New User   Login      
Tax Management India .com TMI - Tax Management India. Com
Extracts
Home List
← Previous Next →

2015 (7) TMI 248 - ITAT BANGALORE

2015 (7) TMI 248 - ITAT BANGALORE - TMI - Disallowance of bad debts and advances written off - Held that:- Since the facts before us are also similar to the facts in the assessment year 2006-07 wherein held that the submissions and evidences placed by the assessee before the authorities below, viz., both the Assessing Officer and learned CIT (Appeals) have not been considered properly in the light of the principles laid down in the decisions of the Hon'ble Apex Court in the case of TRF Ltd. (201 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

re-examine all the facts of the matter regarding the assessee's claims for write off of bad debts and write off of advances so that there is clarity while deciding the issue, we remand this issue also to the file of the AO with similar directions for de novo consideration of the issue after giving the assessee a fair opportunity of hearing. - Decided in favour of assessee.

Disallowance of interest u/s 14A read with rule 8D - Held that:- In cases where there has been substantial invest .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

put forth in this case by the assessee, apart from its averments that its own funds are more than the investment in equities. We also find that the Assessing Officer has not considered the above arguments of the assessee and his finding that the assessee's net worth is negative suffers from lack of factual clarity, as the assessee's averments to the contrary are that its net worth is positive at ₹ 896 Crores. In view of the fact that the orders of the authorities below suffer from nonconsi .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

issues i.e. bad debts and advances written off and disallowance u/s 14A of the Act read with rule 8D of the Rules. Further, the grounds relating to interest u/s 234C and 234D are also consequential in nature. Therefore, these grounds also set aside to the file of the AO for de novo consideration and for giving consequential effect, if any, to the assessee.- Decided in favour of assessee for statistical purposes.

Disallowance of foreign exchange loss - CIT(A) deleted the addition - He .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

enue nature imbibed therein to result in consideration thereof as were claimed by the assessee before the authorities below. The assessee himself rendered income on gain from exchange fluctuation on identical nature of revenue from loans remaining unpaid. The same is to be allowed on the facts and circumstances of the case. Thus we uphold the action of the learned CIT(A) in deleting the disallowance of foreign exchange loss - Decided against revenue. - ITA No. 1277/Bang/2010, ITA Nos. 424 & 605( .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

77/Bang/2010(Assessment year 2007-08): The Assessing Officer (AO) had made the disallowance of (i) bad debts and advances written off (ii) interest u/s 14A of the Income-tax Act, 1961 [hereinafter referred to as 'the Act' for short] read with rule 8D of the Income Tax Rules, [hereinafter referred to as 'the Rules' for short], and (iii) set off of brought forward business loss. The learned counsel for the assessee submitted that similar issue had arisen in the assessee' own ca .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

he course of business of the company. We find that in the earlier year i.e. 2006-07, similar issue had arisen and the Tribunal has considered the issue at length and held as under: "6. Ground No.3 : Disallowance of Bad Debts and Advances written off. 6.1 This ground relates to the disallowance of bad debts written off to the extent of ₹ 18,26,06,489 in the following cases :- i) CSD Debtors - in the books of SWD Rs.1,40,83,000 ii) Karnataka Breweries & Distilleries Ltd. Rs.2,76,91, .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e had claimed and written off ₹ 46,86,87,958 to its general reserve account on account of bad debts and irrevocable advances. Written submissions in this regard were made before the Assessing Officer. On examination thereof, the Assessing Officer allowed the assessee's claim partially and disallowed the claim to the extent of ₹ 18,26,06,489 in respect of the parties listed at para 6.1 of this order (supra). The relevant finding of the Assessing Officer while making the said disal .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

