TMI Blog2016 (5) TMI 815X X X X Extracts X X X X X X X X Extracts X X X X ..... the present case, we have already held that there is no occasion to make disallowance under section 14A of the Act - Decided in favour of assessee Disallowance of bad debt/business loss being the amount forfeited by BHEL on account of termination of contract - Held that:- The enduring benefit derived at by the assessee at the time of foregoing the buying agreement. In our opinion, no such benefit of enduring nature has been derived by assessee at the time of suffering losses on account of forfeiture of advance money. The decision of course, was taken by the assessee in a way only to relieve itself from the huge amount of money to be paid for a machinery of lesser capacity in comparison to a machinery of higher capacity available to it at a lower cost. The assessee probably came to terms with the occasion of suffering such losses in wake of the fact of saving itself from incurring further huge losses. This act goes further to prove that the losses are incurred on a decision of prudence taken for the business. Since no capital asset came into existence, the loss is allowable as a business loss.- Decided in favour of assessee - ITA No. 771/Chd/2011, ITA No. 790/Chd/2011 - - - Dat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture relatable to exempt income. In this way, a relief of ₹ 45,55,801/- was provided to the assessee by the learned CIT (Appeals) while confirming the disallowance of ₹ 10 lacs. 5. Aggrieved by this, both the assessee as well as the Department have come up in appeal before us. The assessee is in appeal against the disallowance to the extent of ₹ 10 lacs sustained by the CIT (Appeals), while the Department is in appeal against the relief of ₹ 45,55,801/- provided by the learned CIT (Appeals) to the assessee. 6. The learned counsel for the assessee while arguing before us made elaborate submissions to the fact that the assessee has huge funds which have been used for investments made by it. Therefore, in such circumstances, no disallowance under section 14A of the Act can be made. A chart was filed before us showing that at the end of the relevant assessment year , the assessee had owned funds consisting of share capital and reserves and surplus amounting to ₹ 214,46,46,911/-, while the investments were to the tune of ₹ 1,42,73,785/-. In such circumstances, it was pleaded that no disallowance under section 14A of the Act can be made. Reliance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f disallowance under section 36(1)(iii) of the Act, however, we only intend to borrow presumption that in the presence of sufficient owned funds, it can be taken that the investments have been made out of these funds only and no interest bearing funds have been used for said purposes. In view of this, we do not see any need to make disallowance under section 14A of the Act on account of interest. 9. For the purpose of disallowance of other expenses, we do not find any satisfaction recorded by the Assessing Officer in his order explicitly or implicitly to the fact that the claim of the assessee that no expenses have been incurred for earning exempt income is wrong. Reliance on the judgment of Punjab Haryana High Court in the case of CIT Vs. Deepak Mittal (2014) 361 ITR 131 (P H), whereby it has been held that in the absence of any satisfaction recorded by the Assessing Officer, no disallowance of administrative expenses under section 14A can be made. As regards the act of the learned CIT (Appeals) in upholding the disallowance to the extent of ₹ 10 lacs, we do not find any substance in such an act on the part of the learned CIT (Appeals) since we are in agreement with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7; 3.68 crores for cancellation of contract. The expenditure incurred is by way of commercial expediency as the assessee was able to get a power plant of higher capacity at a lower price. It was also submitted that the reliance placed by the Assessing Officer on the judgment of Hon'ble Supreme Court in the case of Swadeshi Cotton Mills Co. Ltd. (supra) is mis-placed as in that case, the assessee had to pay compensation for breach of contract while in assessee's case the advance had already been made and the same was cancelled as per the clause 19 of the agreement. In the alternative, if the amount is treated as capital expenditure, the benefit of depreciation was demanded. After considering the submissions of the assessee, the learned CIT (Appeals) found himself not in agreement with the same and held that the claim of bad debt is not in the nature of bad debts under any circumstances but is categorically of the nature of capital loss. In this way, the addition made by the Assessing Officer was confirmed by the CIT (Appeals). 13. Aggrieved by this the assessee has come up in appeal before us. The learned counsel for the assessee while arguing before us, first drew our at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Cotton Mills Co. Ltd. (supra) as relied on by the lower authorities as well as the learned D.R. was distinguished by stating that the question in that case was that payment of compensation treated as capital expenditure within the meaning of section 10(2)(xv) of the Act. The facts being not peri-matria with the facts of the present case. It was prayed that the disallowance made by the Assessing Officer and confirmed by the learned CIT (Appeals) be deleted. 15. The learned D.R. relied on the order of the Assessing Officer as well as that of the CIT (Appeals) and further submitted that the issue is squarely covered in favour of the Department by the order of the Hon'ble Supreme Court in the case of Swadeshi Cotton Mills Co. Ltd. (supra). 16. We have heard the learned representatives of both the parties, perused the findings of the authorities below and considered the material available on record. The undisputed facts of the case are that some advance was given for acquisition of machinery, but because of some commercial expediency the agreement had to be shelved. In the process, the assessee lost the money advanced, as the same got forfeited by the other party. The issue to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on acquisition of an asset of enduring nature are capital in nature. However, presently, the question is not the allowability of expenditure on acquisition of machinery, but that of loss occurring on forfeiture of advance given for machinery, the agreement for which had to be shelved as a matter of business expediency. The case of the Revenue is that the amount which has been forfeited by the other person, was originally given to it to acquire an asset of enduring nature. Yes, it is true that at the time of making advance, the money was incurred to acquire an asset of enduring benefit. But what was the enduring benefit derived at by the assessee at the time of foregoing the buying agreement. In our opinion, no such benefit of enduring nature has been derived by assessee at the time of suffering losses on account of forfeiture of advance money. The decision of course, was taken by the assessee in a way only to relieve itself from the huge amount of money to be paid for a machinery of lesser capacity in comparison to a machinery of higher capacity available to it at a lower cost. The assessee probably came to terms with the occasion of suffering such losses in wake of the fact of sav ..... X X X X Extracts X X X X X X X X Extracts X X X X
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