2015 (12) TMI 1830 - AT - Income Tax

Exemption u/s 10(23G) on the interest income - assessee is a non-banking financial company engaged in advancing loans and making investments - AO denied the exemption on the ground that the assessee has not earned the interest income out of investment activities but out of business activities and the Ld CIT(A) also confirmed the same - HELD THAT - Issue decided in favour of assessee as relying on own case 2012 (4) TMI 772 - BOMBAY HIGH COURT Loss arising on sale of investment as a business loss - HELD THAT - We notice that the Ld CIT(A) has allowed the claim in AY 2002-03 2014 (10) TMI 1018 - ITAT MUMBAI by considering the business activities of the assessee. Since the AO has accepted the claim of the assessee in a number of years we are of the view that the AO was not justified in taking different view in this year. Accordingly we uphold the order of Ld CIT(A) on this issue. Treatment of leasehold improvements expenditure - revenue or capital expenditure - HELD THAT - As assessee has incurred the expenditure on lease hold premises and no asset has come into existence. Accordingly he directed the AO to allow the same as revenue expenditure. The Ld A.R submitted that an identical issue was considered by the Tribunal in the assessee s own case relating to AY 2004-05 2012 (4) TMI 772 - BOMBAY HIGH COURT and was decided in favour of the assessee. Consistent with the view taken therein we uphold the order of Ld CIT(A) on this issue. Assessment of interest arising on Non Performing assets on accrual basis - HELD THAT - As this issue is covered by the decision rendered by the Tribunal in the assessee s own case for AY 2004-05 2012 (4) TMI 772 - BOMBAY HIGH COURT wherein the Tribunal has decided this issue in favour of the assessee. He further submitted that the decision taken by the Tribunal was in accordance with the decision rendered by the Hon ble Bombay High Court in the case of CIT Vs. KEC Holdings Limited 2014 (7) TMI 139 - BOMBAY HIGH COURT Hence consistent with the view taken by the Tribunal in the assessee s own case se set aside the order of Ld CIT(A) on this issue and direct the AO to delete this addition. Rejection of claim of Bad debts written off relating to the TDS certificate not received by the assessee - HELD THAT - As decided in INDIAN PRODUCTS TRADING CO. PVT. LTD. VERSUS ITO RG 3 (2) (1) MUMBAI 2010 (9) TMI 1263 - ITAT MUMBAI it is stated that the assessee did not receive TDS certificates from the debtor and hence it could not claim credit for the tax deducted at source amount. Accordingly the assessee has written off the TDS amount as irrecoverable herefore the amount withheld by the debtor has TDS is certainly due to the assessee and when the assessee writes off this debt as irrecoverable the same is allowable as deduction u/s 36(1)9vii) applying the ratio of the Apex Court in the case of TRF Ltd 2010 (2) TMI 211 - SUPREME COURT Disallowance of various expenses - HELD THAT - we notice that the assessing officer has in addition to the element of personal expenses also taken the view that they have been incurred for non-business purposes. Before us also the assessee has failed to establish the business connection in incurring all these expenses. Accordingly we are of the view that some portion of expenses needs to be disallowed to take care of deficiencies if any but the disallowance of 30% appears to be on the higher side. Accordingly in the case of Business development and entertainment expenses we sustain an addition of 10% of expenses and modify the order of Ld CIT(A) accordingly. In the case of advertisement and publicity expenses we sustain the addition of Rs. 1.00 lakh pertaining to the donation made to Doon School and Dutch National daily and 10% of the remaining portion of the expenses listed out in the table given in page 32 of the assessment order. The order of Ld CIT(A) stands modified accordingly. Disallowance of write off of deposit as irrecoverable - CIT(A) allowed the same by holding that the same is related to the business of the assessee - HELD THAT - Assessee did not furnish the relevant details to support the said contention. In our view the decision rendered by the Co-ordinate Bench of the Tribunal in the case of Reliance Engineering Associates Pvt.Ltd 2010 (11) TMI 507 - ITAT MUMBAI can be applied only if the assessee proves that the rent deposit was paid in respect of accommodation hired for the staff members. Hence in the interest of natural justice we are of the view that the assessee should be provided one more opportunity to prove the same. We shall make it clear that the addition made by the AO shall be sustained if the assessee fails to prove to the satisfaction of the AO that the concerned accommodation was taken for the residential purposes of staff members of the assessee. The order of ld. CIT(A) on this issue stands modified accordingly. Disallowance of out of pocket expenses incurred in relation to Yes Bank - HELD THAT - we notice that the assessee failed to file details of expenditures purpose for which it was incurred how it was incurred and how it was not recoverable from Yes Bank and steps taken for recovery of the same etc. either before the AO or before Ld CIT(A). In our view the relevant details are necessary in order to decide about the allowability of this expenditure. Accordingly we modify the order of ld. CIT(A) and restore the same to the file of the AO in order to provide an opportunity to the assessee to furnish relevant details. We shall make it clear that the addition made by the AO shall be sustained if the assessee fails to furnish the details to the satisfaction of the AO.

