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2016 (9) TMI 150 - ITAT MUMBAI

2016 (9) TMI 150 - ITAT MUMBAI - TMI - Disallowance of interest expenditure under section 14 A read with Rule 8D - Held that:- AO has disallowed ₹ 9,31,500/-working out @ 1.5% of the interest bearing funds relatable to investment in shares which is 17.68%. The assessee has contended that it had not incurred any expenditure directly or indirectly, on earning dividend income since, the investments therein were made from its own funds in the early years. This contention of the assessee, it ap .....

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view, this issue is covered by the ratio laid down by the Hon’ble Supreme Court in TRF vs. CIT (2010 (2) TMI 211 - SUPREME COURT ). We, therefore, set aside the findings of the Ld. CIT(A) and allow the claim of bad debts - Eligibility for the claim of depreciation in case of assets put on lease allowed - Bogus long term capital loss - Held that:- Since the assessee is unable to establish its claim and has failed to control the findings of the authorities below that the long term capital .....

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s passed by the Ld. CIT(A) Mumbai, for Assessment Year 2000- 2001 to 2003-04 and 2006-07 to 2007-08. Since all the appeals pertain to the same assessee for different assessment years and the issues involved are common in all the appeals, the same were clubbed and heard together and are being disposed of by this combined order for the sake of convenience. ITA 7174/Mum/2010 Asst. year 2000-01 Since, all these appeals pertain to the same assessee and most of the grounds are common in all the appeal .....

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before the CIT(A), who after hearing the assessee upheld the findings of the AO. Aggrieve by the impugned order, the assessee is in appeal before the Tribunal. 2. The assessee has challenged the impugned order on the following effective grounds: 1. The learned Commissioner (Appeals) erred in confirming disallowance of interest u/s 14A amounting to ₹ 9,31,500/- attributable to investments when the appellant had not borrowed any funds and did not make any investments out of the same during t .....

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a 'bad debts and ought to have been allowed u/s 36(1)(vii) r.w.S 36(2) of the Income Tax Act, 1961. 4. The learned Commissioner (Appeals) ought to have appreciated that the appellant reversed the income of ₹ 10,87,92,000/- during the year as the same was not accrued in view of the principal amount itself not received. The learned Commissioner (Appeals) ought to have considered the deduction alternatively u/s 28/20 or u/s 37(1) of the Income Tax Act, 1961. 5. The learned Commissioner (A .....

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ts (NPA)' which includes ₹ 45,02,499/- in respect to Mafatlal Industries Limited which was a company referred to BIFR. 7. The learned Commissioner (Appeals) erred in appreciating that the notional interest calculated @15% on the amount advanced to sister/associated companies were all provided as NPA and the same was disallowed in the respective assessment years as and when provision were made for the NPA, therefore 'notional interest' considered and confirmed as 'income' .....

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ion on the WDV of the leased assets subject to the rectification and/or determination of WDV as on 1st April, 1999. 10. The learned Commissioner (Appeals) erred in confirming long term capital gains at ₹ 22,24,000/- where as the appellant claimed long term capital loss of ₹ 44,00,000/- (Net) after considering profit /loss on sale of shares /government securities. 11. The learned Commissioner (Appeals) confirmed the disallowance of ₹ 66,24,000/- treating the same as 'capital .....

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ly Rule 8D, contrary to the decision of Hon ble jurisdictional High Court passed in Godrej and Boyce Mfg. Co Ltd. vs. DICT. The Ld. Counsel further submitted that the investments in question were made in the earlier year and since no disallowance for interest was made in the earlier years, it will be presumed that the assessee has made investments out of its own funds. 4. On the other hand the Ld. Departmental representative relying upon the findings of the Assessing Officer and CIT(A) submitted .....

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nditure directly or indirectly, on earning dividend income since, the investments therein were made from its own funds in the early years. This contention of the assessee, it appears, has not been controverted by the authorities below. However, even then it cannot be said that no expenses at all were incurred for earning exempt income. In this view of the matter, and going by the decisions of the coordinate Bench, we direct the AO to restrict the disallowance u/s 14A of the Act to 10% of the div .....

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A) to the AO to compute disallowance under Rule 8D of the Act, is not in accordance with the decision rendered by the jurisdictional High Court in Godrej and Boyce Mfg. Co. Ltd. vs. DCIT (supra). We, therefore, set aside the findings of the CIT(A) and allow ground No 2 of the appeal. 7. As regards ground no 3 and 4 the Ld. Counsel submitted that the Ld.CIT(A) has upheld the findings of the AO for the reason that the assessee has failed to establish that the debt had become bad. The Ld. Counsel f .....

