TMI Blog2023 (5) TMI 317X X X X Extracts X X X X X X X X Extracts X X X X ..... duction u/s 36 since the same was not part of profit and loss account and was in the nature of trade advances - HELD THAT:- We hold that since the assessee had advanced the loan to its employee on account of business interest and due to shut down of the operations entity the loan become irrecoverable and was written off by the assessee along with the imprest lying with the employee who was looking after day-to-day business and the same is allowable as business loss u/s 28 of the Act. As regards the Sundry advances written off, we observe that the same was provided as advances to various parties for entering into a new business of supply of packaged food items and since the business could not be materialized the assessee had written off the sundry advances given to various parties. Mumbai Tribunal in the case of DCIT Vs. M/s. Edelweiss Capital Ltd. [ 2011 (2) TMI 284 - ITAT MUMBAI] held that the moneys advanced for development of web site of the assessee which was written off subsequently for the reason that the web site did not materialize and the advances became irrecoverable the write off claim by the assessee is a loss incidental to the business and, therefore, allowable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct) in the return of income filed. The ld. Counsel submits that the Assessing Officer while completing the assessment made disallowance of Rs.25,44,063/- under section 14A read with Rule 8D of the Income Tax Rules comprising interest of Rs.22,87,075/- under Rule 8D(2)(ii) and administrative expenses of Rs.2,56,988/- under Rule 8D(2)(iii). The ld. Counsel submits that on appeal the ld. CIT (Appeals) confirmed the disallowance of Rs.25,44,063/- made under section 14A read with Rule 8D of the I.T. Rules by the Assessing Officer. The ld. Counsel submits that the issue squarely covered by the order of the Tribunal in assessee s own case for the assessment years 2011-12 to 2014-15 in ITA. Nos. 5345 to 5348/Del/2018 order dated 22.10.2021, which is placed at page Nos. 188 to 207 of the paper book and the relevant portion of the judgement appears at page Nos. 203 to 206. The ld. Counsel referring to the order of the Tribunal submits that the Tribunal following the decision of the co-ordinate bench in the case of its group company, namely, L.T. Foods Ltd. in ITA. No. 4164/Del/2013 dated 30.09.2020 deleted the disallowance holding that the share of profit from the partnership is mere distrib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce in the hands of the firm and secondly in the hands of the partner, the share in the profits of the partnership form is not taxable in the hands of the partner as has been held by the Mumbai bench of the Tribunal in the case of Sudhir Kapadia VSITO in ITA No. 7888 of 2013, which was followed in the case of Hamid A Moochhala VS. ACIT in ITA No2218/Mum/2010. 97. Further, there is no denial of the fact that as on 31/3/2006 and 31/3/2007, the capital and free reserves of the assessee were Rs. 60, 92, 50, 784/- and Rs. 1,19,99,27,510/- respectively as against the investment in the partnership form on 31/3/2006 and 31/3/2007 stood at Rs.3,49,55,937/-and 3,67,57,562/- only and therefore, it cannot be said that any borrowed funds could have been utilised to make such investment incurring any interest expenditure. 98. Viewing from any angle, we did not find any ground to sustain addition made under 14A of the Act read with Rule 8D of the Rules. Such an addition is, therefore, is directed to be deleted. Ground number 17 is accordingly allowed. 12. In view of the aforesaid, it was submitted that there was no warrant to make disallowance u/s 14A of the Act in the case of the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed above. 6. We observe that the disallowance under section 14A read with Rule 8D was deleted by the Tribunal in assessee s own case for the subsequent assessment years i.e. assessment years 2011-12 to 2014-15 holding that the share of profit from the partnership is mere distribution of income and is already been taxed, hence provisions under section 14A are not attracted in such cases. We observe that the Tribunal also held that if there is no exempt income no disallowance is called for under section 14A of the Act and finally the Tribunal directed the Assessing Officer to re-compute the disallowance keeping in view the guide-lines mentioned therein. Following the judgement of the Tribunal we direct the Assessing Officer to re-compute the disallowance, if any, under section 14A read with Rule 8D of the I.T. Rules keeping in view the guide-lines set out by the Tribunal in the order for the assessment years 2011-12 to 2014-15. This ground is partly allowed. 7. Ground No. 2 of grounds of appeal of the assessee is in respect of disallowance of write off of bad debts of Rs.39,05,136/-. 