount transferred to Reserve Fund in compliance with the provisions of Reserve Bank of India Act, 1934, by the appellant from its income, is not an allowable deduction in computing the assessable income under the provisions of the Income Tax Act, 1961 both in Regular Computation and under Section 115JB? (iii) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the interest charged under Section 234D is not allowable as deduction while computing the business income" T.C.A.No.717 of 2017: "(i) Whether on the facts and circumstances of the case, the Tribunal was right in holding that there has been no diversion of income by overriding charge in respect of amount transferred to Statutory Reserve Fund in compliance with the mandatory provisions of Section 45 IC read with Section 45Q of the Reserve Bank of India Act? (ii) Whether on the facts and circumstances of the case, the Tribunal was right in holding that the amount transferred to Reserve Fund in compliance with the provisions of Reserve Bank of India Act, 1934, by the appellant from its income, is not an allowable deduction in computing the assessable income under the provisions of Indian Income Tax Act, 1961 both in Regular Computation and under Section 115JB? https://www.mhc.tn.gov.in/judis TCA No. 755 of 2009 etc. batch (iii) Whether, on the facts and circumstances of the case, the Tribunal was right in holding that the interest charged under Section 234D is not allowable as deduction while computing the business income? (iv) Whether on the facts and circumstances of the case, the Tribunal was right in upholding the disallowance made under Section 14A read with Rule 8D?" T.C.A.No.406 of 2019: "(i) Whether, on the facts and circumstances of the case, the Tribunal was right in holding that there has been no diversion of income by overriding charge in respect of amount transferred to Statutory Reserve Fund in compliance with the mandatory provisions of Section 45 IC read with Section 45Q of RBI Act? (ii) Whether, on the facts and circumstances of the case, the Tribunal was right in holding that the amount transferred to Reserve Fund in compliance with the provisions of Reserve Bank of India Act, 1934, by the appellant from its income, is not an allowable deduction in computing the assessable income under the provisions of Indian Income Tax Act, 1961 both in regular computation and under Section 115JB? (iii) Whether, on the facts and circumstances of the case, the Tribunal was right in holding that the interest charged under Section 234D is not allowable as deduction while computing the business income? and (iv) Whether on the facts and circumstances of the case, the Tribunal was right in confirming the disallowance made under Section 40(a)(ia)?" TCA No. 755 of 2009 etc. batch T.C.A.Nos.407 of 2019: "(i) Whether, on the facts and circumstances of the case, the Tribunal was right in holding that there has been no diversion of income by overriding charge in respect of amount transferred to Statutory Reserve Fund in compliance with the mandatory provisions of Section 45 IC read with Section 45Q of the RBI Act? (ii) Whether, on the facts and circumstances of the case, the Tribunal was right in holding that the amount transferred to Reserve Fund in compliance with the provisions of Reserve Bank of India Act, 1934, by the appellant from its income, is not an allowable deduction in computing the assessable income under the provisions of the Income Tax Act, 1961 both in regular computation and under Section 115JB? TCA No. 755 of 2009 etc. batch T.C.A.Nos.407 of 2019: "(i) Whether, on the facts and circumstances of the case, the Tribunal was right in holding that there has been no diversion of income by overriding charge in respect of amount transferred to Statutory Reserve Fund in compliance with the mandatory provisions of Section 45 IC read with Section 45Q of the RBI Act? (ii) Whether, on the facts and circumstances of the case, the Tribunal was right in holding that the amount transferred to Reserve Fund in compliance with the provisions of Reserve Bank of India Act, 1934, by the appellant from its income, is not an allowable deduction in computing the assessable income under the provisions of the Income Tax Act, 1961 both in regular computation and under Section 115JB? (iii) Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the interest charged under Section 234D is not allowable as deduction while computing the business income? (iv) Whether on the facts and circumstances of the case, the Tribunal was right in upholding the disallowance made under Section 14A read with Rule 8D? and (v) Whether, on the facts and circumstances of the case, the Tribunal was right in not directing the Assessing Officer to allow depreciation on the royalty amounts disallowed in earlier years (This question of law is taken without prejudice to the appellant's ground in the earlier years that royalty amount is allowable as revenue expenditure)?" TCA No. 755 of 2009 etc. batch T.C.A.No.413 of 2019: "(i) Whether on the facts and in the circumstances of the case, the Appellate Tribunal was right in remitting back the issue of disallowance under Section 14A r/w Rule 8D to the Assessing Officer to find out whether interest bearing borrowed funds were used to acquire the shares in the companies or making advances to the subsidiary companies? (ii)Whether on the facts and in the circumstances of the case, the Appellate Tribunal ought to have deleted the entire addition u/s.14A r/w Rule 8D, as the appellant