80,000 Midas Golden Distilleries Ltd. Rs.3,20,55,000 Salson Dist - TMU (Debtors) Rs.4,78,000 UD Distributors (TDV) Rs.20,57,489 Chitwan Distilleries Rs.25,00,000" 6.3 Before the learned CIT (Appeals), the assessee put forth its explanations and submissions in support of its claim and also produced the ledger extracts and other evidences. The learned CIT (Appeals) while dealing with this issue declined to examine / look into the ledger extracts and other evidences while confirming the additi .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

oth bad debts covered under section 36(1)(vii) of the Act and also advances given in the course of carrying on business for procurement of goods and services. It was stated that and circumstances for making the claim along with account extracts were submitted before the Assessing Officer even at the time of assessment vide letter dt.19.11.2008 and other such correspondences placed in the assessee's paper book at pages 61 to 86. The learned Authorised Representative submitted that the Assessi .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ts ought to have been allowed. 6.4.2 As regards the advances written off, the learned Authorised Representative contends that similar type of advances written off in the earlier years were considered and allowed by a co-ordinate bench of the Tribunal in the assessee's own case in ITA No.217(BNG)/09 dt.21.8.2009 for Assessment Year 2005-06 at para 5 thereof which is as under :- "5….. We are therefore of the considered view that items of advances for internal control purposes havin .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

at the learned CIT (Appeals) erred in refusing to entertain evidences placed before him, in a much as it was the same evidences which were placed before the Assessing Officer and therefore there was no case with the learned CIT (Appeals) for applying Rule 46A in the manner he did. The learned Authorised Representative argued that a detailed letter dt.27.9.2010 filed before the learned CIT (Appeals), placed at pages 198 to 205 of the assessee's paper book was only an elaboration of the eviden .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

case for Assessment Year 2005-06 (supra). 6.5 The learned Departmental Representative for revenue submitted that since the assessee's claim of write off of bad debts was made in the statement of total income and not in the profit and loss account, it is not allowable under section 36(1)(vii) of the Act and in view of this, no useful purpose would be served if this issue is restored to the file of the Assessing Officer as the conditions for allowing the claim of bad debts were not met by the .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

on to the decision of the Hon'ble Bombay High Court in the case of Rallis India Ltd. v ACIT & Another reported in 323 ITR 54, wherein it stated to be held that debit to the profit and loss account was not condition precedent for allowing the claim of bad debts. It was further stated that write off of advances is allowed under section 37 of the Act, even in cases where the main business is not money lending and submitted that the assessee had derived interest income of ₹ 6.82 Crores .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

nd the submissions and evidences placed by the assessee before the authorities below, viz., both the Assessing Officer and learned CIT (Appeals) have not been considered properly in the light of the principles laid down in the decisions of the Hon'ble Apex Court in the case of TRF Ltd. (supra) and the decision of the Hon'ble Mumbai High Court in the case of Rallis India Ltd. (supra). We are of the view that it was essential for the Assessing Officer to consider the submissions and eviden .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

re these issues of the assessee's claims for write off of bad debts and write off of advances to the file of the Assessing Officer to be dealt with in the light of our observations after affording the assessee adequate opportunity of being heard and to file details required and after considering the submissions already made by the assessee in the light of the judicial pronouncements cited and relied on by the assessee (supra). It is ordered accordingly. Consequentially, ground No.3 of the as .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

h rule 8D of the Rules. We find that the AO has made the disallowance u/s 14A of the Act read with rule 8D of the Rules of the interest on borrowed capital relevant to investment in equity. As seen from the order of the Tribunal for the assessment year 2006-07, in similar circumstances, the Tribunal has remitted the matter to the file of the AO for re-consideration after considering the issue at length. The relevant portion of the Tribunal's order is reproduced hereunder: "8. Ground Nos .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

s Investment in Primo Distributors Pvt. Ltd. Rs.103.00 Crores Interest as sole beneficiary in USL Benefit Trust Rs.68.70 Crores. Others (Investments in Banks acquired on amalgamation) Rs.41.68 Crores. Total : Rs.702.02 Crores. 8.1.2 In respect of the above investments, the assessee submitted that it had earned dividend income of ₹ 4,28,93,000. The assessee, in the period under consideration had claimed interest on its borrowings at ₹ 173,30,55,000 and submitted that its reserves and .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