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against some of the debtors which are pending adjudication in the court or the assessee has written off some of the debts within a period of one year. On the other hand the Ld. DR submitted that there must be a gap of at least 1 year and debts cannot become bad within the same year. 8. We have heard the rival submissions. The Ld CIT(A) has confirmed the disallowance holding that the assessee has failed to establish that the debts in question, in fact, have become irrecoverable. In some of the c .....

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if the bad debt is written off as irrecoverable in the accounts of the assessee. The relevant para of the judgment reads as under:- This position in law is well-settled. After 1st April, 1989, 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. However, in the present case, the AO has not examined whether the debt has, in fact, been written off in accounts .....

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tioned aspect only and that too only to the extent of the write off. 10. In the present case, admittedly, the debt in question has been written off as irrecoverable in the accounts of the assessee. Hence, in our considered view, this issue is covered by the ratio laid down by the Hon ble Supreme Court in TRF vs. CIT (supra). We, therefore, set aside the findings of the Ld. CIT(A) and allow ground No 3 and 4 of the appeal filed by the assessee. 11. As regards the ground no. 5, the Ld. Counsel sub .....

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ht of the rival submission we have perused the material on record. During arguments, the Ld. Counsel submitted that the management evaluated the market value of the shares in question, however, no proof thereof was furnished either before the AO or before the CIT(A) or even before us. Hence, in our considered view, there is no merit in the contention of the assessee. We, therefore, uphold the findings of the Ld. CIT(A) and dismiss ground No 5 of the assessee s appeal. 13. As regards the ground N .....

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an interest free basis. 14. With respect to category (a) no interest was accrued from them. The Ld. Counsel placed reliance on the decision of Hon ble jurisdictional High Court in CIT vs. of KEC Holdings Ltd.( ITA No 221 of 2012 dated 11.6.14) wherein the assessee was held justified in not accruing interest in respect of debtors which had become NPA. With respect to category (b), the Ld. Counsel submitted that as per the books of account placed on record, no interest was charged from them at an .....

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rities below submitted that the cases relied upon by the assessee is not applicable to the present case as the facts of the said cases are not similar to the facts of the present case. 15. We have heard the rival submissions and perused the material placed before us. The assessee has filed summary of ledger extracts along with ledgers for the advances given to the Associates/Group Companies of the appellant/assessee being non-interest bearing advances for the period from 1.4.1996 to 31.3.2000 al .....

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evidence. Needless to say, that the AO shall afford an opportunity of being heard to the assessee before passing such order. We decide the issue involved in ground No 7and 8 accordingly. 16. As regards the ground no. 8-9 the Ld. Counsel submitted that this issue is covered in favour of the assessee by the order of the Tribunal in assessee s own case for A.Y. 1993-94. Since no new asset has been acquired during the year no addition in respect of the asset taken on lease. On the other hand, the L .....

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e, and have entered sale and lease back agreement with its clients. The coordinate Bench decided this issue in favour of the assessee holding as under:- 23. We have heard the arguments at length and have also considered the case laws cited before us. The factum of repossession of equipments have not been disputed by the revenue authorities. This clearly means that lessor is the owner and it is he who can make the legal claim for ownership and depreciation. 24. We, therefore are of the considered .....

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spectfully following the view taken by the coordinate bench of the Tribunal, we allow this ground of appeal of the assessee. 18. As regards the ground no. 10-11 the Ld. Counsel submitted that Assessing Officer as well as CIT(A) holding the long term capital loss as bogus as the brokers note though related to April 1999 indicated 8 digit telephone number which was implemented in Mumbai by MTNL in the year 2003 only. Since the original broker note had been misplaced, the assessee asked for duplica .....

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iled by the assessee for the assessment year 2000-01 is partly allowed. ITA 7175/Mum/2010 for Asst. Year 2001-02 1. The assessee has preferred this appeal raising the following grounds are as under:- 1. The learned Commissioner (Appeals) erred in confirming disallowance of interest u/s 14A amounting to ₹ 12,60,000/- attributable to investments when the appellant had not borrowed any funds and did not make any investments out of the same during the year. 2. The learned Commissioner (Appeals .....

