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2015 (3) TMI 1184 - ITAT MUMBAI

2015 (3) TMI 1184 - ITAT MUMBAI - TMI - Disallowance of bad debts written off - Held that:- After the decision of TRF Ldt.(2010 (2) TMI 211 - SUPREME COURT ) the legal position is very clear and that is to obtain a deduction in relation to bad debts, it is not necessary for the assessee to establish that the debt, in fact, has become irrecoverable :it is enough if the bad debt is written off as irrecoverable in the accounts of the assessee. We have gone through the paper book of the assessee and .....

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s. If the assessee has sufficient funds and reserves then it has to be accepted that investment has been made out of such funds.But,the availability of funds has to be proved.We find that in the matter of mutual funds it may not be true. The assessee had made an alternate argument and we are of the opinion that considering the facts of the case,in the interest of justice, matter should be sent back to the file of the AO to determine the interest disallowance within the parameters of the alternat .....

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ppellate authority, if the FAA had admitted the new claim then in our opinion he has rightly applied the provisions of law. Upholding his order, we decide ground against the AO. - ITA No. 265/Mum/2011, ITA No. 2460/Mum/2012, & ITA No. 2210/Mum/2012 - Dated:- 4-3-2015 - S/Sh.Joginder Singh, Judicial Member & Rajendra,Accountant Member For the Appellant: Shri Dinesh Vyas For the Respondent: Shri Neil Philip Per Bench,

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/u1:p> 1. (a) The Commissioner of Income-Tax (Appeals) [hereinafter referred to as the CIT (A)] erred in confirming the disallowance of bad debts of ₹ 69,22,117 written off by the appellant in the accounts during the previous year under appeal. (b) The C1T (A) erred in disregarding additional submissions filed under Rule 46A of the Income- Tax Rules, 1962 and further erred in holding that appellant has not placed any material before Additional Commissione .....

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owance under Section 14A of the Act by holding that the provisions of section 14A of the Act are attracted in the appellants case. The CIT (A) ought to have confirmed that provisions of Section 14A of the Act are not applicable as the appellant has not incurred any expenditure in relation to the earning of tax free income. (b) Without prejudice to the above, the CIT (A) erred in not adjudicating and confirming the appellant's contention that th .....

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ellant's contention that should any part of the interest be disallowed; the appellant should be permitted to capitalize such interest and enhance the cost of acquisition of the shares/units to which said expenditure is held to be related. 3. The appellant craves leave to add, alter, amend, modify or delete any of the grounds taken in appeal ITA No. 2460/Mum/2012,AY.2007-08:(Appeal by the Assessee) 1. The Ld. Commissioner of Income Ta .....

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2. The ld. CIT(A) erred in confirming the action of the AO in disallowing expenditure of ₹ 226,215 under Section 14A of the Act. Without prejudice to above, the CIT(A) CIT(A) in confirming the action of the AO in applying Rule 8D(2)(iii) of the Income Tax Rules, 1962 to the current year. Your Appellant submits that the AO be directed to delete the disallowance of ₹ 226,215/-. 3. The ld. CIT(A) erred in not allowi .....

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oreseeable losses pertaining to earlier assessment years written back in the current year, since the same was disallowed in earlier assessment years. All the aforesaid grounds arc without prejudice to one another The Appellant crave leave to add to, alter, amend or modify any of the foregoing grounds of appeal, if and when necessary. ITA No. 2210/Mum/2012,AY.-2007-08(Appeal by the AO) 1. On the facts and in the ci .....

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that the assessee company has neither claimed it in the return of income nor filed revised return of income. 3. The Ld. CIT(A)'s order is perverse in law and on facts and deserves to be set aside. 4. The appellant prays that the order of CIT(A) on the above grounds be set aside and that of the AO restored. The appellant craves leave to amend or alter any ground or add a new ground that may be necessary. ITA No. 265/Mum/ .....

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is about disallowance of bad debts of ₹ 69.22 Lakhs. During the assessment proceedings, the AO found that the assessee had written off an amount of ₹ 90.49 Lakhs as bad debts during the year out of which an amount of ₹ 21.27 Lakhs pertained to Ahmadabad Municipal Corporation. The AO allowed the said amount and balance of ₹ 69.22 Lakhs was disallowed by the AO. He made enquiry in this regard and held that the only evidence produced by the assessee was by way of single cor .....

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d to be written off as bad debt- 2005- 06 amounting to ₹ 31.40 Lakhs the AO held that the list did not mention the year to which it pertained, that no evidence was produced to show that same had become bad, that the assessee did not explain as to why said transaction were treated as bad debts. He further mentioned that the assessee was required to mention the year of transaction for each case and was to file copies of ledger account of those parties. 3. Aggrieved by .....

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it was not possible to verify the exact fact as regards applicability of provisions of section 36(1)(vii) r.w.s. 36(2) of the Act, that the assessee had failed to produce any documentary evidence to show that the debts had become bad. Referring to the judgment of Oman International Bank and (313 ITR 128)of Bombay High Court,the FAA held that disallowance of bad debts of ₹ 69.22 Lakhs made by the AO was to be confirmed. 4. Before us, Authorised Representative(AR) st .....

