2013 (12) TMI 59 - AT - Income Tax

Bad debts written off Hire purchase business transaction - Held that - Following assessee s own case for A.Y. 2004-05 - Claim of assessee of bad debt in respect of its business of hire purchase is in favour of assessee - Decided in favour of assessee. Bad debts written off Bill discounting and inter-corporate deposits - Held that - Following M/s. Mafatlal Industries and Precision Fasters for bills discounting and Delhi Tribunal in the Poysha Oxgen Pvt. Ltd vs. ACIT 2007 (12) TMI 304 - ITAT DELHI for inter-corporate deposits The issue was restored for fresh decision. Disallowance u/s. 14A Held that - Unless there was proof of actual expenditure incurred by the assessee to earn the exempt income, no disallowance can be made u/s. 14A - Ld. CIT(A) has given relief to the assessee on the additional evidence produced by the assessee before him which was not before the AO - Ld. CIT(A) has not obtain the remand report on this additional evidence The issue was restored for fresh adjudication. Diminution in value of investments Non-performing assets Held that - Following TN Power Finance and Infrastructure Development Corporation Ltd vs. JCIT 2005 (10) TMI 38 - MADRAS High Court - Merely because the Reserve Bank of India has directed the assessee to provide for non-performing assets, that direction cannot override the mandatory provisions of the Income-tax Act contained in section 36(1)(viia) which stipulate for deduction not exceeding 5 per cent, of the total income only in respect of the provision for bad and doubtful debts which are predominately revenue in nature or trade related and not for provision for non-performing assets which are of predominately capital nature Decided against assessee. Lease income Held that - Following assessee s own case for A Y. 96-97 The issue was restored for fresh decision. Consultation fee Held that - Report was prepared by M/s E & Y on the directions of Gujarat Gas Company Ltd and the report was also submitted to Gujarat Gas Company Ltd - Study carried by E & Y related to amalgamation and merger for efficient and effective functioning of Gujarat Gas Company Ltd and other group companies - Since the study was commissioned by the Gujarat Gas Company Ltd for efficient and effective functioning of Gujarat Gas Company Ltd only, it cannot be said that this expenditure was incurred fully and exclusively for carrying on business of the assessee Decided against assessee.

Summary

Issues Involved:
1. Disallowance of bad debts.
2. Disallowance of administrative and other expenses.
3. Provision for non-performing assets.
4. Disallowance of consultancy fees.
5. Lease income inclusion.
6. Lease equalization.
7. Proportionate interest expenses disallowance.

Detailed Analysis:

1. Disallowance of Bad Debts:
The assessee claimed bad debts of Rs. 2,52,41,464/- for bill discounting and inter-corporate deposits, which were disallowed by the AO. The CIT(A) partly allowed the claim, granting Rs. 12,52,424/- for hire purchase transactions but disallowed the rest. The Tribunal upheld the CIT(A)'s decision for the hire purchase bad debts, citing a precedent in the assessee's favor. However, it remanded the issue of bill discounting and inter-corporate deposits back to the AO for fresh adjudication.

2. Disallowance of Administrative and Other Expenses:
The AO disallowed Rs. 22,27,840/- as proportionate interest expenses and Rs. 1,20,000/- as administrative expenses under Section 14A, related to tax-exempt dividend income. The CIT(A) reduced the disallowance to Rs. 60,000/-. The Tribunal remanded the issue back to the AO for fresh adjudication, as the CIT(A) considered additional evidence without obtaining the AO's comments.

3. Provision for Non-Performing Assets:
The assessee's claim for a provision of Rs. 1,32,12,521/- for non-performing assets, as per RBI directives, was disallowed by the AO and upheld by the CIT(A). The Tribunal dismissed this ground, citing the Madras High Court decision in TN Power Finance and Infrastructure Development Corporation Ltd vs. JCIT, which ruled against such deductions.

4. Disallowance of Consultancy Fees:
The AO disallowed Rs. 15,77,550/- paid to Ernst & Young for consultancy, considering it a capital expenditure not incurred exclusively for the assessee's business. The CIT(A) upheld this disallowance, and the Tribunal agreed, noting that the study was commissioned by Gujarat Gas Company Ltd and not for the exclusive benefit of the assessee.

5. Lease Income Inclusion:
The AO included lease income of Rs. 4,44,367/- from various assets. The CIT(A) directed the AO to follow the Tribunal's findings for A.Y. 1996-97. The Tribunal found no need for separate adjudication, as the issue was consequential to prior findings.

6. Lease Equalization:
The assessee's claim for lease equalization of Rs. 3,66,02,456/- was not adjudicated by the AO. The CIT(A) dismissed the ground as it was not part of the original order or computation of income. The Tribunal found no need for adjudication on this ground.

7. Proportionate Interest Expenses Disallowance:
The AO disallowed Rs. 22,07,840/- as proportionate interest expenses. The CIT(A) deleted this disallowance, but the Tribunal remanded the issue back to the AO for fresh adjudication, considering additional evidence.

Combined Result:
Both the assessee's and revenue's appeals were partly allowed for statistical purposes, with several issues remanded for fresh adjudication by the AO.