was in the business of investment promotion and the appellant have made strategic investments in shares of group companies for acquiring controlling interest?" T.C.A.No.414 of 2019: "(i) Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that there has been no diversion of income by overriding charge in respect of amount transferred to Statutory Reserve Fund in compliance with the mandatory provisions of Section 45 IC read with Section 45Q of the Reserve Bank of India Act? (ii) Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the amount transferred to Reserve Fund in compliance with the provisions of Reserve Bank of India Act, 1934, by the appellant from its income, is not an allowable deduction in computing the assessable income under the provisions of the Income Tax Act, 1961 both in regular computation and under Section 115JB? TCA No. 755 of 2009 etc. batch (iii) Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the interest charged under Section 234D is not allowable as deduction while computing the business income? (iv) Whether on the facts and in the circumstances of the case, the Tribunal was right in remitting back the issue of disallowance made under Section 14A r/w Rule 8D to the Assessing Officer?" 3.For the sake of convenience, the aforesaid substantial questions of law arisen for consideration in all these appeals are categorised under the following heads: Statutory Reserve Fund (i) Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that there has been no diversion of income by overriding charge in respect of amount transferred to Statutory Reserve Fund in compliance with the mandatory provisions of Section 45 IC read with Section 45Q of the RBI Act? (iv) Whether on the facts and in the circumstances of the case, the Tribunal was right in remitting back the issue of disallowance made under Section 14A r/w Rule 8D to the Assessing Officer?" 3.For the sake of convenience, the aforesaid substantial questions of law arisen for consideration in all these appeals are categorised under the following heads: Statutory Reserve Fund (i) Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that there has been no diversion of income by overriding charge in respect of amount transferred to Statutory Reserve Fund in compliance with the mandatory provisions of Section 45 IC read with Section 45Q of the RBI Act? (ii) Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the amount transferred to Reserve Fund in compliance with the provisions of Reserve Bank of India Act, 1934, by the appellant from its income, is not an allowable deduction in computing the assessable income under the provisions of the Income Tax Act, 1961 both in regular computation and under Section 115-JB?" TCA No. 755 of 2009 etc. batch Bad debts (i) Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the claim for bad debts is allowable as a deduction in computing the income of the assessee? (ii) Whether on the facts and circumstances of the case, the Income Tax Appellate Tribunal was right in remitting back to the Assessing Officer, the issue of claim of bad debts to verify whether the debt is actually written off in the audited books of accounts passing enough entries towards the written off to the individual accounts and to verify the requirement of Section 36(2)? Royalty (i)Whether under the facts and circumstances of the case, the Income Tax Appellate Tribunal was correct in holding that the payment of royalty is not towards acquisition of intangible asset and is revenue expenditure?" (ii) Whether, on the facts and circumstances of the case, the Tribunal was right in not directing the Assessing Officer to allow depreciation on the royalty amounts disallowed in earlier years (This question of law is taken without prejudice to the appellant's ground in the earlier years that royalty amount is allowable as revenue expenditure)?" ESOP expenditure Whether under the facts and circumstances of the case, the Income Tax Appellate Tribunal was correct in holding that the assessee's claim for deduction of ESOP expenses is an allowable deduction? Loss on sale of investments / Diminution in value of investments (i)Whether on the facts and circumstances of the case, the Tribunal was right in holding that the loss on sale of investments is allowable as a deduction in computing the business income of the assesssee? (ii)Whether on the facts and circumstances of the case, the Tribunal was right in holding that the write off of diminution in the value of investments is allowable as a deduction in computing the business income of the assessee? Loss arising out of derivatives / hedging transactions in foreignexchange Whether on the facts and circumstances of the case, the Tribunal was right in holding that the loss arising out of derivatives / hedging transactions in foreign exchange is allowable as a deduction in computing the business of the assessee? Section 14A r/w Rule 8D (i) Whether on the facts and circumstances of the case, the Tribunal was right in upholding the disallowance made under Section 14A read with Rule 8D?" (ii) Whether the Income Tax Appellate Tribunal was correct in stating that the method of calculation of the disallowance set forth in Rule 8 D would be applicable only for assessment year 2008-09 and subsequent assessment years? Loss arising out of derivatives / hedging transactions in foreignexchange Whether on the facts and circumstances of the case, the Tribunal was right in holding that the loss arising out of derivatives / hedging transactions