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2015 (10) TMI 2019 - AT - Income TaxDisallowance u/s 14A - Held that:- If some disallowance was required to be made, as per law, then, only the amount of ‘tax free’ investments was to be considered. Analysis of the aforesaid details clearly suggest that the total amount of ‘tax free’ investment was aggregating to ₹ 189.25 millions as against aggregate amount of ‘own funds’ of the assessee to the tune ₹ 2,555.07 millions. Thus, apparently the amount of ‘own funds’ is in far excess of amount of ‘tax free’ investments of the assessee company. In other words, the assessee company has got sufficient amount of surplus funds. Further, our attention was also drawn to the balance sheet of the assessee company available at page no.1 to 10 of the paper book filed by the assesee company. We found that the figures shown in the aforesaid chart, submitted by the Ld. Counsel, duly tally with the figures shown in the balance sheet. Thus, claim of the assessee that amount of ‘own funds’ of the assessee company are in far excess of the amount of ‘tax free’ investment appear to be factually correct to us. Hon’ble jurisdictional High Court in the case of HDFC Bank Ltd. [2014 (8) TMI 119 - BOMBAY HIGH COURT] has held that where the assessee’s own funds and other non-interest bearing funds were more than investment in tax free securities, then no disallowance was required to be made out of the interest expenses u/s 14A - Decided in favour of assessee. Disallowance of 21% of brokerage, stamp duty and custodial services charges - disallowance on the ground that the said expenditure was incurred for the purpose of earning tax free income - Held that:- It is observed by us that the Ld. CIT(A) has been quite fair in deleting the disallowance of ₹ 78,49,487/- made out of the brokerage expenditure of ₹ 1,56,98,973/-, on the ground that these were paid for Government Securities, ICD & other debt instruments. With respect to other expenditure aggregating to ₹ 9,09,960/-, it is noted that admitted case of the assessee is that these have been incurred for the purpose of acquisition of shares. Ld. CIT(A) has been very reasonable in restricting the disallowance to 21% of the said amount of expenses. Thus, the disallowance sustained is now of a very miniscule amount. The argument of the Ld Counsel, that no amount at all can be correlated with the dividend income, is not acceptable. Thus, on this issue we find that order of Ld. CIT(A) is quite justified and no interference is called for and therefore - Decided against assessee. Ad hoc disallowance - Held that:- Ld. Counsel fairly stated that no suo moto disallowance has been made by the assessee company in the computation sheet filed along with return of income, and it seems that Ld CIT(A) has mentioned it so in his order, by mistake . We have ourselves seen the computation sheet of income enclosed at PB-11-12 of the paper book filed by the assessee company. It is noted by us that no such disallowance has been made in the computation sheet as has been mentioned by the Ld. CIT(A) in its order with respect to proportionate indirect expenses disallowable u/s 14A. Under this mistaken belief, Ld. CIT(A) has presumed that the disallowance made by AO has resulted in double taxation. We find that the basic premise of the Ld. CIT(A) appears to be factually incorrect. There seems to be some error in mis appreciation of facts on the part of the Ld. CIT(A) in this regard. Therefore, in the interest of justice, we find it appropriate to send this issue back to the file of the Ld. CIT(A) to re-adjudicate the same after giving adequate opportunity of hearing to the assessee and after taking into consideration correct facts. - Decided in favour of revenue for statistical purposes. Disallowance of bad debts written off - Held that:- It is held that the assessee is eligible for the claim of deduction, both u/s 36(1)(vii) as well as u/s 37(1) of the Income Tax Act, 1961. The only constraint before us is that there is no clear finding, of either of the lower authorities, with regards to the facts that whether any credit for the TDS was claimed and granted to the assessee in the impugned year or in the subsequent years pertaining to those TDS certificates for which impugned amount of bad debts is being claimed. Therefore, we send this issue back to the file of the AO for the limited purpose of verification of the fact whether any claim has been granted to the assessee in this year or in any subsequent year with respect to these TDS certificates. If claim of assessee that no credit has been granted to the assessee, for want of these TDS certificates, is found to be factually correct, then the amount of bad debts claimed by the assessee shall be allowed as deduction. Decided in favour of assessee for statistical purposes. Taxation on interest on deep discount bonds - whether amount of interest had accrued to the assessee company and since the assessee was following mercantile system of accounting, aforesaid interest income was liable to be included in its taxable income of the year