eunder:- "6.9 The assessee argues that it is only through the acquisition of investment held by Primo Distributors (15%), Shaw Wallace & Company Ltd. (40%) and SWDL Benefit Trust (40%) that the entire control over Shaw Wallace Distilleries Ltd. has been acquired. It is also stated that through the amalgamation of Shaw Wallace Distilleries Ltd. (with effect from 1.4.2005) it has acquired 10 manufacturing units along with tie-up arrangements in many States, which gave rise to significant .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

sions of section 14A cannot be applied to any of the investments made by it in shares. 6.11 The assessee has not furnished any details to prove that the investments were made as an overall strategy to acquire the business carried on by the Shaw Wallace & Company Ltd and not for earning interest from it. Since the assessee is claiming that these investments were made as business strategy and not for earning dividend, the onus to prove the claim is on the assessee. The assessee has to bring al .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

iture incurred by assessee in relation to income which does not form part of the total income under the Act." There is no separate rule to examine this section in the light / merits of the issue. The section has been introduced with the intention to ascertain the income of the assessee correctly which was getting reduced by way of expenditure on interest payment, the returns from which was not taxable. Section 14A(2) has been introduced w.e.f. 1.4.2007, which allows the Assessing Officer to .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

he assessee may also argue that the sources were out of loans in the earlier years and as on date such loans are not in existence. This could hardly be an argument since the net worth being negative the new loans have replaced the old loans which were utilized for such advances. In view of the above the interest on borrowed capital relevant to the investment inequity is to be disallowed under section 14A. As already discussed above, the assessee has not maintained separate books of accounts in r .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

y way of interest other than the amount of interest directly relating to income which does not form part of total income. B = ₹ 505,60,79,500* average of 34550153 & 66671.06 after reducing 3663.67 lakhs (i.e., the average of value of investment, income form which doesnot or shallnot form part of the total income as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year. C = ₹ 160848.695 lakhs **(i.e. the average of total assets as a .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

n the balance sheet excluding the increase on account of revaluation of assets but including the decrease on revaluation of assets. As per note-1 of schedule 5 there is an increase of ₹ 8870.62 lacs in the value of land and building, machinery etc. on account of revaluation and an increase of 754.00 lacs decrease on revaluation. Hence the increase is reduced and decrease is increased to arrive at closing asset value ofRs.235418.86 lakhs (as against ₹ 243535.48 lakhs) (the adjusted va .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

amount of (i) + (ii) + (iii) determined above). The same is disallowed as not allowable under section 14A of the Income Tax Act." 8.2 On appeal, out of ₹ 57,00,44,771 the learned CIT(A) sustained the disallowance under section 14A of the Act to the extent of ₹ 44,67,00,833 after considering the submissions made by the assessee. The findings of the learned CIT(A) in this regard are at pages 26 of this impugned order which are extracted hereunder :- "In view of the above, the .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

cost considering the fact that the appointment of the interest and finance charges has to be made to work out such expenses attributable to the income which is not includible in total income and the remaining amount represents the expenses incurred for purpose of earning the income (which include the interest income credited to profit and loss account) which form part of the total income. During the assessment year under consideration, the total expenses on interest & finance charges are in .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e appellant has also to incur the expenses out of other expenses and therefore reasonable disallowance out of the other expenses is also to be made, on this regard, the disallowance made by the Assessing Officer at ₹ 2,52,80,397 is reasonable looking to the facts and circumstances of the case. Thus the total disallowance under section 14A works out to ₹ 44,67,00,833 (Rs.42,14,20,436 + ₹ 2,52,80,397), accordingly, the disallowance made by the Assessing Officer under section 14A .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

diture incurred in relation to income not includible in total income and the Assessing Officer has not rendered any sustainable findings in this regard, in which case alone section 14A of the Act can be invoked. The learned Authorised Representative submitted that out of the total investment of approx. ₹ 702.02 Crores, ₹ 698.15 Crores was for acquiring controlling interest, expansion of market share and strategic business purposes as was the case in making the investment in Shaw Wall .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ts are concerned, it cannot be said that it was for earning exempt income. Moreover, when investments are made for the purpose of acquiring controlling interest and strategic interest, the provisions of section 14A cannot be invoked as has been held by the Hon'ble Karnataka High Court in the case of CCI Ltd. (250 ITR 291). The learned Authorised Representative submitted that in this regard, the assessee places reliance on the following decisions of the various Tribunals. (i) Kingfisher Finve .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

