2019 (4) TMI 1871 - HC - Income Tax

High Court affirms Tribunal on tax issues: rule 8D, section 37(1), 36(1)(vi), 40(a)(ia)

The High Court upheld the Tribunal's decisions on various tax issues, including disallowance of expenses under rule 8D, deduction claimed under section ... Disallowance u/s 14A r.w.r. 8D - disallowances voluntarily made by the assessee - HELD THAT:- We are not inclined to admit the appeal. Firstly because the disputed amount itself is not very substantial and secondly, though not so clearly stated, the view of the Tribunal can as well be understood and interpreted as one holding that the facts necessary for applicability of rule 8D, did not arise in the present case. We may recall, sub-section (2) of section 14A provides that the AO would determine the amount of expenditure incurred in relation to income which does not form part of the total income if he is not satisfied with the correctness of the claim of the assessee in respect of such expenditure. If the expenditure already voluntarily disallowed by the assessee is found to be reasonable, the Assessing Officer in any case could not have resorted to rule 8D of the Rules. Disallowance of deduction u/s 37(1) - compensation for premature termination of the lease agreement - HELD THAT:- Tribunal noted that the assessee had terminated lease and licence in respect of two warehouses from Paras Commercial Centre. The lessor deducted a sum towards compensation for premature termination of the lease agreement. The Tribunal in such facts held that the early termination of the lease was a business decision and the expenditure incurred in relation to the same was wholly and exclusively for the purpose of business. We find no error in the view of the Tribunal. Writing off the bad debts and claiming deduction u/s 36(1)(vi) - assessee had purchased certain assets on slump sale basis - HELD THAT:- In the process, certain debts which were part of the current assets were reduced. The assessee wrote off a sum claiming the same to be admissible under section 36(1) - Tribunal while reversing the view of the AO and CIT(A) in which it was held that in the process, the assessee was claiming double benefit, held that the assessee had not claimed any double benefit and the bad debt was required to be allowed as an admissible deduction under section 36(1) of the Act. We see no error in the view of the Tribunal. Disallowance u/s 40(a)(ia) - non-deduction of tax at source by the assessee while making payment to Videsh Sanchar Nigam Limited towards leased line charges -Tribunal held that the amount in question was below ₹ 10 lakhs which was a minimum monetary limit enabling the Revenue to prefer appeal against the Commissioner's appellate orders before the Tribunal - HELD THAT:- As Revenue argues before us that the Tribunal should have seen the monetary limit of the combined appeals of the assessee as well as the Revenue arising out of the common judgment of the Commissioner of Income-tax (Appeals) pertaining to the assessee for the same assessment year. In our opinion, this question is not required to be examined in view of the fact that the decision of this court in the case of Kotak Securities Limited . [2011 (10) TMI 24 - BOMBAY HIGH COURT] has been reversed by the Supreme Court in the case of CIT v. Kotak Securities Ltd.. [2016 (3) TMI 1026 - SUPREME COURT] - Resultantly, on the merits also, the Revenue would have no ground to succeed. Revenue appeal dismissed. Issues:1. Disallowance of expenses under rule 8D(2)(iii) of the Income-tax Rules, 1962.2. Deduction claimed under section 37(1) of the Income-tax Act, 1961.3. Claim of bad debts write-off under section 36(1)(vi) of the Income-tax Act, 1961.4. Disallowance under section 40(a)(ia) of the Income-tax Act.Issue 1: Disallowance of expenses under rule 8D(2)(iii) of the Income-tax Rules:The Tribunal partially allowed the assessee's appeal by reducing the disallowance of expenses related to earning exempt income. The Tribunal exercised discretion in reducing the disallowance, considering the minimal expenses incurred by the assessee in relation to the dividend earned. The Tribunal's decision was based on the principle that rule 8D cannot be applied blindly, especially when the assessee had made minimal expenses and had temporarily invested substantial funds. The High Court upheld the Tribunal's decision, emphasizing that once the assessee's voluntarily disallowed expenditure was found reasonable, the Assessing Officer could not resort to rule 8D.Issue 2: Deduction claimed under section 37(1) of the Income-tax Act:The question revolved around the deduction of a sum claimed by the assessee under section 37(1) concerning compensation for premature termination of a lease agreement. The Tribunal deemed the termination of the lease as a business decision and held that the expenditure incurred was wholly and exclusively for business purposes. The High Court found no error in the Tribunal's decision, thereby upholding the allowance of the deduction under section 37(1).Issue 3: Claim of bad debts write-off under section 36(1)(vi) of the Income-tax Act:Regarding the claim of writing off bad debts under section 36(1)(vi), the Tribunal analyzed the transaction where the assessee reduced certain debts as part of a slump sale. The Tribunal observed that the Assessing Officer and the Commissioner of Income-tax had overlooked crucial facts, leading to an incorrect conclusion about potential double benefits. The Tribunal ruled in favor of the assessee, stating that the write-off of debts was admissible under section 36(1)(vi) without resulting in any double benefit. The High Court concurred with the Tribunal's findings, affirming that the bad debt was rightfully allowed as a deduction.Issue 4: Disallowance under section 40(a)(ia) of the Income-tax Act:The final issue concerned the disallowance under section 40(a)(ia) due to non-deduction of tax at source by the assessee for leased line charges. The Revenue relied on a Bombay High Court judgment, which the Tribunal distinguished based on the monetary limit involved. The High Court noted that the Supreme Court had reversed the cited judgment, rendering the Revenue's argument moot. Consequently, the High Court dismissed the appeal, finding no grounds for the Revenue to succeed due to the changed legal position post the Supreme Court's decision.In conclusion, the High Court dismissed the Revenue's appeal, upholding the Tribunal's decisions on all the issues raised, emphasizing the correct application of tax laws and principles in each instance.