under consideration? - Held that:- it is noted that the assessee’s income fall in higher tax brackets and good amount of taxes are being paid by assessee every year. Under these circumstances, the Revenue is not going to suffer with the amount of tax, whether the interest income is taxed in the impugned year or in the next year, so long as, Return has been filed by the assesse showing taxable income and taxes have been paid thereon, in both the years. In our considered opinion, liberal approach should be adopted by the revenue and unnecessary litigation should be avoided. We derive support from the judgment of Hon’ble Supreme Court in the case of Excel Industries Ltd. [2013 (10) TMI 324 - SUPREME COURT]. It is further noted by us that the assessee has already been taxed on this income in the year of sale of bonds. Thus, as on date, the assessee is suffering with the amount of double addition on the same income. In our view, such kind of situation should have been avoided, as far as possible. Keeping in view these facts and circumstances of the case, we delete the addition - Decided in favour of assessee. Disallowance u/s 36(1)(xi) for making computer systems of the assessee as Y2K compliant - Held that:- Revenue should avoid highly technical approach in such cases. If legislature has brought beneficial provisions on the statute, then, there should be an endeavor to ensure that the assesse is able to rightfully claim the benefits of the beneficial provisions. In our considered view, since the claim has been found genuine and the audit report was filed by the assessee, during the course of assessment proceedings and the same was examined by AO in which nothing wrong, has been found, thus, the assessee would be entitled for the benefits of the claim and Ld. CIT(A) is justified in granting relief to the assessee in this regard - Decided in favour of assessee. Disallowance of bad debts on account of writing off of non-convertible debentures - Held that:- In the amended law there is no requirement of proving the impugned amount of debt as ‘bad’. Further, it has been also been provided under the law that subsequently if any recovery is made out of the amounts claimed as bad debt, then the same would be included in the income of the assessee in the year in which recovery is made. Thus, the law is now plain and simple. It has been so clarified in this very manner by Hon’ble Supreme Court also in the case of T.R.F. Ltd. (2010 (2) TMI 211 - SUPREME COURT). It is further noted by us that no doubts, whatsover, have been expressed by the AO on the genuineness of the claim or about the nature of the claim. The objection raised by the AO in the assessment order is not sustainable under the law and therefore, the Ld. CIT(A) has rightly deleted the addition made by the AO. Similarly with regard to interest also, when the principle amount itself is allowable as bad debt, then interest amount would also be allowable and accordingly we hold that Ld. CIT(A) has rightly deleted the disallowance made by the AO - Decided in favour of assessee. Penalty order u/s 271(1)(C) - Held that:- Out of the disallowances mentioned we have deleted the disallowances on account of interest on deep discount bonds and software expenses. Therefore, with respect these two disallowances, the basis of levy of penalty cease to exist and therefore, consequently, penalty also cannot survive and accordingly we uphold the order of Ld. CIT(A) in deleting the penalty on both these issues. With respect to the remaining disallowance, with regard to bad debts it is noted that this amount represented dues from various parties towards non-receipt of TDS certificates. This issue has been sent back by us to the file of the AO for re-deciding the same. Therefore, as on date, this addition does not survive. Consequently, the penalty order on this addition is also set aside. The AO shall be at liberty to initiate the penalty proceedings, if considered appropriate, after this issue is re-decided by the AO, as per law. Addition invoking provisions of section 94(7) - disallowance of loss - Held that:- Section 94(7) is not retrospective and therefore, it cannot be invoked in the year under consideration. Further, Hon’ble Supreme Court in the case of Walfort Share and Stock Brokers (P) Ltd. [2010 (7) TMI 15 - SUPREME COURT ] has observed that in absence of section 94(7), the transactions done by the assessee in this regard were permitted under the income tax law and thus losses resulting there from could not have been disallowed. Thus, respectfully following the judgment of Hon’ble Supreme Court, we find that Ld. CIT(A) has wrongly disallowed the loss. Thus, reversing the action of Ld. CIT(A), we direct the AO to allow the loss - Decided in favour of assessee. Disallowance of expenditure on software expenses - Held that:- Expenditure incurred on the software expenses are revenue in nature and AO was not justified in disallowing the same. See CIT Versus Raychem RPG Ltd. [2011 (7) TMI 953 - Bombay High Court ] - Decided in favour of assessee.
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