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made by the Commissioner (Appeals) vide its consolidate order dated 18th June, 2009 for the assessment years 1993-94 to 1998-99, treating the earlier years lease transactions as 'finance transactions'. 4. The learned Commissioner (Appeals) ought to have allowed the depreciation on the WDV of the leased assets subject to the rectification and/or determination of WDV as on 1st April, 2000. 5. The learned Commissioner (Appeals) erred in confirming the disallowance of bad debts written off .....

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year of write off and failed to appreciate the elaborate justification given for 'bad debts' written off. 7. The learned Commissioner (Appeals) erred in not allowing the deduction u/s 36(1)(vii) r.w.s 36(2) and/or u/s 28/29 and u/s 37(1) for the total amount of ₹ 13,01,04,000/-. 8. The learned Commissioner (Appeals) erred in confirming the addition made by the Assessing Officer towards 'notional interest' amounting to ₹ 41,62,500/- when the principal amount was provid .....

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ment year 2000-01 as 'notional income' by the Assessing Officer and confirmed by the Commissioner (Appeals). 11. The learned Commissioner (Appeals) failed in appreciating the fact that no interest income on notional basis can be taken when principal amount itself was taken a NPA from time to time and disallowed in the computation in the respective assessment years. 12. The penalty proceedings initiated u/s 271 (1) (C) should have been dropped as there is no concealment of income. 13. Eac .....

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nd No 1 of the appeal. Similarly since we have allowed ground No 2 of the assessee in appeal for the assessment year 2000-01, we also decide ground number 2 of this appeal in favour of the assessee. 2.2 Similarly ground No 3 and 4 of the present appeal regarding disallowance of depreciation on WDV of leased assets are identical to the ground No 8 and 9 of the assessee s appeal for the A.Y. 2000-01. Since we have decided these grounds in favour of the assessee in assessees appeal for the assessme .....

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7 of the assessee s appeal for A.Y. 2000-01. Since we have admitted the additional evidence filed by the assessee and remited this issue back to the file of AO to decide the issue afresh, we remit this issue back to the file of AO to decide the issue afresh after taking into consideration the additional evidence. 2.5 Ground No 10-11 regarding disallowance of bad debts in respect of notional income assessed in A.Y. 2000-01. Ld. Counsel for the assessee submitted that these grounds are consequenti .....

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er:- 1. The learned Commissioner (Appeals) erred in confirming the disallowance of 'bad debts' amounting to ₹ 5,48,95,406/- towards ICD / loans and advances when the appellant had made elaborate submissions / justifications to the Assessing Officer / Commissioner (Appeals) for the 'bad debts' written off. 2. The learned Commissioner (Appeals) erred in not allowing the deduction u/s 36(1)(vii) r.w.s 36(2) and/or u/s 28 / 29 and u/s 37(1) for the total amount of ₹ 5,48, .....

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ave allowed the depreciation on the WDV of the leased assets subject to the rectification and/or determination of WDV as on 1st April, 2002. 5. The learned Commissioner (Appeals) erred in dismissing the penalty proceedings u/s 271 (C) stating that the same is premature when the appellant had demonstrated that the claims were bonafide after making full disclosure and therefore, penalty initiated is unwarranted and should be dropped. 6. Each one of the above grounds is without prejudice to the oth .....

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e A.Y. 2000-01. Since we have allowed the assessees appeal on this issue for A.Y. 2000-01 , following the same we allow the assessee s appeal on this issue for this year also. 2.3 Regarding ground no 5 initiation of penalty proceedings under section 271 (1)(c). Since no penalty u/s271 (1)(c) of the Act has been levied on the assessee, no cause of grievance arises to the assessee by mere initiation of penalty proceedings. This ground being premature is not maintainable and we therefore dismiss th .....

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t years i.e. assessment years 1993-94 to 1998-99, treating lease transactions as finance transactions . 2. The learned Commissioner (Appeals) ought to have allowed the depreciation on the WDV of the leased assets subject to the rectification and/ or determination of WDV as on 1st April, 2005. 3. The learned Commissioner (Appeals) erred in not directing the Assessing Officer for brought forward losses and allowances as per previous assessment records to be set off against future profits. 4. The a .....

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Officer after determining the brought forward losses and unabsorbed depreciation for the earlier years should carry them forward to the subsequent years of set off against future profits. The Assessing Officer is accordingly directed to examine a claim put forward by the assessee in this ground while giving effect to this order. 2.3 In the result assesses appeal for A.Y. 2006-07 is partly allowed. ITA 7177/Mum/2010 for A.Y. 2007-08 1. The assessee has preferred this appeal raising the following .....

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