TMI Blog2022 (4) TMI 1272X X X X Extracts X X X X X X X X Extracts X X X X ..... he issue as per fact and law including the claim of the assessee to allow the same as business loss after giving due opportunity of being heard to the assessee. We hold and direct accordingly. The ground of appeal No.1 raised by the assessee is accordingly allowed for statistical purposes. Disallowing long term capital loss which arose from permanent write off share capital - AO was not satisfied with the arguments advanced by the assessee on the ground that written off amounts of investments so made in the books of account are not a transfer in the eye of law u/s 2(47) of the IT Act and it is a notional loss as the shares remained with the assessee - HELD THAT:- It is the submission of the ld. Counsel for the assessee that since the value of investment in the shares had extinguished, therefore, it amounts to transfer and, accordingly, the capital loss so incurred by the assessee deserves to be allowed along with its indexation. It is also his argument that in the alternative, it should be allowed as business loss. Further, it is also the contention of the ld. Counsel that in the FY 2020-21, relevant to AY 2021- 22, the assessee had recovered a part of the amount invested in S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd amounting to ₹ 8,49,05,424/-. The assessee had declared income u/s 115JB at ₹ 4,04,46,404/-. During the course of assessment proceedings, the AO noted that the assessee has claimed a deduction of ₹ 1,63,62,782/- in the Profit Loss Account being the amount written off. On being asked by the AO to explain as to why the amount of ₹ 1.63 crore written off in the books of account should not be disallowed and added back to the total income of the assessee, the assessee submitted as under:- Assessee is a Non Banking Financial Company and engaged in financial activities. Copy of certificate of registration with RBI is enclosed for your kind consideration. Detail of amount written off of ₹ 1,63,00,000/- is enclosed. These advances have been advanced to various parties in due course of business. Since the advance being very old and unrecoverable the assessee has decided to write off these advances. Ledger accounts depicting the age of loans and advances are enclosed to confirm that these advances are very old and the assessee is not in position to recover these advances. Since all the advances of ₹ 1.63 crores are business advances and given a l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r capital in nature in which case the allowability may change u/s. 37(1). However, the AO has out rightly disallowed the full amount u/s. 36(1)(vii) whereas the assessee has claimed the write off u/s. 37(1). It is noted that the assessee has itself submitted that the advances were made for creation of business assets and deducted TDS of 2% from M/s. WIG brothers Projects Pvt. Ltd. which aiso reflects that the payment was made to a contractor. Further, the assessee has mentioned a number of case laws in its support. However, it is seen that the facts of all cases are different. Though the decisions have consistently held that even if a deduction is . not allowable as bad debts, the claim can be seen in the light of section 37(1). The Hon'ble Delhi High Court has in the case of Mohan Meakin Ltd. vs CIT vide its order dated 11.05.2011 discussed this issue. The relevant portion from the order is as under: Section 37(1) lays down as follows: Any expenditure (not being expenditure of the nature described in Sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purpose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tor. These amounts written off are therefore dearly not allowable u/s. 37(1) either, as the essential ingredient of not being in the nature of capital expenditure is not fulfilled. The disallowance to this extent (₹ 15.75 lakh + ₹ 1.1 cr) is therefore confirmed but for the reasons described above. (iv) The advances given to the other 4 parties are for consultancy against which the assessee has claimed that all its endeavours to recover these business advances have failed and they have not even executed the work given to them. It. is seen from the account submitted by the assessee that the amounts have been actually written off and were pending since 2009 before. These business advances written off of ₹ 37.84 lac is allowed u/s. 37(1). The disallowance to this extent may be deleted. This ground is partly allowed. 6. Aggrieved with such order of the CIT(A), the assessee is in appeal before the Tribunal. 7. The ld. Counsel for the assessee strongly challenged the order of the CIT(A) in sustaining an amount of ₹ 1,25,75,000/- in respect of two parties, namely, Bhayana Interiors Furniture Pvt. Ltd.- ₹ 15,75,000/- and Wig Brothers Projects ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same should be deleted. 10. The ld. DR, on the other hand, heavily relied on the order of the CIT(A). 11. We have heard the rival arguments made by both the sides, perused the orders of the AO and the CIT(A) and the paper book filed on behalf of the assesseee. We have also considered the various decisions cited before us. We find, the AO, in the instant case, following his order for AYs 2010-11, disallowed the claim of bad debt on account of loss written off amounting to ₹ 1,63,62,782/-. While doing so, he held that the assessee is not entitled to deduction u/s 36(1)(vii) of the IT Act. We find, the ld.CIT(A) sustained an amount of ₹ 1,25,75,000/-, the details of which have already been reproduced in the preceding paragraph. It is the submission of the ld. Counsel for the assessee that the assessee had given the advances to the above two parties in relation to the development of Goa properties which is in trading account forming part of business. Since these business advances could not be recovered, therefore, the same should be allowed as bad debt or business loss during the impugned assessment year. A perusal of the assessment order shows that the AO, while ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15. In appeal, the ld.CIT(A) upheld the