2016 (3) TMI 1177 - AT - Income Tax

Disallowance of bad debts - Provision for doubtful debts - Held that - As in the case of UTI Bank Ltd.(2013 (1) TMI 209 - GUJARAT HIGH COURT) as dealt the issue in light of the Instruction No.17/2008 dated 26.11.2008 the issue has been made sufficiently clear(i) u/s 36(1)(vii), deduction on account of bad debts which are written off as irrecoverable in the accounts of the assessee is admissible. However, this should be allowed only if the assessee had debited the amount of such debs to the provision for bad and doubtful debt account u/s 36(1)(viia), as required by section 36(2)(v) - (ii). While considering the claim for bad debts u/s 36(1)(vii), the A.O. should allow only such amount of bad debts written off as exceeds the credit balance available in the provision for bad & doubtful debt account created u/s 36(1)(viia). The credit balance for this purpose will be the opening credit balance i.e., the balance brought forward as on 1st April of the relevant accounting year.Therefore, bearing in mind the circular issued by CBDT dated 26-11-2008 appeal decides in favour of assessee Denial of set off of brought forward capital loss against short term capital gain u/s. 74 - Held that - Similar issue had arisen in the case of one of the group entities i.e. Kotak Mahindra Capital Co.Ltd 2012 (8) TMI 339 - ITAT MUMBAI as held that the provisions of sec.74 which deal with carry forward and set off of losses under the head capital gains as amended by Finance Act, 2002, will apply only to the unabsorbed capital loss for the assessment year 2003-04 and onwards and will not apply to the unabsorbed capital losses relating to the assessment years prior to the assessment year 2003-04. Accordingly, we answer the question referred to this Special Bench in favour of the assessee holding that the assessee is entitled to set off the longterm capital loss incurred in AY 2001-02 against the short-term capital gain made by it in AY 2003-04 - Decided in favour of assessee Administrative expenses disallowed u/s. 14A - Held that - We find that a lumpsum disallowance of 1%/2% of the dividend income has been upheld in Tata Consulting Engineers Ltd 2015 (3) TMI 1184 - ITAT MUMBAI , M/s HDFC Bank Ltd 2011 (6) TMI 774 - ITAT MUMBAI .Therefore,upholding the order of the FAA,we decide first Ground of Appeal against the AO. Disallowance of club entrance and subscription fee - issue stands decided in favour of the assessee Disallowance of exemption claimed u/s.54EC - AO held that capital gain under consideration was taxable as short term capital gain as per the provisions of section 50C - Held that - We find that in the case of Ace Builders (2005 (3) TMI 36 - BOMBAY High Court) has held that section 50 treats capital gain arising on transfer of capital asset as STCG, that capital assets u/s.50 are all long term capital assets,that they do not loose their character of being long term capital assets merely on the ground that capital gains was being taxed u/s.50 of the Act, that the provisions of sec.54EC would continue to remain applicable to the capital assets eventhough the capital gain is charegeable u/s.50.Respectfully following the above judgment of Hon ble Jurisdictional High Court we hold that assessee is entitled to deduction u/s. 50EC.Last ground of appeal is decided against the AO.

Summary

Issues Involved: Disallowance of bad debts, disallowance of proportionate depreciation on premises given on rent/lease, denial of set off of brought forward capital loss against short term capital gain, depreciation on lease assets, administrative expenses disallowed u/s. 14A, disallowance of club entrance and subscription fee, disallowance of exemption claimed u/s. 54EC.

1. Disallowance of Bad Debts:
The first ground of appeal concerns the disallowance of bad debts. The Assessing Officer (AO) reduced bad debts from the provision for bad debts and allowed no bad debts, stating that bad debts were allowable only to the extent they exceeded the provision for bad debts. The assessee argued that there was no opening balance or provision for bad and doubtful debts, and it was entitled to claim the full amount. The First Appellate Authority (FAA) allowed the entire claim of the assessee, considering the opening balance as nil. The Tribunal upheld the FAA's order, referencing the case of UTI Bank Ltd. and CBDT Instruction No.17/2008, which clarified that the opening balance should be considered for allowing bad debts.

2. Disallowance of Proportionate Depreciation on Premises Given on Rent/Lease:
The first ground of appeal for the assessment year 2004-05 was not pressed by the assessee and hence dismissed.

3. Denial of Set Off of Brought Forward Capital Loss Against Short Term Capital Gain:
The AO denied the set off of brought forward capital loss against short term capital gain, stating that the provisions of section 74 were prospective. The FAA upheld this decision. However, the Tribunal referred to the Special Bench decision in Kotak Mahindra Capital Co. Ltd., which held that the amended provisions of section 74 apply only to unabsorbed capital loss for the assessment year 2003-04 and onwards. The Tribunal decided the issue in favor of the assessee, allowing the set off of brought forward capital loss against short term capital gain.

4. Depreciation on Lease Assets:
The issue of depreciation on lease assets was directed to be restored back to the file of the AO to follow the directions of the Tribunal given in earlier years' orders.

5. Administrative Expenses Disallowed u/s. 14A:
The AO disallowed 10% of the dividend income as administrative expenses u/s. 14A. The FAA restricted the disallowance to 1% of the dividend income. The Tribunal upheld the FAA's order, referencing previous decisions where a lump sum disallowance of 1%/2% of the dividend income was upheld.

6. Disallowance of Club Entrance and Subscription Fee:
The AO disallowed the club entrance and subscription fee. The FAA allowed the claim, referencing the Tribunal's order for the assessment year 2003-04, which was confirmed by the Hon’ble Bombay High Court. The Tribunal decided the issue against the AO.

7. Disallowance of Exemption Claimed u/s. 54EC:
The AO held that the capital gain under consideration was taxable as short term capital gain as per section 50C. The FAA allowed the claim, referencing the case of Ace Builders (P) Ltd., where it was held that section 50 treats capital gain arising on transfer of capital asset as short term capital gain, but the capital assets do not lose their character of being long term capital assets. The Tribunal upheld the FAA's order, allowing the exemption u/s. 54EC.

Conclusion:
In conclusion, the appeals filed by the assessee were partly allowed, and the appeals filed by the AO were dismissed. The Tribunal upheld the FAA's decisions on various issues, referencing relevant case laws and CBDT instructions.