8. Brief facts are that during the relevant assessment year the assessee written off sundry ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning firm named M/s. Race Allied Services whose proprietor was Mr. Amit Jain and the firm was in the business of supply of diesel to towers and services to telecom services. The assessee paid net consideration of Rs.23,67,119/- for acquisition of the said entity. The ld. Counsel submits that on acquisition of business Mr. Amit Jain was employed in the company to look after day-to-day business acquired by the assessee. On account of deemed commercial/business interest/exigency in the acquired firm the assessee had also given interest-free loan of Rs.2,42,881/- to Mr. Amit Jain to repay the liabilities of his business interest at the time of acquisition of business from him by the assessee and also gave imprest from time to time for carrying out day-to-day operations of the business. As evident from ledger account placed at page Nos. 84 to 86 of the paper book the ld. Counsel submits that it is pertinent to note that the profits generated from M/s. Race Allied Services was duly offered to tax by the assessee in the past years i.e. assessment years 2008-09 to 2009-10 as is evident from the profit and loss account for the year ended 31st March, 2008 and 31st March, 2009 as appearing in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cover the advances made. The management of the assessee decided to write off of the set of the aforesaid amounts as irrecoverable and accordingly the amount of Rs.7,82,259/- was written off and, therefore, it is an allowable deduction as loss incidental to business as bad debt. Reliance was placed on the decision of the Hon ble Delhi High Court in the case of Mohan Meakin Ltd. Vs. CIT [348 ITR 109]; DCIT Vs. M/s. Edelweiss Capital Ltd. [ITA. No. 3971/Mum/2009]; Minda HUF Vs. JCIT [101 ITD 191 (Del.)] and Salora International Ltd. Vs. JCIT [129 taxmann.com 68 (Del)]. 13. On the other hand, the ld. DR strongly placed reliance on the orders of the authorities below. 14. Heard rival submissions perused the orders of the authorities below and the decisions relied on. On perusal of the order of the Assessing Officer as well as the ld. CIT (Appeals) we observe that there is no dispute that the assessee has acquired M/s. Race Allied Services business of supply of diesel to tours and allied services to telecom companies, Proprietor Mr. Amit Jain in the name of M/s. Race Allied Services. It is also not in dispute that the assessee has duly offered to tax the business receipts of Rs.14, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of Vasanji Sons Co. (P) Ltd. Vs. CIT (supra) the Hon ble Bombay High Court held as under:- To turn once again to the statement of the case and the facts found therein, it is important to bear in mind that the memorandum of association of the assessee permitted it to carry on business as managing agents of any other company. Further, as stated in para. 3 of the statement of case, the assessee company along with two others (the two other parties designated by the Tribunal as its partners) promoted Navanagar Industries Ltd. as also its managing agency company, V.H.D. Agencies Ltd. in which all the three parties had an equal share-holding. The short question which then arises and which is required to be answered in this reference is: can the principle which has been accepted in respect of a loan by the managing agency to the managed company be extended to apply to a constituent of the managing agency company of the type and nature of the assessee company (bearing in mind the description of the three shareholders as partners by the Tribunal)It is true that this description is not strictly tenable in law. But it must be realised that the Tribunal was well aware of the legal o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee as a trading debt for the year in question. 17. The Hon ble Delhi High Court in the case of CIT Vs. Investa Industrial Corporation Ltd. (supra) held that if as a result of managed company having gone into liquidation the advances become irrecoverable the loss arising to the assessee would be allowable as a trading loss. 18. In view of the above, we hold that since the assessee had advanced the loan to its employee on account of business interest and due to shut down of the operations entity the loan become irrecoverable and was written off by the assessee along with the imprest lying with the employee who was looking after day-to-day business and the same is allowable as business loss under section 28 of the Act. 19. In so far as sundry advances written off of Rs.7,82,259/- is concerned we observe that the same was provided as advances to various parties for entering into a new business of supply of packaged food items and since the business could not be materialized the assessee had written off the sundry advances given to various parties. 20. We observe that the Mumbai Tribunal in the case of DCIT Vs. M/s. Edelweiss Capital Ltd. in ITA. No. 3971/Mum/2009 held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... associated enterprises. 