TaxTMI 
TaxTMI 
2013 (11) TMI 825
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....s on the points decided against each of them. 3. The facts relating to the case are stated in brief. The assessee is a Government of Kerala undertaking engaged in providing financial assistance for industrial projects developed in the State of Kerala. The financial assistance is provided by way of giving term loans and/or by making investments in the share capital of the borrower. During the year under consideration, the assessee earned dividend income of Rs. 1.57 crores. However the assessee did not allocate any amount as expenditure incurred in relation to the dividend income. Accordingly it did not disallow any amount as required by the provisions of sec. 14A of the Act. The AO, by placing reliance on the decision of Hon'ble Bombay High Court in the case of Godrej & Boyce Mfg. Co. Ltd. Mumbai vs. DCIT (328 ITR 81), held that the disallowance is required to be made under Rule 8D. Accordingly, by applying Rule 8D(2)(iii), the Assessing Officer disallowed 0.5% of the average value of investment which worked out to Rs. 24,64,479/-. 3.1 The assessee had claimed deduction for bad debts u/s. 36(1)(vii) of the Act to the tune of Rs.55,99,112/-. The Assessing Officer noticed that t....
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....ccount and Loans and Advances account, as a contra item, for the purpose of preparation of financial statements only and not in the books of account. It was further submitted that the assessee is required to create Provision for bad debts as per the guidelines issued by IDBI. As per the said guide lines, the amount available in Special reserve account created u/s 36(1)(viii) of the Act can be treated as part of the Provision for bad debts. The assessee further submitted that the Special Reserve account is maintained intact in the books of account. It was further submitted that the assessee is following the above said method of presentation of accounts for the past several years and the same has been accepted by the department. However, the AO did not agree with the contentions of the assessee and held that the amount of Rs.53.96 crores is to be treated as utilisation of amount available in the special reserve account. Accordingly, the AO assessed the sum of Rs. 53.96 crores as income of the assessee under section 41(4A) of the Act. 4. In the appellate proceedings, the Ld. CIT(A) noticed that the Assessing Officer omitted to make disallowance of proportionate interest expenditure....
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....see and held that the method adopted by the assessee for presenting the account would amount to utilisation of amount available in Special reserve account for making provisions as per the directions issued by IDBI. Accordingly, he confirmed the assessment made u/s. 41(4A) of the Act. 5. The first issue relates to the disallowance made u/s 14A of the Act. The contention of the assessee is that it did not incur any expenditure in earning the dividend income. It was also submitted that the assessee has invested into the share capital of many companies in the regular course of business of providing financial assistance. He further submitted that the assessee has used its own funds for making investments in shares. He also submitted that the AO was not right in taking average value of all the investments for the purpose of calculating the disallowance of expenses, instead of the average value of dividend yielding investments. 5.1 However, the Ld D.R submitted that the Ld CIT(A) has followed the decision rendered by the Hon'ble jurisdictional Kerala High Court in disallowing a part of interest expenditure. The Ld D.R further submitted that the claim of the assessee that it did not ....
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....is the Opening balance of the provision as on 1.4.2007 for the year under consideration. Tourism Finance Corporation of India Ltd (2 ITR (Trib) 1(Del)) CIT Vs. UTI Bank (2013)(256 CTR (Guj) 76). The Ld CIT(A) accepted the contentions of the assessee and accordingly decided this issue in favour of the assessee. The relevant observations made by Ld CIT(A) are extracted below:- "11.3 The third ground of appeal is regarding denial of deduction of bad debts written off amounting to Rs.55,99,112 over and above the provision created u/s. 36(1)(viia). In the assessment order, the Assessing Officer has observed that the assessee has not set off the said amount of bad debts written off during the year against the provisions made during the year of Rs.57,00,000 and claimed deduction for both the amounts. He has further stated that the proviso to sec. 36(1)(vii) restricts the write off relating to such debts by putting a restriction that the write off shall be limited to the amount by which such debt exceeds the credit balance in the provisions for bad and doubtful debts made under clause 36(1)(viia). During the course of appellate proceedings, the appellant submitted that as decid....
