TMI Blog2017 (2) TMI 444X X X X Extracts X X X X X X X X Extracts X X X X ..... re for earning exempt income no dis - allowance can be made invoking the provisions of section 14A r.w.r.8D of the Rules. - Decided in favour of assessee Addition under the head sundry balances written off - Held that:- There is no bar on making a claim about the sums written off in a slump sale transaction. The assessee had taken over the assets as well as the liabilities of VI. In the remand report proceedings,the assessee had submitted the evidences proving that the erstwhile entity had offered the income under the head other income. It is found that grant receivable from ASIB of ₹ 71.78 lakhs was credited in the P&L A/c. for the period ended 22.5.2009. Thus, the amount written off during the year under consideration was already offered for taxation. FAA was not justified in rejecting the claim made by the assessee. VAT on service charges portion on natural gas is concerned it is found that the clients had disputed levy of services and finally did not pay such tax. The loss claimed by the assessee was directly linked with business activity and, therefore,was a business loss. The writing off of the amount is not in dispute. So, even if it could not be allowed u/s.36 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e u/s.153 C,the assessee filed its return of income on 09/09/ 2011,showing total income of ₹ 11.75 crores that included additional income of ₹ 32 Crores disclosed and returned by the assessee on account of sale of scrap.The AO completed the assessment u/s.143(3) r.w.s.153C making certian additions/disallowances. 2.1. First effective ground is about disallowance made u/s.14A of the Act.During the assessment proceedings,the AO found that the assessee was in receipt of exempt income by way of dividend of ₹ 7.97 lakhs,that it had made investment in shares to the tune of ₹ 2.99 crores,that no disallowance u/s.14A was made.He directed the assessee to file submission in that regard.The assessee submitted that it had made investment out of its own funds and accruals.However,the AO did not agree with the assessee and referring to the judgment of Godrej Boyce Manufacturing Company Ltd.(328 ITR 81)held that the assessee had not established that entire investment had been made out of its own funds,that the interest relating to investment had to be disallowed. Applying the provisions of Rule 8D of the Rules,he made a disallowance of ₹ 21.80 lakhs. 2.2. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure incurred by the assessee for earning exempt income.In our opinion if the assessee does not claim any expenditure for earning exempt income no dis - allowance can be made invoking the provisions of section 14A r.w.r.8D of the Rules. Considering the above,first Ground of appeal is decided in favour of the assessee. 3. Second effective ground of appeal is about confirming the addition of ₹ 84.65 lakhs under the head sundry balances written off.During the assessment proceedings, the AO found that the assessee had debited its P L a/c.by sundry balances written off of ₹ 84,65,755/-. He directed the assessee to file complete details in that regard and to prove how the various conditions stipulated in section 36(1)(vii) r.w.s.36(2)were fulfilled.After considering the submission of the assessee,the AO held that the assessee had neither submitted the details required not furnished any proof to show that the amount in question had been offered for tax in the earlier years.Invoking the provisions of section 36(1) (vii)of the Act,he made a disallowance of ₹ 84.65 lakhs. 3.1. During the appellate proceedings before the FAA, the assessee stated that it had written ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... during the year under appeal. The DR argued that the income and expenses for the earlier years was considered by the seller of the erstwhile entity, that only net worth was calculated for slump sale purposes, that assessee was not entitled to claim the written off balances for the claim for the year under consideration . 3.3. We have heard the rival submissions and perused the material available on record.We find that the assessee had acquired M/s.Vikram Ispat (VI)from M/s. Grasim Industries during the year under consideration as a going concern,that VI was granted Central assistance by Maharashtra Maritime Board,that out of the total grant of ₹ 380 lakhs the board released assistance of ₹ 253.09 lakhs only,that the assessee wrote off the balance amount, that the FAA held that under scheme of slump sale the assessee was not entitled to claim the assets/ liabilities of the erstwhile entity, that the loss was capital in nature,that the assessee had written off grant receivable from ASIDE (Rs.71.78 lakhs), service tax on VAT (Rs.12.87 lakhs),that there is no doubt about writing off of both the items during the year under appeal in the books of account. In our opinion, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing assessable income in the past.The FAA ordered for remand report from the AO in that regard. After considering submissions of the assessee and remand report, he held that because of slump sale identity of the purchaser i.e. the assessee had changed, that it could not be allowed to correlate any debts taken over to any income offered to tax earlier by the seller entity,that the conditions stipulated in section 36 were not satisfied, that the amount in question could not be allowed as a business loss as held in the earlier paragraph of the order,that it was a capital loss. 4.2. Before us, the AR contended that while filing return of income for AY 2008-09 and 2009- 10 it had shown STCG of ₹ 2.09 crores and ₹ 3.61crores in accordance with the provisions of section 50 with regard to claim of insurance made by it, the insurer i.e. The New India Assurance Co.Ltd. repudiated the claim made by the assessee. The DR relied upon the order of the FAA. 4.3. We have heard the rival submissions. We find that the claim had arisen after the slump sale took place,that the erstwhile company had claimed loss with the insurance company, that the claim was rejected, that the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted that the expenditure claimed by the assessee was not genuine.Vide his notice,dated 18.10.2012,the AO asked the assessee to explain as to whether the income admitted by it during the search proceedings had been offered to tax. It was also directed to produce the supporting documents in that regard.He further asked the assessee to explain as to why the depreciation claimed, if any, should not be disallowed in case the expenditure was capitalised.The assessee was also directed to specify the end use of the funds raised by Maginot Trading Co.Pvt.Ltd.In its response, dt.3.12.2012,the assessee stated that disputed payments had been debited under the head land development charge in the books of account, that no depreciation had been claimed or would be claimed, that unpaid tax would be paid in due course of time. 9.1. After considering the submission of the assessee,the AO held that bogus expenses were recorded in the books of account,that same could not form part of cost of land,that bogus expenses could not be allowed as deduction under any head of income in any of the assessment years.So,he treated the expenditure of ₹ 5 crores as unexplained expenditure and added it to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... neration of cash by debiting bogus expenses. I confirm that we have taken an accommodation entry to generate cash for expenditure. I have also taken a similar entry in the accounts of M/s. Welspun Syntex Ltd., for an amount of ₹ 2 Cr. in the current financial year.I take this opportunity to surrender this amount of ₹ 7 Cr.(Rs.5 Cr. In the hands of M/s. Welspun Maxsteel Ltd., ₹ 2 Cr. In the hands of M/s.Welspun Syntex Ltd.) as my unaccounted income generated by debiting bogus expenses and offer this amount as my taxable income, over above my regular income, for the current financial year. It is further found that in its letter dt.3.12.2012 the assessee made following submissions before the AO: In answer of question no.14 Mr. B.K. Goenka has stated that ₹ 5 Crores is an accommodation entry in the hands of M/s.Welspun Max Steel and ₹ 2 Crores in the hands of M/s. Welspun Syntex Ltd., It may please be noted that the above referred two payments have been debited as Land Development charges in the books of accounts of the respective companies. We confirm that no depreciation has been claimed so far and no depreciation will be claimed b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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