23. The ld. Counsel further submits that the issue is squarely covered by the order of the Tribunal in the case of L.T. Foods Ltd. Vs. DCIT (supra) which is a group entity for the assessment years 2008-09 and 2009-10 in ITA. No. 6221 and 6222/Del/2012 dated 11.04.2022 wherein it has been held that adjustment in respect of receivables from AE is un-warranted. The ld. Counsel submits that while holding so the Tribunal followed the decision of the jurisdictional High Court in the case of Kusum Health Care Pvt. Ltd. [398 ITR 66]. 24. On the other hand, the ld. DR strongly placed reliance on the orders of the authorities below. 25. Heard rival submissions perused the orders of the authorities below and the decisions relied on. On perusal of the order of the Tribunal in the case of assessee s group entity, namely, L.T. Foods Ltd. Vs. DCIT (supra) an identical issue has been decided observing as under:- 41. Ground No. 8.4 relates to interest on outstanding receivables. During the course of TP assessment proceedings, it was noticed from the invoice-wise details of rice sold to AE that the assessee has received sale consideration after some time lag, beyo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vis-a-vis the receivables for the supplies made to an AE, the arrangement reflects an international transaction intended to benefit the AE in some way. 11. The Court finds that the entire focus of the AO was on just one AY and the figure of receivables in relation to that AY can hardly reflect a pattern that would justify a TPO concluding that the figure of receivables beyond 180 days constitutes an international transaction by itself. 48. In light of the aforementioned findings of the Hon'ble High Court, the contention of the assessee that no interest has been charged from non-AEs on similar delay cannot be brushed aside lightly. In fact, in the case of Aura OI SAS, delay was of 81 days and in the case of Sabi Foods, delay was of 52 days and no interest was charged by the assessee. 49. We have elsewhere mentioned the operating profit margin of the assessee vis a vis comparable companies from where it can be seen that the operating profit margin of the assessee is much higher than that of the comparable companies. 50. Considering the facts in totality in light of the ratio laid down by the Hon'ble Jurisdictional High Court [supra[ and keeping in mind that no in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e handling transportation of food grains as provided under that section. Findings of CIT(Appeals) On appeal against the aforesaid, the CIT(A) after considering the facts of the case and position in law and following the order passed for the preceding assessment year 2009-10, deleted the disallowance made by the assessing officer and held that the assessee was engaged in the integrated business of transporting, handling and storage of food grains and condition stipulated in section 80IB(11A) of the Act stood fulfilled, thereby the assessee was eligible to claim deduction under that section 28. The ld. Counsel for the assessee submits that the issue is squarely covered by the order of the Tribunal in assessee s own case in ITA. No. 4042/Del/2013 dated 7.06.2021 for the assessment year 2009-10 being the first year of claim wherein the Tribunal following the order of the co-ordinate bench in the case of group company L.T. Foods Ltd. Vs. DCIT (supra) for the assessment year 2007-08 in ITA. No. 4046/Del/2013 dated 30.09.2020 allowed the claim for deduction under section 80IB(11A) of the Act. 29. The ld. DR placed reliance on the orders of the Assessing Officer. 30. Heard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bility would be on the assessee to show that his case comes within the parameters of the exemption clause or exemption notification. When there is ambiguity in exemption notification which is subject to strict interpretation, the benefit of such ambiguity cannot be claimed by the subject/assessee and it must be interpreted in favour of the revenue. In the present assessee s case, the assessee has demonstrated that the assessee fulfilled the parameters of the exemptions. Besides this, in case of Group company of assessee i.e. L T Foods Ltd. for A.Y. 2007-08 in ITA No. 4046/Del/2013, the Tribunal on identical facts allowed deduction claimed under Section 80IB (11A) of the Act. The Tribunal held as under: 53. As we have stated above, we will have to test the expression handling , occurring in section 80IB(11A) of the Act on the touchstone of the object sought to be achieved through such incentive, namely, achieving the enhanced food security by way of greater efficiency in the grain management system by minimizing the postharvest food grain losses. It is an undeniable fact that traditionally pounding was the way in which the paddy was converted to the form of rice by separating ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
