TMI Blog2018 (12) TMI 1507X X X X Extracts X X X X X X X X Extracts X X X X ..... SUPREME COURT] relied by the ld. AR. - Decided in favour of assessee. Disallowance u/s. 14A - Held that:- Jurisdictional High Court after considering the decision of Special Bench of Tribunal in Cheminvest Ltd. [2009 (8) TMI 126 - ITAT DELHI-B] and Rajendra Prasad Moody [1978 (10) TMI 133 - SUPREME COURT] has held that merely because tax auditor had suggested in tax audit report that there ought to be such disallowance, it could not be a ground to make disallowance in terms of section 14A read with rule 8D. In the instant case also, the Assessing Officer has only speculated that the income from investment in share shall be exempt from tax, but there is no finding that any such income has been earned by the assessee or not. There are plethora of decisions to support the aforesaid finding. We accordingly, do not find any infirmity in the impugned order on this count. Accordingly, the appeal of the Revenue deserves to be dismissed. Disallowance of bad debt written off in the name of Punjab Fibers Ltd. - Held that:- Non-recoverability of advance in the year under consideration either in terms of money or in terms of supply of goods. The assessee has filed copy of agreement betwe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income Tax Act, 1961 without considering legislative intend of introducing section 14A by the Finance Act 2001 as clarified by the CBDT Circular No. 5/2014 dated 10.02.2014? 3. Whether in facts and circumstances of the case and in law, the Ld. CIT(A) is justified in deleting the disallowance under section 14A read with rule 8D of the Income Tax Act, 1961 amounting to ₹ 4,77,433/- without considering legal principles that allowability of expenditure under the Act is not conditional upon the earning of the income as upheld by Hon ble Supreme Court in the case of CIT Vs. Rajendra Prasad Moody (1978) 115 ITR 519? Grounds of Cross-objection: 1. The order passed by the CIT(A)-42 is bad in law and is void -abinitio. 2. That on the facts and circumstances of the case the CIT (A) has erred in law and has incorrectly confirmed the addition made by the Assessing officer by adding a sum of ₹ 3,95,00,000/- by disallowing the amount written off by the Assessee as bad debt as the said amount was given as advance for carrying the business of the Assessee company and was allowable under the provisions of the Income Tax Act, 1961. 2. From the aforesaid g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the facts of the case in the light of submission made by the appellant and various documentary evidences filed by it in the light of the decision of Hon'ble ITAT, Delhi in the case of the appellant for A.Y. 2005-06. It is undisputed that the appellant had acquired rights under a sub-licensing agreement in respect of office space in Hotel Le Meridian under the sub-licensing agreement dated 29.05.1999. The appellant has been offering the income from sub-letting out of such property as Income from house property , however, the AO has been taxing such income as business income. The Hon'ble ITAT following its decision in the case of the appellant for the A.Y. 2005-06, which was followed in A.Y. 2006-07, A.Y. 2007-08 and A.Y. 2008- 09 has held that in view of the fact that the appellant was in full control in his capacity in earning income by sub-letting of the property, such income was taxable as Income from house property . This decision has been followed by the Id. CIT(A)-XVI, New Delhi 5.6 In view of the above, it is evident that the bundle of rights acquired by the appellant on endorsement of sub-licensing agreement with respect to the two immovable properties in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (i.e. ₹ 3130695/389*632) Less: Security refunded by Mr. La lit Modi (HUF) 34,28,063/- Long Term Capital Loss 16,58,310/- (c) Net 1,78,89,058/- 5.8 On careful consideration, it is seen that the appellant had claimed the benefit of cost inflation indexing in respect of refundable security deposit given to the owner of the property M/s C.J. International Hotels Ltd. (Rs. 31,30,695/-) and after indexing it for the period between 1999 to 2010, took the indexed value of such security deposit at ₹ 50,86,373/-, on which long term capital loss of ₹ 16,58,310/- was claimed. In my considered view, the only asset in question was the bundle of tenancy rights, which were sold at ₹ 1.25 crores, in respect of which the appellant had disclosed long term capital gain of ₹ 1.95 crores. The security deposit made with the owner of property sub-let to it, cannot be equated with an asset, since such a deposit is only in the nature of financial transaction and, in itself, does not comprise of any rights and hence, lacks the attributes of an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... investments in shares shown in the balance sheet were not made out of any interest bearing funds. The investments were made in the year 1990 and no exempt income has come in the hands of the assessee in the year under consideration. The Assessing Officer after relying on the decision of ITAT Special Bench in the case of M/s. Cheminvest Ltd. vs. ITO dated 05.08.2009, made disallowance u/s. 14A of ₹ 4,77,433/- by applying the formula given u/r 8D of the IT Rules. The addition so made by Assessing Officer stood deleted by the ld. CIT(A) by the impugned order. 7. We have heard the rival submissions and have gone through the entire material available on record. The contention of the ld. DR has been that it is not necessary to earn the exempt income for invoking the provisions of section 14A in view of decision of Hon ble Supreme Court in CIT vs. Rajendra Prasad Moody, 115 ITR 519. The ld. CIT(A) while deleting the addition has observed that the investments in shares were made in the year 1990 and no dividend income has ever been earned by the assessee. It was also observed that there exists no evidence on record that the assessee had made any expenditure to earn exempt income. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tten off by assessee in its books of account. The Assessing Officer observed that the impugned amount was only the advance and not a bad debt for the purpose of its business, as the assessee was not engaged in the business of lending money. The agreement under which the said amount was given to the debtor was also not considered as authentic having been made on plain paper. The ld. CIT(A) also sustained the impugned addition vide impugned order. 9. During the course of hearing, the AR of the assessee submitted that the debtors, M/s Punjab Fibres Ltd. was in the business of manufacture and sale of fabrics/Acrylic Yarns having two textile Spinning Mills, one at Vill. RIL Majra, Tehsil Balachaur, Distt. Nawanshahar (Punjab) and the other at Vill. Gulistanpur, Tehsil Dadri, Distt, Gautam Budh Nagar, Uttar Pradesh. The assessee company entered into an agreement with the said debtor in April, 2008 to the effect that M/s Punjab Fibres Ltd. would regularly supply a specified quantity of acrylic yarn, each month to the assessee company for a period of 3 years against consideration of sum of ₹ 4 Crores. The payment of ₹ 3,95,00,000/- was made by the assessee company to the sai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny such goods dealt by the assessee. However, at the same time, the advance given was in the normal course of business for supply of goods. Such an advance is purely for business purpose and unless there is any material brought on record to show that either it was sham or make believe arrangement, then no adverse inference can be drawn. Even if the assessee had made investment in shares and was having interest in the said company, then also nature of advance was purely for commercial consideration. They would hardly affect the terms of agreement, under which the advancing of money by the assessee against supply of goods for continuous three years were agreed to. 12. It is worthwhile to note that the loss caused due to non-recovery of advances made in the course of business is deductible under the Income Tax Act, provided it is a trading loss. Even the losses caused due to a breach of contract for delivery of goods by either party are also deductible under the IT Act. The learned CIT(A) appears to have concluded that the impugned advance was in the nature of loan and not a trading advance as claimed by the assessee. However, this conclusion of the ld. CIT(A) is neither discernibl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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