Summary

Issues Involved:
1. Eligibility of the assessee to claim exemption under section 10(23G) of the Income Tax Act on interest income.
2. Treatment of loss arising on sale of investment as business loss.
3. Treatment of leasehold improvements as revenue expenditure.
4. Validity of reopening of assessment.
5. Assessment of interest arising on Non-Performing Assets (NPAs) on an accrual basis.
6. Claim of bad debts written off relating to TDS certificates not received.
7. Adhoc disallowances of business development, entertainment, and advertisement expenses.
8. Short credit of TDS.
9. Disallowance of write-off of loans as irrecoverable.
10. Disallowance of write-off of rent deposit as irrecoverable.
11. Disallowance of out-of-pocket expenses incurred in relation to Yes Bank.
12. Additional claim of Rs. 10 lakhs refunded by the assessee.

Detailed Analysis:

1. Eligibility of the assessee to claim exemption under section 10(23G) of the Income Tax Act on interest income:
The assessee, a non-banking financial company, claimed exemption under section 10(23G) on interest income of Rs. 7.80 crores. The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] denied the exemption, asserting that the interest income was from business activities, not investment activities. However, the Tribunal followed its earlier decisions in the assessee's own case for AY 2004-05 and AY 2002-03, which were upheld by the Hon'ble Bombay High Court, and directed the AO to allow the exemption.

2. Treatment of loss arising on sale of investment as business loss:
The CIT(A) allowed the claim of the assessee that the loss on sale of investment is a business loss, referring to the consistent treatment in previous years. The Tribunal upheld the CIT(A)'s order, noting that the AO had accepted the claim in several other assessment years, and thus should not take a different view for the current year.

3. Treatment of leasehold improvements as revenue expenditure:
The CIT(A) allowed the leasehold improvements as revenue expenditure, observing that no asset came into existence. The Tribunal upheld this decision, consistent with its earlier ruling in the assessee's case for AY 2004-05.

4. Validity of reopening of assessment:
The assessee challenged the reopening of the assessment. However, since all substantive issues were decided, the Tribunal deemed this ground academic and declined to adjudicate.

5. Assessment of interest arising on Non-Performing Assets (NPAs) on an accrual basis:
The AO assessed interest on NPAs on an accrual basis, which the CIT(A) upheld. The Tribunal, referencing its earlier decision in the assessee's case for AY 2004-05 and the Bombay High Court's ruling in CIT Vs. KEC Holdings Limited, directed the AO to delete the addition, aligning with the Tribunal's consistent view.

6. Claim of bad debts written off relating to TDS certificates not received:
The assessee wrote off TDS amounts as irrecoverable due to non-receipt of TDS certificates. The Tribunal, following its decision in Indian Products Trading Co Pvt Ltd Vs. ITO, directed the AO to allow this claim, stating that the amount withheld by the debtor as TDS is due to the assessee and deductible as bad debt.

7. Adhoc disallowances of business development, entertainment, and advertisement expenses:
The AO disallowed portions of these expenses, citing personal and non-business purposes. The Tribunal reduced the disallowance to 10% for business development and entertainment expenses, and sustained Rs. 1 lakh plus 10% of remaining advertisement expenses, modifying the CIT(A)'s order.

8. Short credit of TDS:
The Tribunal directed the AO to verify and decide on the short credit of TDS in accordance with the law, after giving the assessee an opportunity to be heard.

9. Disallowance of write-off of loans as irrecoverable:
The Tribunal upheld the CIT(A)'s decision to allow the write-off of loans as irrecoverable, consistent with its earlier ruling in the assessee's case for AY 2004-05.

10. Disallowance of write-off of rent deposit as irrecoverable:
The AO disallowed the write-off, questioning the proof of the deposit's purpose. The Tribunal remanded the issue back to the AO, directing the assessee to provide evidence that the deposit was for employee accommodation, failing which the addition would be sustained.

11. Disallowance of out-of-pocket expenses incurred in relation to Yes Bank:
The AO disallowed these expenses due to lack of details. The Tribunal remanded the issue back to the AO, instructing the assessee to furnish relevant details, and clarifying that the addition would be sustained if the assessee failed to do so.

12. Additional claim of Rs. 10 lakhs refunded by the assessee:
The CIT(A) declined to adjudicate this claim as it was not raised before the AO. The Tribunal, referencing the Bombay High Court's decision in Pruthvi Brokers & Shares Pvt. Ltd, admitted the claim and remanded it to the AO for examination and appropriate decision.

Conclusion:
The appeals filed by the assessee for all three years were allowed, the revenue's appeal for AY 2003-04 was dismissed, and the other appeals of the revenue were treated as partly allowed. The Tribunal's decisions were pronounced on 9th Dec, 2015.