action of the AO by observing as under:- 6.2. The next ground of appeal is regarding disallowance of long term capital loss of ₹ 8.49 crore on Investment write off of ₹ 6,20 crore. The assesses has submitted that these write off were related to investment made In FY 2008-09 and earlier in these companies which were found to be doing no active business in the AY 2012-33. The companies have become un-operational and were not earning any income. Therefore, the investment were written off as permanent toss of investment. The AO has disallowed the amount as there was no transfer of the shares and therefore no long term capital loss or benefit of indexation can be claimed, There are two limbs to this ground, first is carry forward of long term capital loss and second is calculation of LTCG after indexing the cost. (i) During appeal proceedings, the assessee was asked specifically as to how and under what provision there would be capital loss and the indexation can be allowed in case of long term capital loss when there is no transfer of assets at all. At the time of assessment also, there was no discussion on this particular ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the amount invested of ₹ 1,00,00,000/- and the proceeds thereof amounting to ₹ 2,30,00,000/- was duly credited in their miscellaneous income and would be taxable in that very year. He accordingly submitted that the amount of ₹ 6,20,00,000/- being the investment made by the assessee during the course of its financing business deserves to be allowed as a capital loss along with its indexation under the head Capital Gain as it amounts to extinguishment of the investment. Alternatively, the amount of ₹ 6,20,00,000/- should be allowed as a business loss u/s 28 of IT Act. 19. The ld. DR, on the other hand, heavily relied on the order of the AO and the CIT(A). 20. We have heard the rival arguments made by both the sides, perused the orders of the AO and the CIT(A) and the paper book filed on behalf of the assesseee. We find, the AO, in the instant case, made disallowance of long-term capital loss of ₹ 8,49,05,423/- on the ground that the written off amounts of investment so made in the books of account are not transfer in the eyes of law u/s 2(47) and is a notional loss since the shares remained with the assessee. We find, the ld.CIT(A) upheld the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5,28,901/-. However, the AO was not satisfied with the arguments advanced by the assessee on the ground that the disallowance u/s 14A of the Act r.w.r 8D comes to ₹ 69,32,415/- and the majority of the expenses incurred by the assessee pertains to earning of interest free income. In view of the above, the AO computed the disallowance u/s 14A of the Act r.w.r. 8D at ₹ 64,03,615/-. After deducting the disallowance of ₹ 5,28,901/-, the AO made an addition of ₹ 58,75,714/- to the total income of the assessee. 23. In appeal, the ld.CIT(A) upheld the action of the AO by observing as under:- The third issue of appeal is disallowance u/s. 14A r.w.r. 8D. The assessee had disallowed ₹ 5,28,901/- by reducing 92% of the investment being made in group companies as strategic investments. The AO did not find this acceptable and justified the disallowance by the reasoning that the expense claimed by the assessee are also going towards earning the tax free dividend income. The assessee has itself admitted that out of the total income of ₹ 22.58 crore, tax has been paid on income of ₹ 10.64 crore. Thus the income being taxed is less than that of ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d received from Dabur India Ltd., and Ayurvet Ltd. Referring to various decisions, he submitted that where the AO has not recorded any satisfaction in clear terms about the nature of expenses incurred by the assessee to earn the dividend, then, in absence of any satisfaction note with reference to the accounting entries made in the books of account, no disallowance can be made. 25.1 Alternatively, the ld. Counsel for the assessee submitted that no disallowance can be made under Rule 8D(2)(iii) of the IT Rules in respect of the shares on which no dividend has been received. For the above proposition, he relied on the decision of the Special Bench of the Tribunal in the case of Vireet Investment Pvt. Ltd., reported in 165 ITD 27 and the decision of the Hon ble Madras High Court in the case of CIT vs. Shriram Ownership Trust, reported in 318 CTR 233. 26. The ld. DR, on the other hand, heavily relied on the orders of the AO and the CIT(A). 27. We have heard the rival arguments made by both the sides, perused the orders of the AO and the CIT(A) and the paper book filed on behalf of the assesseee. We have also considered the various decisions cited before us. We find, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been reproduced in the preceding paragraph. It is the submission of the ld. Counsel for the assessee that it is a condition precedent that before making any disallowance u/s 14A of the Act, the Assessing Officer has to record his satisfaction in clear terms about the nature of expenses incurred by the assessee to earn the dividend and that satisfaction note has to be recorded with reference to the accounting entries made in the books of account. We find merit in the above argument of the ld. Counsel for the assessee. A perusal of the assessment order nowhere shows that there is any satisfaction recorded by the AO as to why the computation filed by the assessee, in the instant case, is incorrect. Admittedly, the assessee has not incurred any expenditure directly relating to any exempt income. We find, the ld.CIT(A), following the order for AY 2010-11 in assessee s own case, has confirmed the disallowance made by the AO u/s 14A of r.w. Rule 8D of IT(AT) Rules. However, a perusal of the order of the Tribunal in assessee s own case for AY 2010-11, vide ITA Nos.3796/Del/2015 and 4574/Del/2015, order dated 13.11.2019, shows that the Tribunal at para 29 of the order has set aside the ord ..... X X X X Extracts X X X X X X X X Extracts X X X X
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