TaxTMI 
TaxTMI 
2026 (6) TMI 353
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....re that the assessee company is a limited company, engaged in the business of sale of plots, construction of chalets, villas condominiums etc. and construction of commercial infrastructure viz. road, dam, water treatment plant, sewerage treatment plant, IT infrastructure, hospital, airport and around the product site for the use of its prospective buyers and tourists and filed its return of income on 15.04.2017, declaring loss of INR 1,47,36,74,419/- and claimed a refund of INR 50,38,470/-. Apart from this, assessee has also claimed exempt income of INR 1,67,63,485/- in the return of income filed during the year under appeal. The case was selected for complete scrutiny and notice u/s. 143(2) was issued followed by various notices issued u/s. 142(1) alongwith questionnaire. In response to these notices, the requisite details were filed by the assessee on ITBA portal. After considering the same, assessment order was passed by making various additions/ disallowance. Against the said order assessee preferred the appeal before the ld. CIT(A) who has partly allowed the appeal of the assessee. Aggrieved by the order of ld. CIT(A), revenue is in appeal before the Tribunal and assessee has ....
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....said amendment is clarificatory in nature and the same is applicable to the year under appeal also. 6. Ld.CIT DR submits that AO has thus, computed the amount of disallowance u/s. 14A of the Act as per the method provided in Rule 8D of the Rules and requested for the restoration of the addition made. 7. On the other hand, Ld.AR for the assessee supported the order of Ld.CIT(A) and submits that during the year, no fresh investment was made by the assessee and all the investments of INR 4,75,68,12,88,143/- crores were made in preceding years. It is further submitted that the assessee has made the investments in its subsidiary companies under commercial expediency and no exempt income was received. It is also submitted by Ld.AR that no direct expenses whatsoever, were incurred on such investments. Ld.AR further submits that the amendment made by Finance Act, 2021 inserting the Explanation 14A is prospective in nature and cannot be applied retrospective. For this, He placed reliance on the judgement of Hon'ble Delhi High Court in the case of PCIT vs Era Infrastructure (supra) and PCIT vs Sahara India Financial Corporation Ltd. reported in [2024] 168 taxmann.com 165 (Del.HC). He t....
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....ral)-2 vs M/s Era Infrastructure (India) Ltd. Income Tax Act по. 201/2022 & CM Appl.31445/2022 has held that the amendment to the provisions of section 14A vide Finance Bill 2022 is prospective. In reaching such conclusion the Hon'ble Court taken into account: a. Decision of Hon'ble Delhi High Court in the case of PCIT vs IL & FS Energy Development Co. Ltd. reported in 2017 SCC online DEL 9893 b. Apex Court in the case of SedcoForex International Drill Inc. V. GIT, (2005) 12 SCC 717. c. Supreme Court in the case of M.M Aqua technologies Ltd. V. Commissioner of Income-tax, Delhi-111, 2021 SCC OnLine SC 575. 54. The Hon'ble Delhi High Court in the case of Era infrastructure (Supra) has held as under:- 8. Consequently, this Court is of the view that the amendment of Section 14A which is "for removal of doubts" cannot be presumed to be retrospective even where such language is used, if it alters or changes the law as it earlier stood. 9. Though the judgment of this Court has been challenged and is pending adjudication before the Supreme Court, yet there is no stay of the said judgment till date. Consequently,....
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....lusion by affirming the view of the ITAT, though we are not subscribing to the theory of dominant intention applied by the High Court". 58. The same view was followed in the case of Hon'ble Madras High Court in the case of M/s. Marg Limited (supra). 59. The jurisdictional High Court in the case of PCIT vs. Mc. Donalds India Pvt Ltd. 2018 (11) TMI 1057 has also held that disallowance u/s. 14A cannot exceed exempt Income of that year. This decision follows the ratio and judgement of Hon'ble Supreme Court in the case of Maxopp Investments Ltd. Vs. CIT (Supra). 60. In the case of Pr. CIT-2 v. Caraf Builders reported in 414 ITR 122(Delhi) date of order 13.11.2018, of the Hon'ble Jurisdictional High Court has held that expenditure incurred in relation to income not included in the total income, whether upper disallowance cannot exceed exempt income of relevant year. Upper disallowance held in Pr. CIT v. McDonalds India (P.) Ltd. ITA 725/2018 decided on 22nd October, 2018 cannot exceed the exempt income of that year. This decision follows the ratio and Judgment of the Hon'ble Supreme Court in the case of Maxopp Investments Ltd. v. CIT [2018] 402 ....
