2014 (7) TMI 801 - AT - Income Tax

Claim for bad debts written off Held that - It is clearly is in the nature of business loss, allowable in the year in which it stands incurred - details of redemption furnished reveal a claim arising for the current year - there being no examination and, consequently, finding in the matter by the authorities, the issue relating to the deductibility of claim for the current year is remitted back to the AO Decided in favour of Assessee. Employees contribution to PF Held that - In Jt. CIT v. ITC Ltd. 2007 (9) TMI 295 - ITAT CALCUTTA it has been clarified that section 43B is only in respect of employer s contribution to the relevant fund/s and not the employee s contribution - The deduction qua the employee s contribution stands squarely covered by section 36(1)(va) r/w.s. 2(24) all the payments is to be made after 20th of the following month the disallowance is confirmed Decided against Assessee. Interest and expenses u/s 14A investment in shares of companies and mutual fund units - Held that - If a direct nexus between the investment and own funds cannot be shown by the assessee with reference to its accounts, the presumption would only be of the loans as financing proportionately all the assets, including assets yielding income not forming part of the total income - CIT(A) has given a clear and specific direction for applying the proportionate formula and, further, only in respect of the tax free securities - onus to show which of its securities are tax-free, i.e., income from which, whether on holding or on transfer, would not form part of total income, is on the assessee thus, the matter is to be remitted back to the AO for adjudication Decided in favour of Assessee.

Summary

Issues:
1. Disallowance of claim for bad debts
2. Disallowance of claim for employee's contribution to Provident Fund
3. Disallowance of interest and expenditure under section 14A of the Income Tax Act

Issue 1: Disallowance of claim for bad debts

The appeal raised concerns regarding the disallowance of a claim for bad debts amounting to Rs. 27.05 lakhs by the Assessing Officer (A.O.) due to lack of party-wise details provided by the assessee. The Commissioner of Income Tax (Appeals) partly allowed the appeal but rejected additional evidence, citing Rule 46A. The tribunal noted discrepancies in the denial of admission of additional evidence and directed the allowance of the claim for bad debts after examining party-wise details. The tribunal found merit in the denial and directed the A.O. to decide the deductibility of the claim for the current year after hearing the assessee.

Issue 2: Disallowance of claim for employee's contribution to Provident Fund

The second ground of appeal focused on the disallowance of the claim for employee's contribution to the Provident Fund due to late deposits beyond the prescribed time. The tribunal clarified that the deduction for employee's contribution is covered under section 36(1)(va) and not section 43B, as highlighted in judicial precedents. The tribunal confirmed the disallowance based on the late payments made by the assessee.

Issue 3: Disallowance of interest and expenditure under section 14A

The final ground of appeal pertained to the disallowance of Rs. 52,61,234 under section 14A of the Income Tax Act related to investments in shares and mutual fund units. The A.O. disallowed the amount using Rule 8D, considering dividend income claimed exempt. The tribunal found discrepancies in the application of Rule 8D and directed the matter to be restored to the A.O. for a detailed examination of the investments and proportionate funding, allowing the assessee to present its case. The tribunal partly allowed the assessee's appeal.

In conclusion, the Appellate Tribunal ITAT Mumbai addressed the issues of disallowance of bad debts, employee's Provident Fund contribution, and interest/expenditure under section 14A of the Income Tax Act in a detailed manner, providing clarifications based on legal provisions and precedents. The tribunal allowed the appeal partly, directing the A.O. to reevaluate certain claims and deductions in accordance with the law.