TMI Blog2018 (6) TMI 959X X X X Extracts X X X X X X X X Extracts X X X X ..... s been incurred by the assessee for earning exempt income such as maintenance of accounts of the dividend etc - however no direct expenditure has been incurred by it for earning exempt income - 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 - therefore in the interest of the Justice and looking to the facts of the case it is appropriate if the total disallowance on such expenditure which are been incurred in relation to earning of the exempting exempt income is restricted to ₹ 2 Lacs - hence AO is directed to disallow ₹ 2 Lacs under section 14A. Disallowance of bad debts - Held that:- Assessee has written off a sum of ₹ 50 Lacs advanced to one party by way of bill purchase - thus 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 - as the money has also been lent in the ordinary course of the business, it cannot also be held to be capital expenditure/loss - hence we reverse t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounds of appeal against the order of the ld CIT(A), New Delhi dated 31.03.2004 for the Assessment Year 2000-01. 1. That the ld CIT(A) has erred in confirming the action of the Assessing Officer in making an addition of ₹ 1300898/- u/s 14A of the Income Tax Act, 1961. 2. That the learned CIT(A) has erred in giving relief of only ₹ 241271/- on account of foreign traveling expenses as against appellant s claim of ₹ 12.06355/-. 3. That the learned CIT(A) has erred in enhancing income by ₹ 50/- lacs claimed as bad debts by your appellant. 4. That the learned CIT(A) has erred in enhancing income by ₹ 50/- lacs on account that it is capital loss. 5. That the learned CIT(A) has erred in enhancing income by ₹ 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 ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The 2nd ground is also interconnected with this ground of appeal as the foreign travel expenditure are disallowed by the Ld. assessing officer over and above disallowance under section 14 A of the income tax act applying provisions of section 14 A. Therefore the expenditure on foreign travelling of ₹ 1 206355/ is disallowed as per section 14 A of the income tax act and further disallowance to the extent of 10% of dividend income of ₹ 1 200898 is considered to be the expenses relating to or earning exempt income and same was disallowed. The assessee has received dividend income of ₹ 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 ₹ 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 f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 00898 disallowed by the Ld. assessing officer are unreasonable. With respect to the foreign travel expenditure, it is submitted that assessee has incurred the foreign travel expenditure for the purposes of the business and therefore it should not have not been disallowed at all. He further stated that the Ld. CIT A has erred in restricting the allowable expenditure only to the 1/5 of those expenditure when he has already held that these expenditure have been incurred by the assessee for the purposes of the business and he further he confirmed the disallowance 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 incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orities and allow ground No. 2 of the appeal of the assessee. 9. With respect to the ground No. 1 about the disallowance under section 14 A of the income tax act, The Ld. assessing officer has noted that assessee has earned dividend income of ₹ 13008980/ which is claimed as an exempt income under the act. It is also admitted by the assessee before the AO that certain expenditure has been incurred by the assessee for earning exempt income such as maintenance of accounts of the dividend etc. However it is been claimed by the assessee before the AO that no direct expenditure 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 ₹ 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the meeting with respect to write off the above amount. He further referred to page No. 96 of the paper book showing that the amount of discount and interest is received for the assessment year 97-98 and offered for taxation in that year. In view of this, he submitted that the above amount is allowable to the assessee as bad debts. 12. The Ld. departmental representative vehemently supported the order of the Ld. CIT A and submitted that that there is no clarity whether such income has been offered by the assessee for income in earlier years or not. He further stated that the Ld. CIT A has categorically 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 ₹ 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 tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 004 declaring loss of ₹ 2,82, 40, 010/ as per the provisions of rule paid tax under the minimum alternate tax showing book profit under section 115 JB at ₹ 2, 82, 48,007/-. The appellant has made investment in its subsidiaries companies and joint ventures. The Ld. assessing officer noted that appellant has debited interest expenditure on loan of ₹ 33, 74, 174/ . He further observed that on the one hand the assessee is paying interest on the funds borrowed but on the other hand substantial amount was given as loan to sister concerns without interest. Therefore he held that appellant has diverted interest-bearing funds the non-interest-bearing advances and disallowed interest expenditure of ₹ 26, 54, 899/ . Further disallowance of ₹ 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 ₹ 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 fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . departmental representative. In view of this we do not find any reason to interfere with the finding of the Ld. CIT A. Hence we confirm the deletion of the interest disallowance of 265 4899 /-. In the result ground No. 1 of the appeal of the revenue is dismissed. 21. Coming to the ground No. 2 of the interest disallowance made by the Ld. assessing officer on the basis of the interest charged from the above company at the rate of 8% whereas he noted that assessee is receiving interest@ of 12.5% with others. On appeal the Ld. CIT A has noted that the amount given to Sak Abrasives Ltd is not out of the borrowed funds but were of appellant s own funds. The Ld. assessing officer is 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 di ..... X X X X Extracts X X X X X X X X Extracts X X X X
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