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....count but by the opening balance thereof - Catholic Syrian Bank Ltd. vs. CIT (2012) 248 CTR (SC) 1: (2012) 68 DTR (SC) 1: (2012) 343 ITR 270 (SC) and UCO Bank Vs. CIT (1999) 154 CTR (SC) 88: (1999) 237 ITR 889 (SC) applied." Therefore, it is seen that the Hon'ble Gujarat High Court relying upon the various judgments of Hon'ble Supreme Court and also CBDT Circular No. 17 of 2008 held that for the purposes of proviso to sec. 36(1)(vii), the amount of deduction claimed by the assessee in respect of bad debts was required to be reduced by the opening balance of provision for bad and doubtful debts created and not the closing balance. As given in the assessment order, the opening balance of provision for bad and doubtful debts is nil and therefore, the entire amount of bad debt of Rs. 55,99,112/- is allowable as deduction. The addition made by the Assessing Officer is therefore, deleted." We notice that the Ld CIT(A) has followed the decision rendered by the Hon'ble Gujarat High Court, wherein the Hon'ble High Court has placed reliance on the circular No.17 of 2008 dated 26th Nov. 2008 issued by the CBDT in deciding this issue. Hence, we do not find any infirmity in the decision o....
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....1.3.2008 loans and advances which is reproduced as under: (A) Loans: Considered Good: Secured loans Rupee Loans 2,275,896,344 2,543,460,825 (Including debts due by Subsidiary company Rs.1,60,0000/) Unsecured Loan Rupee loan(Including debts due by subsidiary companies Rs. 20,70,000/-) 14,755,706 62,064,714 Soft Loan - IDBI 24,435,808 25,322,808 2,315,087,858 2,630,848,347 Less: Special Reserve u/s 36(1)(viii) and NPA provision As per RBI guidelines 4,80,803,549 475,200,249 1,834,284,309 2,155,648,098 It can be seen from the above that Special Reserve amount has been deducted from Assets in the forms of secured loan, unsecured loan and soft loan as given in IDBI guidelines discussed below. The appellant has also contended that as per sec. 41(4A), any amount subsequently withdrawn from Special Reserve only is deemed to be income chargeable to tax, therefore, the section comes into play only when any amount is withdrawn from the account. It has been contended that the appellant has not withdrawn any amount from the said amount and only for the purpose of presentation in the balance sheet in schedule 2; amount of loan and advances has been shown as contr....
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....pecial Reserve account in the Balance Sheet from said financial year." 7.3 Before us, the Ld Counsel for the assessee submitted that the assessee has made a contra adjustment in the Balance Sheet in order to comply with the directions issued by IDBI, but in the books of account it has maintained the Special Reserve account intact, i.e., it has not used the special reserve as presumed by Ld CIT(A). He further submitted that the assessee is required to compute provision for bad and doubtful debts as per the norms prescribed by IDBI. While determining the amount of provision required to be made, the assessee is permitted to take into account the amount available in Special Reserve Account. According to the said guidelines, the Assets and Liabilities should be reduced to the extent of Provision utilised from the cumulative balance of reserves created u/s 36(1)(viii), i.e., the assets are to be shown as net of provisions. Hence, in the Balance Sheet, the assessee has reduced Special reserve account and Loans and Advances account with the amount of provision. On the contrary, the Ld D.R submitted that the assessee has adopted colourable device to circumvent the provisions of Income ta....
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....unable to agree with the view expressed by Ld CIT(A). The financial statements are prepared on the basis of books of account for various purposes. The method of presentation of the financial statements would vary according to the needs of the user of the same. So long as they tally with the books of account, generally no fault is found with regard to the method of presentation. 7.8 The assessee has furnished a copy of guidelines issued by IDBI. As per the said guidelines, the assessee is required to classify its assets, mainly loans and advances, into four categories, viz., Standard assets, Sub-standard assets, Doubtful assets and Loss assets. The purpose of classification of the assets in the above categories appears to be to ascertain about the intrinsic strength of those assets. We notice that the IDBI has also specified the criteria or basis for classifying the assets in the four categories stated above. According to the said guide lines, the assessee is also required to make provisions against the assets classified as Sub-standard, Doubtful and loss category, possibly these categories bear risk of recovery. According to the said guidelines, the SIDCs are required to determi....