terest bearing funds. It was conceded that the bank accounts of the assessee consisted of both interest free and interest bearing funds, and thus the assessee's funds were mixed in nature. It is contended by the learned Authorised Representative that even in such cases, no proportionate disallowance, as made by the authorities below, could be sustained as held in the cases of CIT V Suzlon Energy Ltd. (354 ITR 630) (Guj); DCIT V Maharashtra Seamless Ltd. 138 TTJ 244 (ITAT, Delhi) and Voltas L .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

only ₹ 2,59,66,165. The learned Authorised Representative contends that from this it is amply clear that the Assessing Officer had erred both legally and factually in making the disallowance on the entire dividend income; both taxable and exempt. The learned Authorised Representative further contended that the Assessing Officer had not recorded reasons for invoking the provisions of section 14A of the Act, which is a condition precedent and therefore his action in making the disallowance u .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

er section 14A of the Act ought to be deleted. 8.4 Per contra, the learned Departmental Representative supported the orders of the authorities below and prayed for confirmation of the disallowance of ₹ 44,67,00,833 submitted by the learned CIT(A). 8.5 We have heard both parties at length and perused and considered the material on record; including the judicial pronouncements cited and placed reliance on. The learned A.R. submits that in cases where there has been substantial investment for .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

see, apart from its averments that its own funds are more than the investment in equities. We also find that the Assessing Officer has not considered the above arguments of the assessee and his finding that the assessee's net worth is negative suffers from lack of factual clarity, as the assessee's averments to the contrary are that its net worth is positive at ₹ 896 Crores. In view of the fact that the orders of the authorities below suffer from nonconsideration of arguments, deta .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ounds No.7 to 9 of the assessee's appeal are treated as allowed for statistical purposes." The facts and circumstances being similar, we remand this issue also to the file of the AO for re-consideration and in accordance with law after giving the assessee a fair opportunity of hearing. 2.3 Ground No.7 of the abridged grounds of appeal filed by the assessee is against the disallowance of set off of brought forward business loss of ₹ 16,13,58,199/-. We find that this issue is conseq .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ted as allowed for statistical purposes. 3. In the assessee's appeals for assessment years 2008-09 and 2009-10 (ITA Nos.425 & 605/Bang/2013) also, the common issue is the disallowance u/s 14A of the Act read with rule 8D of the Rules on similar or same ground. In view of the set aside of the issue to the file of the AO for the assessment year 2007-08, the issue for assessment years 2008-09 and 2009-10 are also set aside to the file of the AO for de novo consideration in accordance with l .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

the file of the AO for de novo consideration. 3.2 In the result, the assessee's appeals for the assessment years 2008-09 and 2009-10 are allowed for statistical purposes. The revenue's appeal for assessment year 2009-10 is also treated as allowed for statistical purposes. 4. In the departmental appeal for the assessment year 2008-09 (ITA No.652/Bang/2013) the lone ground is against the order of the CIT(A) in deleting the disallowance of foreign exchange fluctuation loss. We find that th .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

assessee and perused and carefully considered the material on record, including the judicial decision cited and placed reliance on by the assessee. We find that the issue of foreign exchange loss on similar facts was before the coordinate bench of the Tribunal for consideration, in the assessee's own case for Assessment Year 2005-06 (supra), and the issue was decided in favour of the assessee, wherein at para 6 of the order it was held as under :- "6. On the issue of foreign exchange l .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

 

 

 

 

 



|| Home || Acts and Rules || Notifications || Circulars || Schedules || Tariff || Forms || Case Laws || Manuals ||

|| About us || Contact us || Disclaimer || Terms of Use || Privacy Policy || TMI Database || Members || Site Map ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.

Go to Mobile Version