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TaxTMI 
TaxTMI 
TaxTMI 
2015 (7) TMI 248
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....ssee submitted that similar issue had arisen in the assessee' own case for the assessment year 2006-07 and 'A' bench of this Tribunal, by order dated 23/01/2015 in ITA No.1276/Bang/2010, had deleted the disallowances. A copy of the said order is filed before us. 2.1 As regards the issue of bad debts and advances written off i.e. ground No.3 of abridged grounds of appeal filed by the assessee is concerned, we find that the AO has disallowed the same on the ground that the assessee has not furnished any details to prove that the advances were made during the course of business of the company. We find that in the earlier year i.e. 2006-07, similar issue had arisen and the Tribunal has considered the issue at length and held as under: "6. Ground No.3 : Disallowance of Bad Debts and Advances written off. 6.1 This ground relates to the disallowance of bad debts written off to the extent of Rs. 18,26,06,489 in the following cases :- i) CSD Debtors - in the books of SWD Rs.1,40,83,000 ii) Karnataka Breweries & Distilleries Ltd. Rs.2,76,91,000 iii) Skokie Traders Pvt. Ltd. Rs.8,80,00,000 iv) Midas Golden Distilleries. Rs.3,20,55,000 v) Salson Distilleries. Rs.4....
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.... bad debts covered under section 36(1)(vii) of the Act and also advances given in the course of carrying on business for procurement of goods and services. It was stated that and circumstances for making the claim along with account extracts were submitted before the Assessing Officer even at the time of assessment vide letter dt.19.11.2008 and other such correspondences placed in the assessee's paper book at pages 61 to 86. The learned Authorised Representative submitted that the Assessing Officer neither addressed these submissions and evidences furnished by the assessee nor specified what further evidences were required to establish the claims. It was submitted that in the case of write off of bad debts, write off in the accounts of the assessee's books is sufficient to allow the claim as was held by the Hon'ble Apex Court in the case of TRF Ltd. V CIT (230 CTR 14) and therefore applying this decision of the Hon'ble Apex Court, the assessee's claim for bad debts ought to have been allowed. 6.4.2 As regards the advances written off, the learned Authorised Representative contends that similar type of advances written off in the earlier years were considered an....
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....e assessee is not in the money lending business, the write off of advances was not allowable. The learned Departmental Representative prayed that in view of the circumstances narrated above disallowances of the claims of bad debts and advances written off made and confirmed by the authorities below be sustained. 6.6 In rejoinder, the learned Authorised Representative drew our attention to the decision of the Hon'ble Bombay High Court in the case of Rallis India Ltd. v ACIT & Another reported in 323 ITR 54, wherein it stated to be held that debit to the profit and loss account was not condition precedent for allowing the claim of bad debts. It was further stated that write off of advances is allowed under section 37 of the Act, even in cases where the main business is not money lending and submitted that the assessee had derived interest income of Rs. 6.82 Crores from advancing of money in the impugned assessment period and Rs. 4.8 Crores in the earlier assessment year. The learned Authorised Representative prayed that in view of the above, the assessee's claim for write off of advances requires to be allowed. 6.7 We have heard both parties at length, considered the writte....
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....l for the assessment year 2006-07, in similar circumstances, the Tribunal has remitted the matter to the file of the AO for re-consideration after considering the issue at length. The relevant portion of the Tribunal's order is reproduced hereunder: "8. Ground Nos. 7 to 9 : Disallowance u/s.14A of the Act. 8.1.1 In the order of assessment, the Assessing Officer invoking the provisions of section 14A of the Act made a disallowance of Rs. 57,00,44,771, which was sustained by the learned CIT (Appeals) to the extent of Rs. 44,67,00,833. As per the details filed before the Assessing Officer, the assessee submitted that it had an investment portfolio of Rs. 702,26,48,000, the break up of which is given as under :- Investment in SWCL Rs.488.88 Crores Investment in Primo Distributors Pvt. Ltd. Rs.103.00 Crores Interest as sole beneficiary in USL Benefit Trust Rs.68.70 Crores. Others (Investments in Banks acquired on amalgamation) Rs.41.68 Crores. Total : Rs.702.02 Crores. 8.1.2 In respect of the above investments, the assessee submitted that it had earned dividend income of Rs. 4,28,93,000. The assessee, in the period under consideration had claimed interest on its....
