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2013 (9) TMI 273 - AT - Income TaxBad debts versus Provisions for bad and doubtful debts - rural banking - Scope and ambit of the proviso to Section 36(1)(vii) - whether deduction of the bad and doubtful debts actually written off in view of Section 36(1)(vii) limits the deduction allowable under the proviso to the excess over the credit balance made under clause (viia) of Section 36(1) rural advances - Held that - U/s 36(1)(vii) the assessee would be entitled to general deduction upon an account having become bad debt and being written off as irrecoverable in the accounts of the assessee for the previous year while the proviso will operate in cases under clause (viia) to limit deduction to the extent of difference between the debt or part thereof written off in the previous year and credit balance in the provision for bad and doubtful debts account made under clause (viia). The proviso to Section 36(1)(vii) will relate to cases covered under Section 36(1)(viia) and has to be read with Section 36(2)(v) of the Act. Thus the proviso would not permit benefit of double deduction operating with reference to rural loans. Therefore we hold that provisions of Sections 36(1)(vii) and 36(1)(viia) are distinct and independent items of deduction and operate in their respective fields Following decision of Catholic Syrian Bank Ltd. Versus Commissioner of Income Tax Thrissur 2012 (2) TMI 262 - SUPREME COURT OF INDIA - Decided in favor of assessee. Disallowance u/s 14A - Interest on tax free bonds and debentures and dividend income - Held that - It is an undisputed fact that the Assessee has earned Rs. 39.65 Crore on account of interest on tax free bonds debentures and dividend income which has been claimed as exempt. It is also a fact that the Assessee while computing the total income has suo motu disallowed Rs. 6.32 Crore u/s 14A. AO worked out the disallowance under Section 14A at Rs. 36.68 Crore and after setting off disallowance made by the assessee he disallowed Rs. 30.45 Crore. We find that before AO Assessee has not raised the contention about no disallowance u/s 14A and therefore the AO had proceeded ahead on the basis of suo moto disallowance made by the Assessee. CIT(A) had deleted the addition to the extent of Rs. 25.35 Crore - matter with respect to Nil disallowance under 14A be remitted back to the file of AO for examining it afresh. Thus the matter is remitted to the file of AO and he is directed to admit the issue and decide the issue afresh on merits. as per law after considering the submissions made by the Assessee and after giving a reasonable opportunity of hearing to the Assessee. Assessee is also directed and furnish promptly the details called for by the AO to decide the issue - Decided in favour of assessee. Disallowance of depreciation - Held that - It is an undisputed fact that the income from lease has been considered by Assessee as income It is an undisputed fact that the AO has considered the lease entered by the Assessee to be a Finance lease to arrive at the conclusion that the assessee is not entitled to depreciation - disallowance as assessee s use of vehicles was only by way of leasing out to others and not as actual user of the vehicles in the business of running them on hire - assessee is a public limited company engaged in the business of hire purchase leasing and real estate - High Court allowed the appeal of revenue - As long as the asset is utilized for the purpose of business of the assessee the requirement of Section 32 will stand satisfied notwithstanding non-usage of the asset itself by the assessee. In the present case the assessee is a leasing company which leases out trucks that it purchases. Therefore on a combined reading of Section 2(13) and Section 2(24) the income derived from leasing of the trucks would be business income or income derived in the course of business and has been so assessed. Hence it fulfills the second requirement of Section 32 viz. that the asset must be used in the course of business. See CIT Karnataka Bangalore Vs. Shaan Finance (P) Ltd. Bangalore 1998 (3) TMI 8 - SUPREME COURT and M/S I. C. D. S. LTD. VERSUS COMMISSIONER OF INCOME TAX. MYSORE & ANR. 2013 (1) TMI 344 - SUPREME COURT - Decided in favour of assessee. Penalty u/s 271(1)(c) - Held that - assessee had disclosed all the material facts before the AO and CIT(A). When the assessee has made a particular claim in the return of income and has also furnished all the material facts relevant thereto the disallowance of such claim cannot automatically lead to the conclusion that there was concealment of particulars of his income by the assessee or furnishing inaccurate particulars thereof. This is a case of bona fide difference of opinion regarding the allowability of a claim of deduction between the Assessee and dept. What is to be seen is whether the said claim made by the assessee was bona fide and whether all the material facts relevant thereto have been furnished and once it is so established the assessee cannot be held liable for concealment penalty under s. 271(1) (c) of the Act. In the present case all the necessary facts were furnished by Assessee. In the case of CIT Vs. Reliance Petroproducts (2010 (3) TMI 80 - SUPREME COURT) the Hon. Apex Court has held that there making a claim which is not sustainable in law by itself will not amount to furnishing inaccurate particulars regarding the income of Assessee. In view of the totality of facts we are of the view that the addition does not call for levy of penalty under s. 271(1)(c) - Decided in favour of assessee.
