TaxTMI 
TaxTMI 
2022 (4) TMI 1272
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....he normal provisions amounting to Rs. 10,64,38,586/- and long-term loss for carry forward amounting to Rs. 8,49,05,424/-. The assessee had declared income u/s 115JB at Rs. 4,04,46,404/-. During the course of assessment proceedings, the AO noted that the assessee has claimed a deduction of Rs. 1,63,62,782/- in the Profit & Loss Account being the amount written off. On being asked by the AO to explain as to why the amount of Rs. 1.63 crore written off in the books of account should not be disallowed and added back to the total income of the assessee, the assessee submitted as under:- "Assessee is a Non Banking Financial Company and engaged in financial activities. Copy of certificate of registration with RBI is enclosed for your kind consideration. Detail of amount written off of Rs. 1,63,00,000/- is enclosed. These advances have been advanced to various parties in due course of business. Since the advance being very old and unrecoverable the assessee has decided to write off these advances. Ledger accounts depicting the age of loans and advances are enclosed to confirm that these advances are very old and the assessee is not in position to recover these advances. Since all ....
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....gs to see whether advances given were revenue or capital in nature in which case the allowability may change u/s. 37(1). However, the AO has out rightly disallowed the full amount u/s. 36(1)(vii) whereas the assessee has claimed the write off u/s. 37(1). It is noted that the assessee has itself submitted that the advances were made for creation of business assets and deducted TDS of 2% from M/s. WIG brothers Projects Pvt. Ltd. which aiso reflects that the payment was made to a contractor. Further, the assessee has mentioned a number of case laws in its support. However, it is seen that the facts of all cases are different. Though the decisions have consistently held that even if a deduction is . not allowable as bad debts, the claim can be seen in the light of section 37(1). The Hon'ble Delhi High Court has in the case of Mohan Meakin Ltd. vs CIT vide its order dated 11.05.2011 discussed this issue. The relevant portion from the order is as under: "Section 37(1) lays down as follows: "Any expenditure (not being expenditure of the nature described in Sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), laid....
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....ets in Goa. TDS was also deducted at 2%, the rate applicable to contractor. These amounts written off are therefore dearly not allowable u/s. 37(1) either, as the essential ingredient of not being in the nature of capital expenditure is not fulfilled. The disallowance to this extent (Rs. 15.75 lakh + Rs. 1.1 cr) is therefore confirmed but for the reasons described above. (iv) The advances given to the other 4 parties are for consultancy against which the assessee has claimed that all its endeavours to recover these business advances have failed and they have not even executed the work given to them. It. is seen from the account submitted by the assessee that the amounts have been actually written off and were pending since 2009 before. These business advances written off of Rs. 37.84 lac is allowed u/s. 37(1). The disallowance to this extent may be deleted. This ground is partly allowed." 6. Aggrieved with such order of the CIT(A), the assessee is in appeal before the Tribunal. 7. The ld. Counsel for the assessee strongly challenged the order of the CIT(A) in sustaining an amount of Rs. 1,25,75,000/- in respect of two parties, namely, Bhayana Interiors & Furniture Pv....
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....n the instant case, following his order for AYs 2010-11, disallowed the claim of bad debt on account of loss written off amounting to Rs. 1,63,62,782/-. While doing so, he held that the assessee is not entitled to deduction u/s 36(1)(vii) of the IT Act. We find, the ld.CIT(A) sustained an amount of Rs. 1,25,75,000/-, the details of which have already been reproduced in the preceding paragraph. It is the submission of the ld. Counsel for the assessee that the assessee had given the advances to the above two parties in relation to the development of Goa properties which is in trading account forming part of business. Since these business advances could not be recovered, therefore, the same should be allowed as bad debt or business loss during the impugned assessment year. A perusal of the assessment order shows that the AO, while making the addition has followed his order for AY 2010-11. However, nothing has been brought before us to substantiate as to what has happened to the additions made by the AO in AY 2010- 11. We find, while the assessee is stating that the advances made by the assessee to Bhayana Interiors & Furniture Pvt. Ltd. and Wig Brothers Projects Pvt. Ltd. were in r....
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....g no active business in the AY 2012-33. The companies have become un-operational and were not earning any income. Therefore, the investment were written off as permanent toss of investment. The AO has disallowed the amount as there was no transfer of the shares and therefore no long term capital loss or benefit of indexation can be claimed, There are two limbs to this ground, first is carry forward of long term capital loss and second is calculation of LTCG after indexing the cost. (i) During appeal proceedings, the assessee was asked specifically as to how and under what provision there would be capital loss and the indexation can be allowed in case of long term capital loss when there is no transfer of assets at all. At the time of assessment also, there was no discussion on this particular issue. The AO has rightly pointed out that no person can make profit from himself or incur loss by transactions with himself. The computation made by the assessee cannot in any way be covered by the term "transfer". The AO has also mentioned that even if there is diminution in the value of asset/investment, it has to be consistently shown on the book value and the assessee cannot clai....
