TMI Blog2010 (10) TMI 664X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rs. 2,06,22,367 was found credited under the head 'Current liabilities' in the balance sheet. - This amount was received from various parties against pending settlement of their cases - Held that:- the AO has made generalized observations without pointing out any reasons to interfere with the regular accounting system followed by the assessee. There is no material to establish as to in what manner the system of accounting followed by the assessee with respect to the impugned amounts, does not lead to proper deduction of income. The CIT(A), in our view, is correct in observing that till the final settlement of accounts with the defaulting borrowers, it is not possible for the appellant to bifurcate interim payments made by the defaulting borrowers between principal and interest till such time the settlement is finally reached. Dividend income - exemption u/s 10(34) - AO disallowed the claim on the ground that the assessee was engaged in financing industrial units and therefore, dividend earned on shares was related to its business activity and hence the same is to be treated as income from business. The exemption was thus denied. - Held that:- AO erred in denying the exemption ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... leasing etc. which filed a return of income for the year under consideration declaring income for the year at Rs. 1,09,60,635 and after set off of the brought forward losses, the total income was reduced to 'nil'. The return of income so filed was subjected to scrutiny assessment wherein certain disallowances were made but in view of the brought forward losses, the total income was determined at 'nil'. The disallowances made by the AO were carried in appeal before the CIT(A), who allowed partial relief. Against the partial reliefs allowed by the CIT(A), Revenue is in appeal before us on the stated grounds of appeal. 3. The rival counsel have made their submissions. On behalf of the respondent, a paper book has also been filed inter alia containing the material furnished before the lower authorities. The rival submissions have been heard and relevant material perused. 4. In the first ground, the dispute relates to an addition of Rs. 1,76,61,492 made by the AO. During the year under consideration, assessee earned profit of Rs. 1,76,61,492 on sale of shares which was claimed as exempt as long-term capital gain. The AO denied the claim of exemption on the ground that the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er financed these companies. The shares have been shown under the head investment in Sch. H. As an example the counsel argued that the appellant sold shares of IDBI which itself is a financing company and not an industry which was financed by the appellant. The counsel argued that the profit earned on sale of equity shares is exempt under s. 10{38)(b) of the IT Act since the shares have been sold through M/s Kotak Securities Ltd. through stock exchange and securities transaction tax has been paid. The counsel argued that on these facts the case laws relied upon by the AO are not applicable. In the remand report the AO has not controverted the contentions of the counsel but has argued that the income has not been claimed exempt in the return of income but only in the computation sheet. 5.2 On careful consideration of the above facts and submission, I find force in the arguments of the counsel that the profit has been earned by the appellant on sale of shares held as investment and not sale on shares which were acquired by the appellant as per collaboration agreements by way of equity participation. The counsel attached the details of the shares sold to support his contention. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id. Under this factual scenario, we find the CIT{A) made no mistake in allowing exemption to the assessee under s. 10(38)(b) of the Act on the income of Rs. 1,76,61,492 on account of sale of equity shares. Thus on ground No. 1 Revenue fails. 8. In ground No. 2, dispute relates to an addition of Rs. 39,09,536 made by the AO. The facts in this regard are that the assessee had claimed bad debts written off amounting to Rs. 39,09,536 as per details in para II of the assessment order. The AO disallowed the claim on the ground that no details were furnished regarding the assessment year in which such amounts were shown as income by the assessee. Secondly, as per the AO in terms of s. 36(1)(viia) of the Act, bad debts written off shall be restricted to the amount by which such debts exceed the credit balance in the provision for bad and doubtful debts created under this clause. Since no such provision was created by the assessee, the AO disallowed the bad debts written off. 9. In appeal before the CIT(A), assessee contended that the claim of bad debts written off was in terms of s. 36(1)(vii) of the Act and not under s. 36(1)(viia) of the Act as understood by the AO. Further, asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ferred to the provisions of s. 36(1)(viia)(c) of the Act to deny the claim. The conditions prescribed under s. 36(1)(viia)(c) do not govern a claim made under s. 36(1)(vii) of the Act. Sec. 36(1)(vii) of the Act permits the assessee deduction for an amount of any bad debt which is actually written off as irrecoverable in the accounts of the assessee, subject to provisions of sub-s. (2) of s. 36 of the Act. Whereas s. 36(1)(viia)(c) of the Act relates to deduction in respect of any provision for bad and doubtful debts made by scheduled bank or a public financial institution or State financial institution, as the case may be. Evidently, in this case, the AO has misdirected herself in treating the claim of the assessee under s. 36(1)(viia)(c) of the Act, whereas it was a claim made under s. 36(1)(vii) of the Act. The inference of the CIT(A) in this regard is not controverted by the Revenue before us. However, we find merit in the argument of the learned CIT-Departmental Representative that the claim of the assessee made under s. 36(1)(vii) is required to be examined in the context of provisions contained in s. 36(2)(i) of the Act. Therefore, to this extent, we set aside the order of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unts were lying credited in the balance sheet and the interest element was to be credited in the relevant year of final settlement as per the accounting policy regularly followed. Therefore, CIT(A) was justified in deleting the addition. 16. We have carefully examined the rival contentions. In this regard we find that the CIT(A) has appreciated the system of accounting being regularly followed by the assessee regarding the amount received from the defaulting borrowers for bifurcation into principal and interest thereon. The CIT(A) has observed that unless the accounts are finally settled with the defaulting borrowers, it is difficult to apportion the interim receipts between principal and interest. CIT(A) has also recorded a finding that such accounting system has been regularly followed by the assessee. In our considered opinion, having regard to the submissions put forth before us, there is no material to negate the aforesaid factual findings recorded by the CIT(A). Moreover, the CIT(A) has observed that no reason has been adduced by the AO to disturb accounting system regularly being followed by the assessee. In this connection, we have perused the cryptic discussion made by ..... X X X X Extracts X X X X X X X X Extracts X X X X
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