Issues Involved:
1. Claim of bad debts under Section 36(1)(vii) and 36(1)(viia). 2. Disallowance under Section 14A. 3. Depreciation on windmills. 4. Disallowance of investment write-off. 5. Penalty under Section 271(1)(c). Issue-wise Detailed Analysis: 1. Claim of Bad Debts: The Assessee claimed deductions under Sections 36(1)(vii) and 36(1)(viia) for bad debts. The AO disallowed a significant portion of the deduction, arguing that the Assessee's calculation was incorrect and that the provisions made under Section 36(1)(viia) should be deducted from the bad debts written off under Section 36(1)(vii). CIT(A) upheld the AO's decision but the Tribunal, following the Gujarat High Court's decision in the Assessee's own case, allowed the Assessee's appeal. The High Court had clarified that the deduction should be limited to the excess of the bad debt written off over the opening balance of the provision for bad and doubtful debts. 2. Disallowance under Section 14A: The AO disallowed Rs. 36.68 Crores under Section 14A, related to expenses incurred for earning tax-free income. The CIT(A) reduced this disallowance to Rs. 5.11 Crores. The Tribunal remitted the matter back to the AO for fresh examination, noting that the Assessee had substantial interest-free funds and that the suo motu disallowance made by the Assessee should be considered. The Tribunal also emphasized that disallowance of administrative expenses requires a finding of actual expenditure incurred to earn exempt income. 3. Depreciation on Windmills: The AO disallowed the depreciation claimed on windmills leased to Brakes India Ltd., treating the transaction as a finance lease rather than an operating lease. CIT(A) upheld the AO's decision. However, the Tribunal, following the Supreme Court's decision in ICDS Ltd. vs. CIT, allowed the Assessee's claim for depreciation. The Supreme Court held that as long as the asset is used for the business purpose of the Assessee, depreciation is allowable, regardless of who uses the asset. 4. Disallowance of Investment Write-off: The AO disallowed the write-off of non-convertible debentures as bad debts, treating them as capital losses. CIT(A) allowed the claim, holding that for banks, giving loans, whether in the form of loans or debentures, is part of their business, and any bad debt arising is covered under Section 36(1)(vii). The Tribunal upheld CIT(A)'s decision, noting that the Revenue could not provide contrary evidence. 5. Penalty under Section 271(1)(c): The AO levied a penalty of 300% on disallowed expenses related to fraud and penalty expenses, which was reduced to 100% by CIT(A). The Tribunal cancelled the penalty, stating that the Assessee had disclosed all material facts and that the disallowance involved a legal interpretation where two views were possible. The Tribunal emphasized that mere disallowance of a claim does not automatically lead to penalty unless there is evidence of concealment or furnishing of inaccurate particulars. Conclusion: The Tribunal's judgment addressed multiple issues, providing relief to the Assessee on claims of bad debts, disallowance under Section 14A, and depreciation on windmills, while also cancelling the penalty under Section 271(1)(c). The Revenue's appeals were largely dismissed, and the matters were remitted back for fresh examination where necessary.
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