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....on under the head "Capital Gain" as it amounts to extinguishment of the investment. Alternatively, the amount of Rs. 6,20,00,000/- should be allowed as a business loss u/s 28 of IT Act. 19. The ld. DR, on the other hand, heavily relied on the order of the AO and the CIT(A). 20. We have heard the rival arguments made by both the sides, perused the orders of the AO and the CIT(A) and the paper book filed on behalf of the assesseee. We find, the AO, in the instant case, made disallowance of long-term capital loss of Rs. 8,49,05,423/- on the ground that the written off amounts of investment so made in the books of account are not transfer in the eyes of law u/s 2(47) and is a notional loss since the shares remained with the assessee. We find, the ld.CIT(A) upheld the action of the AO the reasons of which have already been reproduced in the preceding paragraph. It is the submission of the ld. Counsel for the assessee that since the value of investment in the shares had extinguished, therefore, it amounts to transfer and, accordingly, the capital loss so incurred by the assessee deserves to be allowed along with its indexation. It is also his argument that in the alternative, it sh....
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.... AO made an addition of Rs. 58,75,714/- to the total income of the assessee. 23. In appeal, the ld.CIT(A) upheld the action of the AO by observing as under:- "The third issue of appeal is disallowance u/s. 14A r.w.r. 8D. The assessee had disallowed Rs. 5,28,901/- by reducing 92% of the investment being made in group companies as strategic investments. The AO did not find this acceptable and justified the disallowance by the reasoning that the expense claimed by the assessee are also going towards earning the tax free dividend income. The assessee has itself admitted that out of the total income of Rs. 22.58 crore, tax has been paid on income of Rs. 10.64 crore. Thus the income being taxed is less than that of tax free income so the AO has rightly mentioned that the major income is tax free and expenses are obviously incurred for earning the same. (i) It is observed from the details of previous AYs that the assessee had offered the whole of the amount as disallowance. It could not be explained as to how the same Investment with group companies became strategic this year and was not so in the earlier year. (ii) It is also seen that the AO has in the asse....
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.... can be made under Rule 8D(2)(iii) of the IT Rules in respect of the shares on which no dividend has been received. For the above proposition, he relied on the decision of the Special Bench of the Tribunal in the case of Vireet Investment Pvt. Ltd., reported in 165 ITD 27 and the decision of the Hon'ble Madras High Court in the case of CIT vs. Shriram Ownership Trust, reported in 318 CTR 233. 26. The ld. DR, on the other hand, heavily relied on the orders of the AO and the CIT(A). 27. We have heard the rival arguments made by both the sides, perused the orders of the AO and the CIT(A) and the paper book filed on behalf of the assesseee. We have also considered the various decisions cited before us. We find, the AO, in the instant case, made disallowance of Rs. 58,74,714/- u/s 14A of the Act r.w.r. 8D on the ground that the assessee has earned dividend income of Rs. 20.13 crore and the assessee has not made disallowance u/s 14A of the IT Act r.w.r.8D. We find, the ld.CIT(A) upheld the action of the AO, the reasons of which have already been reproduced in the preceding paragraph. It is the submission of the ld. Counsel that the major portion of the dividend received by the asse....
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....el for the assessee. A perusal of the assessment order nowhere shows that there is any satisfaction recorded by the AO as to why the computation filed by the assessee, in the instant case, is incorrect. Admittedly, the assessee has not incurred any expenditure directly relating to any exempt income. We find, the ld.CIT(A), following the order for AY 2010-11 in assessee's own case, has confirmed the disallowance made by the AO u/s 14A of r.w. Rule 8D of IT(AT) Rules. However, a perusal of the order of the Tribunal in assessee's own case for AY 2010-11, vide ITA Nos.3796/Del/2015 and 4574/Del/2015, order dated 13.11.2019, shows that the Tribunal at para 29 of the order has set aside the order of the CIT(A) and directed the AO to delete the addition by observing as under:- "29. We have considered the rival arguments made by both the sides; perused the orders of the Assessing Officer and the CIT(A); and the paper book filed on behalf of the assessee. As held by the Assessing Officer himself, the assessee has received a dividend income of Rs. 39,97,165/- on shares held as stock-in-trade which has been claimed as exempt. It is also held by the Assessing Officer that the assessee....