2014 (5) TMI 1182 - AT - Income Tax

Tribunal adjusts Revenue's appeal, reduces disallowance under section 14A, remands deduction issue for reassessment.

Deputy Commissioner of Income-tax, Circle-9, Surat Versus Sarvodaya Sahakari Bank Ltd.

The Tribunal partially allowed the Revenue's appeal, setting aside the lower authorities' orders on both issues for reconsideration. The disallowance ... Addition u/s 14A - HELD THAT:- Estimation of disallowance of 2% of gross dividend income as the expenditure, as being incidental to the earning of dividend income u/s. 14A of the Act as the assessee had not furnished the details of expenditure incidental to earning of dividend income, estimation was made of the expenditure attributable to dividend income at 2% of the gross dividend income. We estimate the expenditure incurred towards earning of exempt dividend income of ₹ 11,61,400/- at 2% of the gross dividend income which works out to ₹ 23, 228/-. We, therefore, set aside the orders of the lower authorities and direct the Assessing Officer to restrict the disallowance u/s. 14A of the Act. Addition u/s. 36(1)(viia) - provisions for bad and doubtful debts - HELD THAT:- It is clear that the provisions for bad and doubtful debts should be allowed u/s. 36(1)(viia), to the extent of provision made and available in the books of account, whether made in the current previous year or in the preceding previous years as we find that none of the lower authorities i.e. either AO or the CIT (Appeals) has examined the issue under consideration from this angle and as the entire facts are not available for us to adjudicate the issue, we, in the interest of substantial justice, set aside the orders of the lower authorities and remand the matter back to the file of the Assessing Officer for adjudication of the issue afresh as per law in the light of the discussions made hereinabove. Needless to mention that the AO shall allow reasonable and proper opportunity of hearing to the assessee before adjudicating the issue afresh. Issues involved:1. Disallowance of expenditure under section 14A of the Income Tax Act.2. Disallowance of deduction claimed under section 36(1)(viia) for provision of bad and doubtful debts.Detailed Analysis:Issue 1: Disallowance of expenditure under section 14A of the Income Tax Act.The Revenue filed an appeal against the Commissioner of Income Tax (Appeals) order deleting the addition of Rs. 11,09,378/- made under section 14A of the Act. The Assessing Officer disallowed the claimed dividend income of Rs. 11,61,400/- received from a mutual fund as exempt income due to no expenditure being incurred to earn it. The disallowance was made under section 14A by invoking Rule 8D. However, the Commissioner held that Rule 8D was not applicable for the relevant assessment year and deleted the disallowance as there was no direct nexus between the funds invested and borrowed funds. The Tribunal, following precedents, estimated the expenditure at 2% of the gross dividend income, amounting to Rs. 23,228/-, and directed the Assessing Officer to restrict the disallowance accordingly.Issue 2: Disallowance of deduction claimed under section 36(1)(viia) for provision of bad and doubtful debts.The second issue involved the disallowance of a deduction claimed under section 36(1)(viia) for Rs. 9,76,311/- by the Assessing Officer. The Commissioner observed that a provision for bad and doubtful debts was made below the line in the profit and loss appropriation account, contradicting the Assessing Officer's view. The Tribunal referred to relevant case law emphasizing the necessity of making a provision for claiming the deduction under section 36(1)(viia). It was noted that the provision need not be made in the same previous year for which the deduction is claimed, unlike section 36(1)(vii). The Tribunal remanded the matter back to the Assessing Officer for fresh adjudication, emphasizing the need for proper examination and providing the assessee with a reasonable opportunity for a fair hearing.In conclusion, the Tribunal partially allowed the Revenue's appeal, setting aside the orders of the lower authorities on both issues for reconsideration and fresh adjudication in accordance with the law and precedents cited.