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....in the P&L Account under the head "Sundry creditors balances written off" which comprised of INR 49,56,91,581/- out of the security deposits paid to landlord of property taken on rent in BKC, Mumbai and further INR 12,06,15,896/- out of the waiver of interest receivable on the advances given for purchase of land. The AO hold that the security deposit was the capital advance given and not offered for tax in preceding years therefore, though it is in the nature of bad debt however, could not be allowed as it was not offered for tax in preceding years and thus, the conditions prescribed u/s. 36(1)(vii) of the Act are not fulfilled. With respect to the interest, AO observed that the interest was charged on the advances given and since assessee has acquired the land out of principal amount and thus the waiver of the interest receivable on such advance at the most, should be treated as capital expenditure and be added back to the total cost of land purchased out of such advances. Ld. CIT(A) allowed the claim of the assessee of on both counts. 13. Before us, Ld.CIT DR for the Revenue vehemently supported the orders of the AO and submits that once the assessee has failed to fulfil the c....
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....es, has allowed the deduction as normal business loss u/s. 37(1) of the Act. Similarly in the case of DCIT vs Genesis Colour Pvt. Ltd. in ITA No.3471/Del/2017 (Del. Trib.), advance rent written off was allowed as normal business expenditure. Ld.AR submits that Ld.CIT(A) has discussed this issue in para 36 to 45 of the order wherein Ld.CIT(A) has made observation for deleting the same. The said observations are reproduced as under:- 17. As stated above, both the amounts claimed as set off during the year were though given as advances however, since they became irrecoverable thus, in larger interest of business, management has decided to write off the same in the books of accounts and claimed them as bad debts. Even if, the same is not considered to be an allowable expenditure u/s. 36(1)(vii) r.w.s. 36(2) of the Act, these are allowable as business expenditure u/s. 37(1) of the Act since they were incurred in the regular course of business. This view is supported by the judgement of Co-ordinate Bench of the Tribunal in the case of Benetton India Pvt. Ltd. and Genesis Colour Pvt. Ltd. (supra). 18. The Co-ordinate Bench of Delhi Tribunal in the case of Fab India Overseas Pvt. Ltd....
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....ication that the Tribunal was empowered to deal with the issue of allowability of the said amount of Rs. 14.79 lakhs and as to whether the assessee was entitled to claim it as a bad debt or as an expenditure u/s. 37(1)" 20. Applying the propositions laid down in this case law to the facts of the case we uphold the contentions of the assessee that the expenditure in question can be allowed as a business loss by the Tribunal, though originally it was claimed as a bad debt. The amount in question was given, not for acquiring of any asset giving enduring benefit and was incurred in the course of trade and hence is in the revenue filed. The Hon'ble Supreme Court in the case of Empire Jute Co. Ltd. vs. CIT 124 ITR p.1 (SC) has held as follows. "BY THE COURT: (i) It is not universally true proposition that what may be a capital receipt in the hands of the payee must necessarily be capital expenditure in relation to the payer. The fact that a certain payment constitutes income or capital receipt in the hands of the recipient is not material in determining whether the payment is revenue or capital disbursement qua the payer. (ii) There may be cases where expen....
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....Brief facts of the case are that during the year, the assessee has given advances to its subsidiary companies totaling to INR 125.33 crores and no interest was charged on the same. 22. The claim of the assessee was that this advance was given for business purposes and has the direct nexus with its business activity. The AO observed that though the assessee company was in heavy loss however, has not charged any interest and therefore, he made the addition of notional interest @ 11% on such outstanding advances. Ld. CIT(A) has deleted the addition by observing that only real income could be taxed and no hypothetical income could be assessed. Ld. CIT(A) further observed that advance was given to the subsidiary which are in the nature of business transactions. Ld.CIT(A) further observed that assessee has having own interest free funds therefore, advance given out of such funds cannot be held as interest bearing. 23. Before us, Ld.CIT DR for the Revenue vehemently supported the order of the AO and submits that the Auditor in the Audit Report has clarified that the assessee company should charge interest on such loans moreover, the assessee is in losses and paid interest on the bor....