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of TRF Vs. CIT (323 ITR 397), Oman International bank(313 ITR 128),M.P. Warehousing & Logistic Corporation Ltd. (21 taxmann.com 322),C.M.S. Securities Ltd.(ITA No. 7531/Mum/2011).Departmental Representative (DR) supported the order of the FAA. 5. We have heard the rival submissions and perused the material before us. We find that the AO and the FAA had disallowed the claim made by the assessee as they were of the opinion that details of bad debts and evidences demonst .....

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nt in question has been actually written off. We further find that issue of bad debts has been decided in favour of the assessee by the Tribunal while deciding the appeal for the AY. 2005-06(ITA/ 3378/Mum/2009).Considering the above facts and legal position, we decide first ground of appeal in favour of the assessee. 6. Next effective ground of appeal is about confirmation of disallowance made by the AO u/s. 14A of the Act. During the assessment proceedings, the AO found .....

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hat it could not be stated that no expenses were incurred in connection with earning of exempt income. Referring to the Rule 8D of the Rules r.w.s. 14A of the Act, the AO made a disallowance of ₹ 10.08 Lakhs. (Apportion - able interest ₹ 4,30,608+ other expenses ₹ 5,78, 045). 7. In the Appellate proceedings, the assessee contended before the FAA that it had sufficient positive balance for making investment, that it had cash surplus, reserves, own funds t .....

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growth scheme was from ₹ 1650 Crores, that the capital was reflected in the net annual value. After considering the submissions of the assessee and the assessment order,the FAA held that the assessee could not prove the nexus that investments were made out of free funds only,that it was maintaining any overdrafts bank account out of which the investment had been made,that no separate bank account for the purpose of investment had been maintained.He referred to the .....

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re available to the assessee for making investments, that submission was made before the FAA showing the availability of funds on the date of making investment in mutual funds,that while deciding the appeal for the AY 2007-08, the FAA, vide his order dated 26.12.2011,had accepted the contention of the assessee and had deleted the disallowance in respect of the interest,that the department had not challenged the order of the FAA before the Tribunal,that for the subsequent two AY.s.the assessee ha .....

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erdraft in bank account. With regard to disallowance of Administrative Expenses the AR contended that dividend was directly credited to bank account, that no administrative expenses were incurred for collection, that no disallowance for administrative expenses should be made, he placed reliance of decision of Hon'ble Karnataka High Court delivered in the case of Kanada Bank ITA-No.1397 of 2006.He further argued that disallowance should be restricted to one /two percen .....

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me,that it was maintaining overdraft account, that it was not possible to link investment and availability of funds. In the cases of Reliance Utility and HDFC Ltd.(supra) certain principles have been laid.Considering these principles we are of the opinion that if the assessee has sufficient funds and reserves then it has to be accepted that investment has been made out of such funds.But,the availability of funds has to be proved.We find that in the matter of mutual funds it may not be true. The .....

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1:p> ITA No. 2460/Mum/2012,AY.2007-08: 10.First ground of appeal is deals with disallowance of bad debts amounting to ₹ 34,30,813/-. Following our order for the earlier year,we decide ground no.1 in favour of the assessee,as the facts for the AY.s.are identical. 11.Next ground of appeal is disallowance made u/s. 14A of the Act, amounting to ₹ 2.26 Lakhs. We have decided the identical issue in favour of the assessee in part,while ad .....

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r depreciation of ₹ 1.42 Crores. During the assessment proceedings, the assessee made a claim of further additional depreciation amounting to ₹ 1,25,87,517/- due to difference in depreciation rate from 25% to 60% for the AY 2004-05 and 2005-06. It was contended that assessee had claimed depreciation, @ 25% instead of 60%. The FAA rejected the claim made by the assessee and held that it was not allowable during the year under consideration as it pertained to Ay .....

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. In his support he referred cases of Balmukund Achary (310 ITR 310), Ramco International(332 ITR 306),Chicago Pnematic India Ltd.(15 SOT 252),Hero Honda Finlease Ltd. (115 TTJ 752) and Raj Rani Gulati (345 ITR 350).DR supported the order of the FAA. 12.2.We have heard the rival submissions and perused the material before us.We find that the FAA has rejected the claim made by the assessee as he was of the opinion that the assessee should have filed a revised return of inc .....

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sessee, in part. 13.Last ground of appeal is about allowing deduction of ₹ 34.83 Lakhs instead of ₹ 67.53 Lakhs,being gross amount towards provision for foreseeable losses during the assessment proceedings. Vide its letter, dated 02.02.2008,the assessee claimed expenses for provision of foreseeable losses of ₹ 67,53,000/-made during the year and also claimed the amount of ₹ 32,70,000/- being provision written back against the earlier provisions mad .....

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13.1.During the appellate proceedings, the FAA referred to the judgment of Hon'ble jurisdictional High Court delivered in the case of Balmukund Acharya(ITA No.217 of 2001)and held that principally amount of foreseeable losses had to be allowed by the AO,that the disallowance of losses, amounting to ₹ 34.83 Lakhs, was not sustainable. 13.2.Before us, the AR stated that the FAA should have allowed the correct amount of loss and not the part of it.DR left the issue .....

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ided in favour of the assessee, in part. ITA No. 2210 AY-2007-08 14.First ground of appeal filed by the AO is about foreseeable losses. While deciding the appeal filed by the assessee. We have restored back the matter to the file of the AO for deciding the issue. We have held that the appellate authorities can admit the fresh claim in light of the decision of Pruthvi Brokers & Shareholders (supra).In our opinion, the or .....

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