2014 (2) TMI 1241 - AT - Income Tax

Disallowance under 14A - Held that - Assessee has earned tax free income to the extent of ₹ 24.92 lacs against which the disallowance. of ₹ 10 lacs under 14A has been sustained by CIT(A). Considering the totality of facts, we find that the disallowance that has been sustained by CIT(A) is on higher side and the ends of justice shall be met if the disallowance is restricted to ₹ 5 lacs. We thus direct accordingly. - Decided partly in favour of revenue Disallowance made on account of sundry debit balances written off - Held that - We find that CIT(A) has given a finding the Assessee has written off net debit balance and has followed the decision of Hon. Apex Court in the case of TRF Ltd. reported at 2010 (2) TMI 211 - SUPREME COURT where it was held that after the amendment of Section 36(2) effective from 01.04.1989 by Finance Act, 1987, once the Assessee has written of the debts in the books, it is not necessary to prove that the debt has become bad for the purpose of allowing claim of bad debts. - Decided in favour of assessee

Summary

Issues:
1. Disallowance under section 14A of the Income Tax Act.
2. Disallowance of sundry debit balances written off.

Issue 1: Disallowance under section 14A of the Income Tax Act:
The appeal was filed by the Revenue against the order of CIT(A) for the assessment year 2007-08. The Assessing Officer (A.O.) had made a disallowance under section 14A amounting to Rs. 39,38,045, which was later restricted by CIT(A) to Rs. 10,00,000. The A.O. noted that the Assessee had earned dividend income of Rs. 24,92,096, which was exempt from tax, and had made investments and taken loans. The A.O. observed an intermingling of own and borrowed funds, leading to the disallowance under section 14A. However, CIT(A) found that the A.O. had made the disallowance twice and deleted the portion disallowed under Rule 8D. CIT(A) also ruled that there was no justification for disallowance of interest as the Assessee had sufficient interest-free funds covering the investments. The Revenue appealed against this decision, arguing that the disallowance was justified due to the nature of expenses attributed to earning tax-free income. The Tribunal held that the disallowance sustained by CIT(A) was on the higher side and restricted it to Rs. 5,00,000, considering the facts and circumstances. Therefore, the appeal of the Revenue on this issue was partly allowed.

Issue 2: Disallowance of sundry debit balances written off:
The A.O. disallowed Rs. 4,17,959 claimed as sundry balances written off by the Assessee as the breakdown and documentary evidence were not provided. CIT(A, however, found that the Assessee had claimed a net amount of Rs. 4,17,959 as sundry debit balances written off. CIT(A referred to the decision in the case of TRF Ltd. and held that once the debts were written off in the books, it was not necessary to prove that the debts had become bad for allowing the claim of bad debts. The Revenue appealed against this decision, but the Tribunal found no reason to interfere with CIT(A)'s order, thereby dismissing the appeal of the Revenue on this issue.

In conclusion, the Tribunal dismissed the appeal of the Revenue regarding the disallowance under section 14A and the deletion of the disallowance of sundry debit balances written off. The Assessee's Cross Objection (C.O.) was partly allowed.