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....ricity Co. Ltd. vs CIT reported in 225 ITR 746 (SC). The relevant observations as contained in para 83 to 94 are as under:- 28. On careful consideration of the observations made by Ld.CIT(A), it is observed that the sole reason for deletion of the additions is that only real income should be taxed and no hypothetical income could be brought to tax. Further, Ld. CIT(A) observed that assessee has failed to provide any specific details of how much advances were given to each SPV which are credited for the furtherance of the business of the assessee. With respect to the assessee's own interest free funds, it is observed that such funds were utilized by the assessee for making investment in the subsidiary companies for which disallowance made u/s. 14A of the Act, has already been deleted by the Ld.CIT(A) and such order is confirmed hereinabove. 29. The Co-ordinate bench of Delhi Tribunal in the case of Sahara India Real Estate Corporation Ltd. in ITA No. 1085/Del/2024 vide order dt. 07.10.2025 deleted the addition made on account of notional interest where the AO has not invoked the provisions of section 36(1)(iii) of the Act. The relevant observations as contained in para 6-7 of ....
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....ons of both the parties at length and perused the material available on record. It is observed that the assessee has written off a sum of INR 1,57,08,60,568/- related to the cost of agricultural land, construction of road and land escaping etc. The assessee itself has disallowed a sum of INR 1,35,21,05,711/- in the return of income filed and remaining amount of INR 21,87,54,857/-was claimed as written off on account of dormitory shades demolished which are not in existence. The AO disallowed the same by holding it as capital loss however, Ld.CIT(A) confirmed the same by concurring the finding given by the AO. Ld. CIT(A) further observed that assessee has claimed depreciation on block of assets and the block of assets still exists after writing off of all these assets therefore, the assessee is not entitled for depreciation qua the written off. The relevant observations of Ld.CIT(A) are in para 29 to 32 of the order which is reproduced as under:- 34. After careful consideration of the above facts and circumstances of the case, we are in agreement with the observations of Ld.CIT(A) that assessee has claimed of depreciation as per block of assets and the block of office balance sti....
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....e assessee is general in nature, require no separate adjudication. 39. In the final result, appeal of the Revenue in ITA No.3090/Del/2023 is dismissed & Cross-Objection No.35/Del/2024 filed by the assessee for Assessment Year 2016-17, is partly allowed. Order pronounced in the open Court on 25.05.2026. ============= Document 1APPELLATE FINDINGS & DETERMINATION 36. The contents of the assessment order and the written submissions made by the appellant have been carefully considered. The dispute in this ground is with regard to the disallowance of Rs. 61,88,28,925/- on account of sundry balances written off. 37. The details of the sundry balances of Rs. 61,88,28,925/- written off are as under S.No Particulars Amount (Rs.) Justification 1 Security Deposit paid to landlord for property taken 49,56,91,581/- Board resolution authorizing the 4 Document 2 on rent in Bandra Kurla Complex (BKC) write off 2 Outstanding interest receivable on loan given to. individuals for buying property from the appellant 12,06,15,896/ Board resolution authorizing the write off 3 Others 25,21,448/- Board resolution authorizing the write off Total 61,88,28,925/- 36. The assess....
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....ed for as incorne in the preceding year. The condition for allowing the claim of writing of as bad debts u/s 36(1)(vii) is subject to the condition that such amount has been taken by the assessee as income either during the year of write off or in any of the earlier previous year. Under section 36(2), a bad debt can be allowed only if such amount Is taken as income in the earlier year. However, with respect to the claim of business loss, this condition is not required to be satisfied and assessee Is not required to show that the loss occurred due to non-recovery of amount of debtor, was accounted for as income in the earlier year. It is a normal business transaction loss which was occasioned due to non- recovery of security deposit paid to the landlord in the business of the appellant. 42. Reliance is placed on the decision dated 07.03.2022 of Hon'ble Delhi ITAT "1-1' Bench iin the case of ACIT vs Benetton India Pvt. Ltd, Income Tax Act Document 3 No.1091/Del/2018 on the identical fact. 43. It is found that transaction with regard to security deposit was genuinely entered into and after taking bona-fide efforts for their recovery; the assessee has claimer! the a....
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.... of these dues. The debts which have arisen in the normal course of business and are incidental to the business which becomes bad due to non- recovery and are actually written off in the books of account is to be allowed as a deduction u/s 36(1)(vii), provided that the amount so written off has been accounted for as income in the earlier year(s). The condition for allowing the claim of writing off as bad debts u/s 36(1)(vii) is subject to the condition that such amount has been taken by the assessee as Incume either during the year of write off or in any of the corlier previous year. Under section 36(2), a bad debt can be allowed only if such amount is taken as income in the earlier year. From the explanation of the appellant, it is clear that the amount of Rs. 12,06,15,896/- and Rs. 25,21,448/- are the amounts written off which have been reckoned as income In the earlier year(s). The appellant has filed details of the amounts advanced to its employees for purchase of real estate. The principal amount given was Rs. 20,85,56,621/-, The accumulated balance outstanding as on 01.04.2015 inclusive of interest was Rs. 32,91,72,524/ -. The difference of these two figures comes to Rs. 12,0....
