2019 (11) TMI 863 - AT - Income Tax

Tribunal dismisses Revenue's appeal, allows assessee's appeal. Assessing Officer to reconsider disallowances based on legal precedents.

The Tribunal dismissed the Revenue's appeal and allowed the assessee's appeal for statistical purposes. The Tribunal directed the Assessing Officer to ... Addition on account of bad debts claimed in computation of income - assessee is NBFC registered with RBI under the category of investment company and the loan advance to M/s. VTL was not in the ordinary course of business - CIT(A) deleted the disallowance by accepting the additional evidence - HELD THAT:- We find the Hon'ble Delhi High Court in the case of Global Capital Ltd. [2007 (5) TMI 235 - DELHI HIGH COURT] as held that under the provisions of section 36(1)(vii) of the IT Act, as amended w.e.f. 1st April, 1989, the assessee is not required to establish that the concerned debt has actually become bad in the relevant year for the purpose of claiming deduction under this section and the only requirement for claiming the deduction is that the assessee has to write off the relevant debt in its books of account. The various decisions relied on by the ld. DR are distinguishable and not applicable to the facts of the present case in view of the decision of the Hon'ble Supreme Court in TRF Ltd. [2010 (2) TMI 211 - SUPREME COURT] and the binding decisions of the jurisdictional High Court cited supra. In view of the above discussion and in view of the detailed reasoning given by the ld.CIT(A) on this issue, we find no infirmity in the order of the CIT(A). Accordingly, the same is upheld and the grounds raised by the Revenue are dismissed. Addition being the advance given to Mrs. Anuradha Shyam Chandani which was written off as bad debt on its forfeiture by the party during the year - claim of the appellant if not allowable as bad debt u/s 36(1)(vii), is allowable as business/trading loss under section 37(1 )/28 - HELD THAT:- CIT(A) upheld the action of the Assessing Officer on the ground that the advance given by the assessee for purchase of property which was later written off is not allowable under the provisions of section 36(1)(iii) as bad debt as the same is not a trading debt which was taken as income in earlier years or money advanced in the ordinary course of business of money lending, hence, also not in the ordinary course of business. It is the submission of the assessee that in view of the various decisions cited by him, even if the same is not treated as bad debt, the same should be allowed as business loss. It is an admitted fact that the assessee does not fulfill the conditions prescribed u/s 36(1)(vii) or 36(2) so as to claim the amount as bad debt. It is the alternative contention of the assessee that the same should be allowed as a business loss. However, the assessee has to prove before the Assessing Officer that the amount can be allowed as a business loss. We deem it proper to restore this issue to the file of the Assessing Officer with a direction to grant an opportunity to the assessee to substantiate its claim that it fulfills the conditions required for allowing the above amount of ₹ 1 crore as business loss. Disallowance u/s 14A - HELD THAT:- As held by the Assessing Officer himself, the assessee has received a dividend income on shares held as stock-in-trade which has been claimed as exempt. It is also held by the Assessing Officer that the assessee has made suo motu disallowance u/s 14A of the Act. Therefore, we find merit in the argument advanced by the ld. counsel that when the assessee has himself disallowed an amount of ₹ 55,32,603/- and no satisfaction has been recorded by the Assessing Officer, therefore, the disallowance made by the Assessing Officer and sustained by the CIT(A) is not correct. We, therefore, set aside the order of the CIT(A) on this issue and direct the Assessing Officer to delete the addition. Disallowance under Rule 8D(2)(i) being the amount of custodian fee paid in relation to shares held both as stock in trade and investments - HELD THAT:- We find merit in the argument of the ld. counsel for the assessee that the provisions of section 14A is not applicable in respect of the shares held as stock-in-trade as the profit therefrom is taxable as business income and dividend income thereon is incidental. Further, the assessee itself has disallowed an amount of ₹ 55,32,603/- and the Assessing Officer has not recorded any satisfaction and the assessee has received dividend income of only ₹ 39,97,165/- on the shares held as stock-in-trade. Since no satisfaction has been recorded by the Assessing Officer, therefore, we find merit in the argument of the ld. counsel for the assessee that the disallowance made by the Assessing Officer and sustained by the CIT(A) is not proper. We accordingly set aside the order of the CIT(A) and direct