TaxTMI 
TaxTMI 
2022 (7) TMI 1476
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.... to Assessing Officer to the following effect:- "during the year, the assessee had written of the bad debts in respect of the following sundry debtors, to the extent of Rs.31,41,61,877/-. S.No. Name of the party Amount (in Rs.) 1 AP Central Power distribution, Hyderabad 142489526 2 Tamilnadu Electricity Board, Chennai 129684161 3 Viswanath Projects Ltd. 2193868 4 Karnataka Power Transmission Corp Ltd, Bengaluru 13226192 5 Assam Power distribution Co. Ltd. 9256124 6 Eastern Power Distribution co Ltd., Visakapatnam 17312006 Total 31461877 3. The ld. AR had submitted that these are the six Government undertakings, and the assessee has furnished all the details before the lower authorities, which are required in accordance with section 36(1)(vii) of the Act, Our attention was drawn to reply given by the assessee, more particularly at page No.53 & 54 to the following effect "In continuation of the statement of facts, the appellant may be permitted to submit the following explanation: There are three effective grounds in all. The first ground is with regard to disallowance of RS.27,73,555/ -. According to the Assessing Officer payments on wh....
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.... debt. Thus in accordance of provisions of sec. 32(2) I hold that addition of Rs.31,41,61,877/- is justified. Hence, ground No.4 is dismissed. 5. We have heard the rival contention of the parties and perused the material available on record. Section 36(1)(vii) of the Act provides as under :- (vii) subject to the provisions of sub-section (2), the amount of [any bad debt or part thereof which is written off as irrecoverable in the accounts of the assessee for the previous year]: [Provided that in the case of [an assessee] to which clause (viia) applies, the amount of the deduction relating to any such debt or part thereof shall be limited to the amount by which such debt or part thereof exceeds the credit balance in the provision for bad and doubtful debts account made under that clause:] [Provided further that where the amount of such debt or part thereof has been taken into account in computing the income of the assessee of the previous year in which the amount of such debt or part thereof becomes irrecoverable or of an earlier previous year on the basis of income computation and disclosure standards notified under sub-section (2) of section 145 without recording the same ....
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....ent in the matter. 6. The second issue raised before us pertains to 14A, in this regard, the ld. AR for the assessee had drawn our attention to paragraph 6.6 to 6.9 of the ld.CIT(A) order. "6.6 Thus, there may not be any exempted income this year, yet the expenditure incurred in pursuit of earning such income is deductible. I am of the view that similar proposition will apply while interpreting the aforesaid provision Contained in section 14A(1). Therefore, r am not in agreement with the ld. AR in respect this argument. Thus, where investment has been made in shares, which did not yield any dividend in the year under consideration, the expenditure incurred for earning the income is deductible notwithstanding the fact that no such income has been earned. Thus I am of the view that ratio of these cases will apply mutatis mutandis under sec. 14A of the Act also while ascertaining the expenditure incurred for earning tax-free income from investment [Technopak Advisors (P.) Ltd [2012) 50 SOT 31 (Delhi) para 3, Relaxo footwears ltd. V. Addl. CIT (2012) 50 SOT 102 (Delhi) and Cheminvest Ltd. v. Income-Tax Officer [2009] 121 ITD 318 (DELHI)(SB) followed). 6.7 For an example the inter....
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....fied vide Circular No. 14 of 200 1 as under: "Certain incomes are not includible while computing the total income, as these are exempt under various provisions of the Act. There have been cases where deductions have been claimed in respect of such exempt income. This in effect means that the tax incentive given by way of exemptions to certain categories of income is being used to reduce also the tax payable on the non-exempt income by debiting the expenses incurred to earn the exempt income against taxable income. This is against the basic principles of taxation whereby only the net income, i.e., gross income minus the expenditure, is taxed. On the same analogy, the exemption is also in respect of the net income. Expenses incurred can be allowed only to the extent they are relatable to the earning of taxable income". Thus, legislative intent is to allow only that expenditure which is relatable to earning of income and it therefore follows that the expenses which are relatable to earning of exempt income have to be considered for disallowance, irrespective of the fact whether any such income has been earned during the financial year or not. 4. The above position is further ....
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....e of the investment, income from which does not or shall not form part of the total income, as appearing in the balance sheets of the assessee, on the first day and the last day of the previous year. I hold that the indirect expenses in the form of efforts made by the staff and management for managing such huge investments, which does not yield any taxable income, are to be disallowed. Accordingly, the provisions of Section 14A r. w.r. 8D(iii) correctly invoked. Thus I confirm the addition of Rs. 16,31,331/ - made by the AO. In the result, the appeal is dismissed." 7. It was submitted that he lower authorities have disallowed the expenditure to the extent of Rs. 16,31,331/- relying upon Rule 8D of the I.T.Act. 8. On the other hand the ld. DR for the revenue had drawn our attention to the recent decision of the Guwahati Bench in ITA No. 154 to 156/Gau/2019 & 159/Gau/2019 in the case Williamson Financial Services Ltd. order dated 06.07.2022 whereby the Coordinate bench has taken a view that the amendment introduced w.e.f. 01.04.2022 is retrospective nature and the issue is required to be adjudicated in accordance with above said principles. "34. Now applying the same principles,....
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.... assessee in relation to income which does not form part of the total income under this Act.] [(2) The Assessing Officer shall determine the amount of expenditure incurred in relation to such income which does not form part of the total income under this Act in accordance with such method as may be prescribed, if the Assessing Officer, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income under this Act. (3) The provisions of sub-section (2) shall also apply in relation to a case where an assessee claims that no expenditure has been incurred by him in relation to income which does not form part of the total income under this Act :] [Provided that nothing contained in this section shall empower the Assessing Officer either to reassess under section 147 or pass an order enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee under section 154, for any assessment year beginning on or before the 1st day of April, 2001.] [Explanation.-For the removal of doub....