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TMI Blog2018 (6) TMI 959X X X X Extracts X X X X X X X X Extracts X X X X ..... as erred in enhancing income by Rs. 50/- lacs claimed as bad debts by your appellant. 4. That the learned CIT(A) has erred in enhancing income by Rs. 50/- lacs on account that it is capital loss. 5. That the learned CIT(A) has erred in enhancing income by Rs. 50/- lacs without appreciating the fact that same is allowable u/s 37(1) of the Income Tax Act, 1961. 6. That the orders of the learned CIT(A) and learned Assessing Officer are bad in law and on facts of the case." 3. Assessee is a company engaged in the business of trading in Hansson pins, investment in shares and bill purchasing activities. The assessee filed its return of income on 29 - 11 - 2000 at Rs. 1 95, 42, 540/- . The assessment under section 143 (3) was passed on 31/3/2003 wherein certain disallowances under section 14 A as well as foreign travelling expenditure was made and total income was assessed at Rs. 2 20, 49, 793/-. The assessee challenged both the disallowances before the Ld. CIT - A who confirmed them. The Ld. CIT - A during the course of appellate proceedings noted that assessee has claimed bad debt of Rs. 5 0, 00, 000/- written off in its profit and loss account during the year. He asked asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowed. The assessee has received dividend income of Rs. 1, 30, 08, 980 which has been claimed as exempt under section 10 (33) of the income tax act. Assessee was asked to furnish the details of any expenditure incurred for that. Assessee submitted reply where in it is stated that no direct expenditure is incurred but there are some indirect expenses incurred. On examination of the accounts, The Ld. AO noted that assessee has incurred foreign travel expenditure of Rs. 1 2, 06, 355/- during the year. It was further noted by the AO that company has made substantial investment in India and the directors are undertaking the travel to USA for discussion between the promoters and foreign promoters of one company from which part of the dividend is received. The assessee stated that the company has the benefit of 37, 85, 355/- is dividend income from the visit. The 2nd visit was also taken to West Germany and Israel for the purpose of discussion on the bonus shares. The 3rd visit was also carried out in Germany for finalizing the issue of bonus sales. In view of this, the Ld. AO noted that all these travels are directly related to ensuring the interest of the companies from whom substantia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 14 A for earning exempt income separately. 6. The Ld. departmental representative vehemently supported the order of the Ld. assessing officer and the Ld. CIT - A. He stated that the foreign travel expenditure incurred by the assessee is for looking at its interest in the company in which it held shares along with the USA Company. Therefore, such expenditure is directly related to the earning of exempt income, hence, correctly disallowed under section 14A of the act. With respect to the other indirect expenditure, he submitted that the Ld. AO and the Ld. CIT appeal has only confirmed 10% of the dividend income as expenditure incurred for the purposes of the earning of the dividend income on account of indirect expenditure , which is the most reasonable and the assessee has not shown any reason that how assessee has not incurred such expenditure to that extent. 7. We have carefully considered the rival contention and perused the orders of the lower authorities. 8. In ground no 2 assessee has challenged the confirmation of disallowance of 4/5th of foreign travel expenditure. The foreign travelling expenditure admittedly has been incurred by the assessee for the purpo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iture has been incurred by it for earning exempt income. The Ld. assessing officer has held that 10% of the dividend income earned is considered to be the expenses relating to or earning exempt income amounting to Rs. 1200898/-. Further, on looking at the details of the dividend income, assessee has received dividend from 5 sources including mutual funds. It can also not be said that assessee has not incurred any expenditure when assessee itself has admitted that it has incurred some expenditure such as for the purpose of the maintenance of the books of accounts etc. It is also not the case of the assessee that it has not incurred any expenditure. Assessee has also not given any details of the expenditure, which are incurred for earning exempt income. In absence of any such detail furnished by the assessee, it would be fair to estimate a reasonable sum for such disallowances. However looking at the dividend income does not justify the disallowance at @ 10 % of such income. Such disallowance is also not based on any working of such disallowance either made by the ld AO or submitted by the assessee. Further, it cannot be said that assessee has not incurred any expenditure for earning ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rically held that the above sum is a capital loss. He therefore submitted that the above claim of the assessee is not allowable. 13. We have carefully considered the order of the Ld. CIT - A and the arguments placed before us by both the parties. Admittedly, the assessee has written off a sum of Rs. 50 Lacs advanced to one party by way of bill purchase. The above party as stated went into losses and therefore the above amount could not be recovered and hence written off. It is apparent that the business of the bill discounting is a financing business. Assessee is engaged in that business has not been disputed by the revenue. Therefore, it represents money lent in the ordinary course of the business of banking or money lending which is carried on by the assessee. If such sum has been written off by the assessee to the profit and loss account, it is allowable to the assessee as bad debt. As the money has also been lent in the ordinary course of the business, it cannot also be held to be capital expenditure/loss. Further when the money has been lent in the ordinary course of the business, it is not required to be shown that whether this money has been shown as income in the earlier y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rest-bearing advances and disallowed interest expenditure of Rs. 26, 54, 899/-. Further disallowance of Rs. 7, 68, 59 was also made on account of advances given to M/s Sak abrasive is limited where assessee has earned interest at the rate of 8% however the rate of interest paid and received by the assessee in other cases is 12.5% therefore he disallowed the shortfall of Rs. 768559/-. 18. The assessee carried the matter of the Ld. CIT - A, who deleted the above disallowance holding that that in case of one company no new funds were given during the year as interest free loans by the appellant. In the earlier in that particular company on the loans given by the assessee no disallowance been made. In case of other company wherein the advance of these 1.85 crores was given is for the purchase of shares and the shares were allotted to the company. Therefore he held that no disallowance of interest thereon can be made. With respect to the other amounts advanced to that company he noted that the balance amount was given by the company out of its own funds and no interest-bearing funds were diverted. Therefore he deleted the disallowance of these 26, 54, 8991 account of interest disallowa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s disallowed the interest on account of difference of interest paid and received by the assessee on rate basis which is not permissible 22. The Ld. departmental representative relied upon the order of the Ld. assessing officer. The Ld. authorized representative relied upon the order of the Ld. CIT - A. 23. We have carefully considered the rival contentions as well as the orders of the lower authorities. In the present case the addition has been made by the Ld. assessing officer on the basis of differential interest rate between interest charged and received by the assessee from other parties on account of interest charged from M/s Sak abrasives private limited. Assessee received interest from these parties at the rate of 8% whereas the AO noted that interest is being charged from other parties at the rate of 12.5%. The Ld. CIT - A has noted that the assessee is in the advance to the party out of the interest free funds and no interest-bearing funds been utilized for advancing the sum. The above finding of fact recorded by the Ld. CIT - A was not controverted by the revenue. In view of this we do not interfere in the finding of the Ld. CIT - A and direct the assessing officer dele ..... X X X X Extracts X X X X X X X X Extracts X X X X
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