in foreign exchange is allowable as a deduction in computing the business of the assessee? Section 14A r/w Rule 8D (i) Whether on the facts and circumstances of the case, the Tribunal was right in upholding the disallowance made under Section 14A read with Rule 8D?" (ii) Whether the Income Tax Appellate Tribunal was correct in stating that the method of calculation of the disallowance set forth in Rule 8 D would be applicable only for assessment year 2008-09 and subsequent assessment years? (iii) Whether the Income Tax Appellate Tribunal was right in not holding that the method adopted by the assessing officer to compute the expenditure attributable to income not includable in total income is scientific and therefore, the disallowance under Section 14 A is to be sustained?" TCA No. 755 of 2009 etc. batch (vi) Whether, on the facts and circumstances of the case, the Appellate Tribunal was right in remitting back the issue of disallowance under Section 14A r/w Rule 8D to the Assessing Officer to find out whether interest bearing borrowed funds were used to acquire the shares in the companies or making advances to the subsidiary companies? (v)Whether on the facts and circumstances of the case, the Appellate Tribunal ought to have deleted the entire addition u/s.14A r/w Rule 8D, as the appellant was in the business of investment promotion and the appellant have made strategic investments in shares of group companies for acquiring controlling interest?" Interest u/s. 234D Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the interest charged under Section 234D is not allowable as deduction while computing the business income? Section 40(a)(ia) Whether on the facts and circumstances of the case, the Tribunal was right in confirming the disallowance made under Section 40(a)(ia)?" 4.Now, this court proceeds to discuss the issues headwise, without narrating the facts. TCA No. 755 of 2009 etc. batch Statutory Reserve Fund 5.1.The assessees are Non-Banking Financial Companies. They had transferred certain amount to a statutory reserve under section 45 IC of the Reserve Bank of India Act, 1934 (hereinafter shortly referred to as the "RBI Act") and claimed deduction in computing the income under the provisions of the Income Tax Act, 1961 (hereinafter shortly referred to as "the Act") under the regular computation and under section 115 JB, as the case may be. During the course of assessment proceedings, the assessing officer disallowed the said claim on the premise that the assessees received income which was kept in the reserve fund as mandated under the provisions of the RBI Act and hence, it is only an application of income. The said finding of the assessing officer was also affirmed by both the appellate authorities. Therefore, the assessees are before this court by raising the issue, as to whether the Tribunal was right in holding that there has been no diversion of income by overriding charge in respect of the amount transferred to statutory reserve fund in compliance with the provisions of the RBI Act; and raised a consequential issue, as to whether the Tribunal was right in holding that the amount transferred to reserve fund in compliance with the RBI Act by the assessees, is not an allowable deduction in computing the assessable income under the provisions of the Income Tax Act, 1961. 5.2.The learned senior counsel appearing for the appellants / assessees would contend that the Tribunal has erred in confirming the disallowance with respect to transfer of reserve fund under Section 45-IC of the RBI Act. As per https://www.mhc.tn.gov.in/judis TCA No. 755 of 2009 etc. batch 5.2.The learned senior counsel appearing for the appellants / assessees would contend that the Tribunal has erred in confirming the disallowance with respect to transfer of reserve fund under Section 45-IC of the RBI Act. As per https://www.mhc.tn.gov.in/judis TCA No. 755 of 2009 etc. batch Section 45-IC of the RBI Act, 20% of the net profits of the company cannot form part of the real income of the company. The company loses control over this part of the income from the commencement of the business and that, a part of the corpus of the right of the company to have the entire income is sliced away at the threshold itself. The Tribunal also did not consider that there is no divergence of funds since the transfer is not through any other obligation created by the company out of its own volition or gratuitously. Thus, according to the learned senior counsel, it is an expenditure laid out wholly and exclusively for the purpose of commencement or carrying out the business and the business of the assessees cannot survive without complying with the mandatory provisions of the RBI Act and hence, it is an admissible deduction under section 37 of the Income Tax Act. 5.3.Adding further, the learned senior counsel appearing for the appellants / assessees submitted that the assessees are Non-Banking Financial Companies (NBFC) which fall under Chapter III-B of the RBI Act. As per Section 45-IC of the RBI Act, the assessee companies are mandated to create a reserve fund and transfer certain amount to such reserve. Further, Section 45Q of the RBI Act gives an overriding effect to Chapter III-B in respect of all other laws and therefore, Section 45-IC of the RBI Act creates an overriding charge and it cannot be disallowed under the Income Tax Act. Alternatively, the learned Senior counsel submitted that the NBFCs have no control over the reserve fund created under section