the Assessing Officer to delete the addition. The ground raised by the assessee is accordingly allowed. Addition to the book profit u/s 115JB being the amount of estimated expenditure disallowed under Section 14A / Rule 8D - HELD THAT:- We find, the Special Bench, Delhi, of the Tribunal in the case of VIREET INVESTMENT (P.) LTD. [2017 (6) TMI 1124 - ITAT DELHI] has held that the computation under clause (f) is to be made without resorting to the computation as contemplated u/s 14A r.w. Rule 8D of the Incometax Rules, 1962. Since the issue has been decided in favour of the assessee by the decision of the Special Bench of the Tribunal, therefore, in absence of any contrary material brought to our notice by the ld. DR, we set aside the order of the CIT(A) on this issue and allow the ground raised by the assessee. Issues Involved:1. Deletion of disallowance of Rs. 54,08,93,273/- on account of bad debts claimed by the assessee.2. Disallowance of Rs. 1,00,00,000/- being the advance given to Mrs. Anuradha Shyam Chandani.3. Disallowance of Rs. 2,81,051/- under Rule 8D(2)(iii) related to shares held as stock-in-trade.4. Disallowance of Rs. 4,72,389/- under Rule 8D(2)(i) related to demat charges.5. Addition of Rs. 2,81,051/- and Rs. 4,72,389/- to the book profit u/s 115JB of the Act.Issue-wise Analysis:1. Deletion of Disallowance of Rs. 54,08,93,273/- on Account of Bad Debts Claimed by the Assessee:The assessee, a domestic company trading in mutual funds and making investments in shares and debentures, filed its return for the assessment year 2010-11 declaring a loss. The Assessing Officer (AO) disallowed the bad debt of Rs. 54.08 crores on the grounds that the loan to M/s. Vasu Tech Ltd. (VTL) was not in the ordinary course of business and the assessee did not comply with RBI guidelines for NBFCs. The AO further noted procedural irregularities in the loan agreement and concluded that the loan was not advanced in the ordinary course of money lending business. The CIT(A) deleted the disallowance, observing that the assessee's money lending activities were accepted by RBI and the interest income from loans had previously been assessed as business income. The CIT(A) also referenced the Supreme Court decision in TRF Ltd. and the Delhi High Court decision in All Grow Finance, which held that it is sufficient if the bad debt is written off as irrecoverable in the accounts. The Tribunal upheld the CIT(A)'s decision, finding no infirmity in the order and dismissing the Revenue's appeal.2. Disallowance of Rs. 1,00,00,000/- Being the Advance Given to Mrs. Anuradha Shyam Chandani:The assessee claimed a bad debt of Rs. 1 crore, which was an advance given for the purchase of property that was later forfeited. The AO disallowed the claim, stating there was no evidence to substantiate the claim as a trading debt or money advanced in the ordinary course of business. The CIT(A) upheld the AO's decision. The Tribunal, however, restored the issue to the AO for reconsideration, allowing the assessee to substantiate its claim that the amount should be treated as a business loss.3. Disallowance of Rs. 2,81,051/- Under Rule 8D(2)(iii) Related to Shares Held as Stock-in-Trade:The AO made a disallowance of Rs. 2,81,051/- under Rule 8D(2)(iii) for shares held as stock-in-trade, which the assessee had not included in the disallowance u/s 14A. The CIT(A) upheld the AO's decision. The Tribunal set aside the CIT(A)'s order, noting that the assessee had already made a suo motu disallowance of Rs. 55,32,603/- and no satisfaction was recorded by the AO that the disallowance was incorrect.4. Disallowance of Rs. 4,72,389/- Under Rule 8D(2)(i) Related to Demat Charges:The AO disallowed Rs. 4,72,389/- paid as custody fees on account of demat charges, stating it related to investments yielding exempt income or stock-in-trade. The CIT(A) upheld the AO's decision. The Tribunal found merit in the assessee's argument that section 14A is not applicable to shares held as stock-in-trade and set aside the CIT(A)'s order, directing the AO to delete the addition.5. Addition of Rs. 2,81,051/- and Rs. 4,72,389/- to the Book Profit u/s 115JB of the Act:The AO added the disallowances of Rs. 2,81,051/- and Rs. 4,72,389/- to the book profit u/s 115JB. The CIT(A) upheld the AO's decision. The Tribunal, referencing the Special Bench decision in ACIT vs. Vereet Investment Pvt. Ltd., held that the computation under clause (f) of Explanation 1 to section 115JB(2) should be made without resorting to the computation under section 14A r.w. Rule 8D. The Tribunal set aside the CIT(A)'s order and allowed the assessee's ground.Conclusion:The Tribunal dismissed the Revenue's appeal and allowed the assessee's appeal for statistical purposes, directing the AO to reconsider certain disallowances and delete others based on the provided legal precedents and factual findings.