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2022 (6) TMI 1268 - AT - Income TaxDisallowance of claim of bad debts - Amount written off in the books of accounts as non-recoverable loan out of the loan advanced during the regular course of business claimed as bad debt u/s 36(1)(vii) r.w.s 36(2) - Alternative prayer being that if the same is not allowed u/s 36(1)(vii) r.w.s. 36(2) it was allowable u/s 37(1) - HELD THAT:- As admitted facts are that the assessee is carrying on money lending business and has been taxed so under the head business for the last 9 years which has been overlooked by the authorities. If the assessee is not in money lending business it cannot lead to the conclusion that when money advanced by the assessee becomes bad, it cannot be written off. Even if the assessee advanced money without money lending business, if the advance becomes bad, it should be allowed as a bad debt in terms of s. 36(1)(vii) r.w. 36(2)(i) - For the purpose of Income tax Act, for grant of claim of assessee as bad debt, holding the money lending business is irrelevant consideration. We have to look into the issue from the point of view of the assessee, whether assessee has advanced money and it became bad debt and same was written off in the books of accounts as bad debt. In the present case, assessee has advanced money in the ordinary course of carrying on business of the assessee and income earned from money lending business was offered to tax from year to year. Due to circumstances beyond the control of assessee, assessee was not able to recognize interest income on the impugned advance made to Pie Education Ltd. The main argument of the ld. DR is that income from these advances made to Pie Education Ltd. has not gone into the computation of income in any assessment year. This has been explained by the assessee that due to circumstances beyond the control of assessee, the debt being non-performing asset, no interest income is recognized on this count which cannot be the reason to disallow the claim of bad debt. For this purpose, we rely on the judgment in the case of CIT v. T. Veerabhadra Rao, K. Koteswara Rao & Co [1985 (7) TMI 2 - SUPREME COURT]. In our opinion, the advance made by the assessee in the ordinary course of business which is stock in trade is to be valued at cost or market price, whichever is less. In the present case, the debt has become bad and it being stock in trade the value is NIL. Therefore, it has to be considered as business loss and allowed. We find merit in this claim of the assessee. The debt written off by the assessee in the books of account is to be allowed as bad debts and accordingly we allow the grounds taken by the assessee. Disallowance u/s. 14A r.w.r. 8D - HELD THAT:- As expenditure debited in the profit & loss account and we find that only bank charges, remuneration to auditors, salary and wage, travelling and conveyance, vehicle maintenance are expenses which are general in nature and all other expenses are attributable to the activities other than activity of investment in shares which are likely to yield exempt income. Only the aforesaid expenses can be considered for disallowance under rule 8D(2)(iii). We may also mention here that the mandate of section 14A of the Act is that the expenditure incurred in relation to income which does not, form part of total income has to be determined having regard to the account of the assessee. Therefore, nexus between expenses sought to be disallowed and earning of dividend income has to be seen before applying the provisions of rule 8D of the IT Rules. As far as appeal of the revenue is concerned, there is no merit in the appeal because the law, by now is well settled that disallowance u/s 14A of the Act cannot exceed exempt income earned by the assesse - Thus we direct AO to restrict the disallowance on similar lines.
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