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2007 (9) TMI 300 - AT - Income TaxDisallowance of bad debts - Written Off - sold and purchased units of mutual funds - earned dividend and commission as profit on trading of shares - HELD THAT:- In our considered opinion the debts in question have already been written off in the previous year relevant to the assessment year under consideration and in view of the amendment to s. 36(2) of the Act, the AO was not justified in rejecting the claim of the assessee merely on the ground that it was premature to write-off the debts in question. The decision of the learned CIT(A) on this issue cannot therefore, be sustained. This ground of appeal is allowed. Interest accrued on loan advanced - Penal interest - HELD THAT:- As discussed there was no possibility of recovery of loan from SFL and ASTIL and we have therefore, allowed the claim of the assessee that the amount was required to be allowed as bad debt because the assessee has also written off the amount in view of the fact that the financial position of the aforestated two parties was very bad and there was no hope of recovery despite legal suit pending against them. We are, therefore, of the opinion that even if the assessee could have provided for the penal interest, the same was liable to be written off as irrecoverable. In our considered opinion, since the principal itself was not likely to be recovered the question of providing for penal interest did not arise and, therefore, the lower authorities were not correct in making addition on account of penal interest on accrual basis. The decision of the learned CIT(A) on this issue cannot, therefore, be sustained. The addition is deleted. This ground of appeal is allowed. Disallowance out of the total Court fees - pursuing civil proceedings for the recovery of bad debts - HELD THAT:- In our considered opinion, the expenditure has been incurred for filing the suit for recovery of debts before the amount was written off by the assessee, but the expenditure is not, admissible as business expenditure because the debts have been written off and the decisions of the lower authorities on this issue deserve to be sustained. This ground of appeal of the assessee is rejected. Expenditure attributable to earning of dividend income - HELD THAT:- The amendment to s. 14A of the IT Act has been inserted by the Finance Act, 2006 w.e.f. 1st April, 2007 and the lower authorities were not correct in disallowing proportionate expenditure against the dividend income without establishing the nexus thereto. The addition is therefore, deleted. This ground of appeal is therefore, allowed. As a result, the appeal of the assessee is partly allowed.
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