2012 (8) TMI 639 - AT - Income Tax

Accrued interest on bad debts written off - Held that - No dispute that the transactions of debts had actually taken place and interest thereon had been offered to tax over the years and assessed as business income in the hands of the assessee, and as such, write off of such debts after initiation of legal proceedings could not be considered as lacking bona fides - The interest in question relates to the written off debts and when the debts are validly written off, the accrued interest on such debts does not arise - in favour of assessee. Disallowance by invoking sec 14A - exemption claimed on dividend from mutual fund u/s 10(33) - Held that - For failure to file the details of expenditure incurred by the assessee for earning the said income, AO made disallowance of Rs.6.55 lakhs reveals that it lacks reasoning and the basis for coming to the quantification of disallowance at Rs.6.55 lakhs - as it is not evident as to how this figure of Rs.6.55 lakhs has been arrived at the order of CIT(A) is set aside and restore the matter to the file of AO with a direction to recompute the disallowance warranted in terms of S.14A keeping in mind the provisions of Rule 8D as laid down in GODREJ AND BOYCE MFG. CO. LTD. 2010 (8) TMI 77 - BOMBAY HIGH COURT - assessee s appeal is partly allowed for statistical purposes.

Summary

Issues:
1. Revenue's appeal against the order of the CIT(A) regarding accrued interest taxation.
2. Assessee's appeal challenging the addition made under Section 14A of the Act for expenditure related to exempt income.

Revenue's Appeal:
The Revenue's appeal involved the issue of accrued interest taxation, which was covered by a previous Tribunal decision in the assessee's favor for the assessment year 2005-06. The Tribunal upheld the CIT(A)'s decision to delete the addition made by the assessing officer concerning accrued interest on written-off debts. The Tribunal noted that when debts are validly written off, accrued interest does not arise. The Tribunal found no infirmity in the CIT(A)'s order and dismissed the Revenue's appeal.

Assessee's Appeal:
The assessee's appeal focused on the addition of Rs.6,55,000 under Section 14A of the Act for expenditure related to exempt income. The assessing officer disallowed this amount as the assessee failed to provide details of expenditure incurred for earning the exempt income. The CIT(A) upheld this disallowance based on a decision of the Bombay High Court. The assessee argued that no expenditure was incurred for earning the exempt income and cited relevant Tribunal decisions. The ITAT found the assessing officer's quantification of the disallowance lacked reasoning. Considering the Bombay High Court judgment, the ITAT set aside the CIT(A)'s order and directed the assessing officer to recompute the disallowance in accordance with Rule 8D of the Income-tax Rules, 1962, after providing a reasonable opportunity of hearing to the assessee. The ITAT partially allowed the assessee's appeal for statistical purposes.

In conclusion, the ITAT dismissed the Revenue's appeal and partially allowed the assessee's appeal for statistical purposes.