TMI Blog2014 (11) TMI 405X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the assessee, since mere controlling will not generate any profit or loss, which is sine qua non of any business activity - M/s Dytek was already a subsidiary of the assessee company and in order to revive the operations of M/s Dytek, the assessee had infused funds in the form of ICDs - the assessee has put in new claim before the CIT(A) that it categorized itself as "Non Banking Financial Company" duly registered by the Reserve Bank of India and accordingly it is engaged in the business of lending and borrowing as well as investment - the provisions of section 36(1)(vii) r.w.s 36(2)(i) provide for allowing deduction of bad debt, if the same represents money lent in the ordinary course of the business of banking or money lending, which is carried on by the assessee - Since the assessee claims that it is a NBFC and since the revenue authorities have not examined the claim of the assessee from the angle of NBFC, the matter required examination by AO to determine whether the ICD, made by the assessee would at all fall in the category of money lent in the ordinary course of business – thus, the order of the CIT(A) is set aside and remitted back to the AO for fresh examination – De ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O observed that the assessee incurred interest expense at ₹ 3,96,66,350/- and administrative expense of ₹ 7,00,70,691/-. Taking into consideration the above facts, the AO called for an explanation, as to why the interest expenditure and administrative expenditure relatable to earning dividend income be not disallowed under section 14A. 5. The assessee responded to the above query, wherein, it was explained that the assessee, as per its object clause invests its funds in various equity shares, both quoted and unquoted and its income is from the sale of these shares held as investments, dividend and other incomes. The assessee, therefore, utilizes its funds from its business activity, for the smooth functioning of its business, it utilizes certain borrowed funds, on which it pays interest. Since the acquiring of investments and sale thereof is the business of the assessee, therefore, one to one correlation could not be done, which is relatable towards borrowed funds, because as such, the assessee has common pool of funds. It was further explained to the AO that where borrowings are for the purposes of activities of business, then apportionment of interest expense for d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vs Daga Capital Management (P) Ltd 26 SOT 603/119 TTJ 289 (Mum) has already decided this issue that Rule 8D is retrospective in nature. Hence the AO is justified in disallowing expenditure incurred by the assessee for earning dividend income which is exempt. However, I find that the AO has not applied Rule 8D but proportionately disallowed certain expenditure for earning the exempt income. The AO is directed to apply Rule 8D and make suitable disallowance u/s 14A read with Rule 8D. These grounds of appeal are partly allowed . 13. Aggrieved with this decision of the CIT(A), the assessee is now before the ITAT. 14. Before us, the AR submitted that the orders of both the authorities are infirm and otherwise also they were inconsistent. 15. The DR, on the other hand placed heavy reliance on the decisions of the revenue authorities. 16. We have heard the parties and have perused the orders and the material placed before us. We are of the view that both the revenue authorities have made inconsistent observations to come to a finding that the interest and expenses have to be disallowed. 17. We are in any case not in agreement that the application of Rule 8D has retrospectiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of its revival or recovery of the debt. The assessee, therefore, acted under section 36(i)(vii) and wrote off the funds, which, in its opinion was irrecoverable and had become bad. 25. The revenue authorities did not accept the submissions, as made by the assessee and disallowed the claim of write off. The CIT(A) held that it was a case of capital loss and not a case of write off. 26. The revenue authorities, therefore, disallowed the claim of the assessee. 27. Against this order of the CIT(A), the assessee is before the ITAT. Along with its primary ground of appeal, raised an additional ground that if the write off was not to be allowed then the assessee be allowed the benefit of capital loss. 28. Before us, the AR reiterated the facts as submitted by it before the revenue authorities and the DR placed reliance on the orders of the revenue authorities and pleaded that disallowance is entirely based on legal provisions. 29. We have heard the rival arguments and have perused the orders and material placed before us. We notice that the AO has disallowed the claim mainly on the ground that the assessee did not comply with the conditions prescribed u/s 36(2) of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X
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