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..... Without prejudice to the finding above, it cannot be reiterated that provisions of section 14A assessee applicable in "respect of expenditure incurred by assessee in relation to income which does not form part of the total income under the Act." There is no separate rule to examine this section in the light / merits of the issue. The section has been introduced with the intention to ascertain the income of the assessee correctly which was getting reduced by way of expenditure on interest payment, the returns from which was not taxable. Section 14A(2) has been introduced w.e.f. 1.4.2007, which allows the Assessing Officer to determine such amount of expenditure, the same prescribed as per rule 8D. The assessee has only reiterated the argument of non-applicability of section 14A, no calculations having been furnished. The same is being addressed on merits. Further, it may be stated here that the bank accounts maintained by the assessee are current accounts with overdrawal facility. The amounts invested by the assessee in shares contribute to increase in the overdrawal facility which results in payment of interest. The assessee may also argue that the sources were out of loans in ....
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.... value ofRs.235418.86 lakhs (as against Rs. 243535.48 lakhs) (the adjusted value of fixed asset is taken at 48254.98 as against Rs. 56371.60 lakcs). (iii) Rs. 2,52,80,397.5 (being one half per cent of the average of the value of investment of Rs. 505,60,79,500, income from which does not be shall not form part of the total income, as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year. Therefore, the interest relatable to the funds invested in shares etc. works out to Rs. 57,00,44,771 (i.e. the aggregate amount of (i) + (ii) + (iii) determined above). The same is disallowed as not allowable under section 14A of the Income Tax Act." 8.2 On appeal, out of Rs. 57,00,44,771 the learned CIT(A) sustained the disallowance under section 14A of the Act to the extent of Rs. 44,67,00,833 after considering the submissions made by the assessee. The findings of the learned CIT(A) in this regard are at pages 26 of this impugned order which are extracted hereunder :- "In view of the above, the proportionate disallowance of the interest & finance charges and other expenses debited to the profit and loss account has to be made on a reasonable ba....
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....rendered any sustainable findings in this regard, in which case alone section 14A of the Act can be invoked. The learned Authorised Representative submitted that out of the total investment of approx. Rs. 702.02 Crores, Rs. 698.15 Crores was for acquiring controlling interest, expansion of market share and strategic business purposes as was the case in making the investment in Shaw Wallace Co. Ltd., Primo Distributors Ltd. and USL Beneficial Trust; which was all for business purposes. The learned Authorised Representative further submitted that the total business income earned and offered to tax in the form of augmented sales, royalty, etc., totaled Rs. 789.64 Crores as submitted to the learned CIT(A) vide letter dt.24.10.2009, placed at pages 141 to 145 of the assessee's paper book. Thus, the learned Authorised Representative contends that in so far as these investments are concerned, it cannot be said that it was for earning exempt income. Moreover, when investments are made for the purpose of acquiring controlling interest and strategic interest, the provisions of section 14A cannot be invoked as has been held by the Hon'ble Karnataka High Court in the case of CCI Ltd. (....
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....o Elecon (India) Ltd. V Addl. CIT 33 CCH 619 (ITAT, Ahmedabad) The learned Authorised Representative further submitted that the learned CIT(A) has also not applied the law as laid down in the above judicial pronouncements (supra) and therefore the disallowance under section 14A of the Act ought to be deleted. 8.4 Per contra, the learned Departmental Representative supported the orders of the authorities below and prayed for confirmation of the disallowance of Rs. 44,67,00,833 submitted by the learned CIT(A). 8.5 We have heard both parties at length and perused and considered the material on record; including the judicial pronouncements cited and placed reliance on. The learned A.R. submits that in cases where there has been substantial investment for strategic purposes wherein the intention has been the expansion and support of the assessee's business, and not for the purpose of earning dividend, the provisions of section 14A of the Act ought not to have been invoked even if such expansion has occurred out of interest bearing borrowed funds. Ruling to this effect has been rendered by the Hon'ble Karnataka High Court in the case of CCI Ltd. (supra) relied on by the assess....
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....ar 2007-08, the issue for assessment years 2008-09 and 2009-10 are also set aside to the file of the AO for de novo consideration in accordance with law. 3.1 In the assessee's appeal for assessment year 2008-09 (ITA No.425/Bnag/2013), there is another issue i.e. disallowance of bad debts and advances written off and the same issue had arisen in the departmental appeal for assessment year 2009-10 (ITA No.653/Bang/2013). Since these issues are also covered by the decision of this Tribunal for assessment year 2006-07 which has been followed by this Tribunal for the assessment year 2007-08 in para. 2.1 above, we set aside these issues also to the file of the AO for de novo consideration. 3.2 In the result, the assessee's appeals for the assessment years 2008-09 and 2009-10 are allowed for statistical purposes. The revenue's appeal for assessment year 2009-10 is also treated as allowed for statistical purposes. 4. In the departmental appeal for the assessment year 2008-09 (ITA No.652/Bang/2013) the lone ground is against the order of the CIT(A) in deleting the disallowance of foreign exchange fluctuation loss. We find that this issue also has been considered by this Tribu....