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2018 (4) TMI 879 - AT - Income TaxNature of loss - Treatment of the loss as a speculation loss u/s 73 - disallowance of claim of trading loss on purchase and sale of shares - Held that:- consequent upon scheme of arrangement and demerger, the assessee company shall be deemed to be investment company and shall be registered as non-banking financial company as per the judgment of the Hon’ble High Court which was approved prior to the FY, therefore, registration granted to the assessee as NBFC would relate back to the date of application i.e. 09.03.2004 as such the assessee would be NBFC in FY under appeal. Since Ld.CIT(A) accepted the genuineness of the transactions of sale and purchase of shares in question and his findings have not been challenged by the Revenue in the Departmental appeal, therefore, we are of the view that the assessee would be entitled for deduction of loss. Thus, Ld.CIT(A) was unjustified to direct the AO to allow loss as speculation loss u/s 73 of the Act. We accordingly, set aside the orders of the authorities below and delete the entire addition. - Decided in favour of assessee Disallowance of bad debts u/s 36(1)(vii) r.w.section 36(2) - Held that:- interest amount that it is allowable under above provision and issue is covered by the judgement of Hon’ble Supreme Court in the case of TRF Ltd. (2010 (2) TMI 211 - SUPREME COURT). Since the assessee was an investment company and it was a principal business of the assessee to grant loan and advance which was also granted earlier, therefore, if the principal amount and interests is not recoverable from debtor company for last several years, the assessee correctly write off same in its books of account as irrecoverable. The claim of the assessee is supported by the balance sheet of the debtor company to show that they have accumulated losses. The decisions relied upon by Ld. Counsel for the assessee support the claim of bad debt on principal amount as well as on interests. The AO thus should not have rejected the claim of the assessee. The claim of the assessee thus allowable as bad debts as well as business loss. Addition u/s 14A - Held that:- In the absence of any satisfaction recorded by the AO, no disallowance should have been made by the authorities below. The assessee claimed that no expenses have been incurred for earning dividend income and investments were existing since 1998 and further admittedly no interest element is involved to earn dividend income would show that no borrowed funds have been used for making investment. If AO was not satisfied with the explanation of the assessee, he should have brought some material on record to disbelieve the explanation of the assessee. He should record his satisfaction as to how the explanation of the assessee was unreasonable and unsatisfactory. In the absence of any evidence on record, disallowance made by the AO is not sustainable. We, accordingly, set aside the orders of the authorities below and delete the addition. MAT - computing book profit u/s 115JB by adding a sum being diminition in value of investment and the exempt income - Held that:- We are of the view that the order of Ld.CIT(A) cannot be sustained since we have deleted the addition of ₹ 36,35,873/- made u/s 14A of the Act. Further, it could not be taken for computing book profit u/s 115JB of the Act. Further this issue is covered in favour of the assessee by order of ITAT, Special Bench in the case of ACIT vs Vireet Investment Pvt. Ltd. (2017 (6) TMI 1124 - ITAT DELHI), we accordingly set aside the orders below and delete the addition. Expenditure on fees paid for management consultancy - allowable busniss expenditure u/s 37 - Held that:- We are of the view that no inference is called for in the matter. When the assessee engaged consultants for the purpose of business of the assessee, it is revenue expenditure because it was incurred wholly and exclusively for the purpose of business. This ground of appeal of Revenue has no merit, the same is, therefore, dismissed Addition on account of imputed interest on Non performing assets - Held that:- The assessee is a NBFC, the assessee has to follow RBI Guidelines with regard to accounting of NPAs and interests income relating thereto. The assessee followed RBI Guidelines. Ld.CIT(A) in AY 2007-08 decided the same issue in favour of the assessee. Since recovery of the principal amount is in dispute and no amount of loans outstanding against these parties have been recovered in past, therefore, the assessee correctly did not account for interests in the books of accounts. Ld.CIT(A), therefore, correctly deleted the addition on accrual of interests in respect of M/s Nalwa Metal & Alloys Ltd. and M/s Gagan Trading Co.Ltd. There is no infirmity pointed in the order of Ld.CIT(A) in following his order for AY 2007- 08. These grounds of appeal of the Revenue are dismissed.
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