2019 (12) TMI 1036 - AT - Income Tax

Tribunal rules in favor of assessee on multiple tax issues for various years

Shreno Limited Versus ACIT, Cir. 1 (1) (1) Baroda. And DCIT, Cir. 2 (1) (1) Baroda. Versus Shreno Limited

Shreno Limited Versus ACIT, Cir. 1 (1) (1) Baroda. And DCIT, Cir. 2 (1) (1) Baroda. Versus Shreno Limited - TMI Issues Involved:1. Determination of expenses to be disallowed under Section 14A of the Income Tax Act read with Rule 8D of Income Tax Rules.2. Whether disallowance under Section 14A should be added back in the book profit for the purpose of Section 115JB of the Act.3. Deletion of addition by AO on the ground that the assessee must have shown interest income from its subsidiary.4. Disallowance of 75% of foreign travel expenses.5. Disallowance of bad debts.6. Set off of brought forward business loss against income from house property.7. Deletion of loss suffered on sale of preferential shares.Detailed Analysis:1. Determination of Expenses to be Disallowed under Section 14A:The issues in these grounds of appeal relate to the determination of expenses required to be disallowed for the purpose of Section 14A of the Income Tax Act read with Rule 8D of Income Tax Rules. The assessee had allocated certain amounts towards expenditure required to be disallowed under Section 14A, but the AO made additional disallowances. The CIT(A) deleted the disallowance for the years 2013-14 and 2014-15 but upheld it for 2012-13 with certain directions to the AO. The Tribunal found that the assessee had sufficient interest-free funds and no borrowed funds were utilized for investments. Hence, the amounts calculated by the assessee were sufficient, and no further disallowance was required. The Tribunal allowed the assessee's appeal for 2012-13 and rejected the Revenue's appeals for 2012-13, 2013-14, and 2014-15.2. Addition of Disallowance under Section 14A in Book Profit for Section 115JB:The Tribunal noted that the issue was covered in favor of the assessee by the decision of the Special Bench of the Tribunal in Vireet Investment and other cases. It was held that the disallowance under Section 14A is not required to be added back in the book profit under Section 115JB of the Act. The Tribunal allowed the assessee's appeal for 2012-13 and rejected the Revenue's appeals for 2013-14 and 2014-15.3. Interest Income from Subsidiary:The AO added notional interest income on advances given to the subsidiary, Quick Flight Limited (QFL), which was not charged interest due to its financial difficulties. The CIT(A) deleted the addition, holding that the advances were given on account of business expediency and commercial consideration. The Tribunal upheld the CIT(A)'s decision, noting that the advancement of loans was for business purposes and in the interest of the assessee to revive its subsidiary.4. Foreign Travel Expenses:The AO disallowed 75% of the foreign travel expenses incurred by the assessee, which was upheld by the CIT(A). The Tribunal found that similar disallowances were deleted in earlier years by the Tribunal. Following the earlier order, the Tribunal deleted the disallowance of foreign travel expenses for the year 2012-13.5. Bad Debts:The assessee wrote off bad debts related to interest income from loans and advances given to QFL. The AO and CIT(A) disallowed the claim, but the Tribunal allowed it, holding that once the debts are written off in the books, they are to be allowed without requiring the assessee to demonstrate whether the debts have actually become bad.6. Set Off of Brought Forward Business Loss Against Income from House Property:The Tribunal noted that the issue was decided against the assessee in earlier years by the ITAT. It was held that brought forward business losses can only be set off against business income and not against income from house property. The Tribunal dismissed the assessee's ground on this issue.7. Loss on Sale of Preferential Shares:The AO treated the loss on sale of shares as speculative and a colorable device to reduce capital gain tax. The CIT(A) held that the transaction was genuine but adjusted the sale price to the fair market value. The Tribunal held that prior to the insertion of Section 50CA (applicable from AY 2018-19), there was no provision to replace the full sale consideration with fair market value. The Tribunal allowed the assessee's claim of capital loss on the sale of shares.Conclusion:The appeals of the Revenue were dismissed, and the appeal of the assessee was partly allowed. The Tribunal's decision provided significant relief to the assessee on multiple grounds, particularly on the disallowance under Section 14A, foreign travel expenses, bad debts, and loss on the sale of shares.