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....pable to running their business activities. The advances which were given to the subsidiary companies were for the business purpose and had a direct nexus with the business carried on It. Therefore, there was no justification of Assessing Officer in Imputing the interest Income and subjected the same to tax. (I) The net owned funds of the appellant were to the tung of Rs 531,91,21,58,172/- which far exceeds the amount which were advanced to the subsidiary companies I.e. 125.33 Crore and therefore it can be presumed that the assessee has sufficient interest free funds to advance the subsidiary companies and therefore the Assessing Officer was not justified in imputing the Interest Income to the income of the assessee. It is also well settled law that if there is no agreement between parties of charging any Interest Income on advance given no interest can be imputed and subjected to tax in the hands of the parties giving the advance. 1 Document 5 85. The appellant in its submissions has only furnished a generalized reply that advances were given to SPVs but has not given any detalls regarding the subsidiary companies/SPVs, the business relation between the appellant and ....
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....come which had really accrued to the assessee-company during relevant previous years. The High Court, int our opinion, was in error in upsetting the said view of the Tribunal." 89. In the case of E.D.Sassoon& Co. Ltd. Vs. CIT 26 ITR 27 (SC) it was laid down by the court that Income accrues when the assessee acquires a right to receive the income. The assessee must have created a debt in his favor and he must have acquired a right to receive the payment. The observations of the court are as under :- ". ... A debt must have come into existence and he must have acquired a nghe to receive the payment. Unless and until his contribution or parenthood is effective in bringing into existence a debt or a right to receive the payment or in other words a debitum in prasenti, solvendum in future it cannot be said that any income has accrued to him. The mere expression "earned" in the sense of reinlering the services etc. by itself Is of no avail ...... 90. The appellant has also submitted that it had net owned funds of Rs. 531.91 crores which far exceeds the amount of Rs. 125.33 crores advanced to subsidiary companies and therefore a presumption can be drawn that the advances to subsi....
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.... the investments. In this case this presumption is established considering the finding of fact both by the CIT (Appeals) and ITAT." 91. The appellant also relied on the order of apex court In the case of CIT(LTU) vs Reliance Industries Ltd. 410 ITR 466(SC)/ 102 taxmann.com 52 (SC) where the order of Mumbai High Court 86 Taxmann.com 24 (Bombay) was upheld by the apex court. The High Court In para 33 of its order heid as under :- "(Para 33) We do not see how when the Assessing Officer's views are that in cases of the interest-free loans and interest given by the assessee to its subsidiary companies are in the above sums, still, the principle laid down by this court that if there are funds available to them interest-free and over-draft or loans taken, would not apply. This view of the Assessing Officer is ex facic contrary to the settled principle that a presumption would arise that the investment would be out of the interest -free funds generated or available with the company. Then, the borrowed capital in hand in that case and interest expenditure was deductible under section 36(1)(ilf) of the Income-tax Act, 1961. The Tribunal held that the interest-free fund available t....
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....t by the executive. The Assessing Officer therefore, erred in computing notional income and bringing it to tax despite there being no taxing provision in this regard. 94. In view of the above discussion the addition of Rs. 15,26,22,621/- Is hereby deleted. Ground No. 10(a), (b) & (c) is allowed. Document 8 APPELLATE FINDINGS & DETERMINATION 29. The contents of the assessment order and the written submissions made by the appellant have been carefully considered. The dispute in this ground is with regard to the addition of Rs.21,87,54,857/- made by the assessing officer by rejecting the claim of the appellant with regard to the write off of fixed assets amounting to Rs.21,87,54,857/ -. From the details furnished by the appellant it is seen that a totat amount of Rs. 157,08,60,567/- was debited in the P&L account towards write off of fixed assets. The breakup of this amount is as under :- Asset Class Asset Description Amount (Rs.) Remarks Agricultural Land Agricultural Land 135,21,05,711/- Govl. certified valuer valuation report Building Civil Const. work in Dormitory shed 14,04,71,073/- Dormitory shed demolished therefore written off. Road Construction of slope protec....