2016 (10) TMI 1247 - AT - Income Tax

Disallowance u/s 14A r.w.r. 8D - Held that - Application of provisions of Rule 8D notified with effect from 24.03.2008 would apply with effect from assessment year 2008-09, which was not found to have been reversed by the Higher Court, the question of restriction of disallowance @ 2% as well as application of the above said notification whether from retrospectively or prospectively does not arise. Further, the same Division Bench with same combination, in the case of M/s. TVS Motor Company Ltd. v. JCIT 2016 (6) TMI 586 - ITAT CHENNAI has decided that Rule 8D shall be applicable from the assessment year 2008-09 onwards by following various decision of the C Bench of the Tribunal same combination . Accordingly, we set aside the order of the ld. CIT(A) on this issue and restore that of the AO. Disallowance of bad debt written off - loan advanced to sister concern/subsidiary as bad debts - Held that - In this case, the assessee has not explained any efforts stated to have been made for recovery of the advances. Further, in view of the provisions of section 36(2)(i) of the Act, no such deduction shall be allowed unless such debt or part thereof has been taken into account in computing the income of the assessee of the previous year in which the amount of such debt or part thereof is written off of an earlier previous year, or represents money lent in the ordinary course of the business of banking or money - lending which is carried on by the assessee. In the appellate order, the ld. CIT(A) has given detailed findings, which have been reproduced hereinabove, and we find no infirmity in the order passed by the ld. CIT(A) on this issue. Thus, the ground raised by the assessee is dismissed. Restriction of the claim of R & D expenditure under section 35(2AB) - Held that - In view of the specific provisions laid out under section 35(2AB)(2) of the Act that no deduction shall be allowed in respect of the expenditure mentioned in clause (1) of section 35(2AB) of the Act, under any other provisions of the Income Tax Act. Therefore, once the assessee claimed the R&D expenditure under section 35(2AB), the assessee cannot claim any deduction under section 35(2) of the Act for the same expenditure. When the statute is very clear, there is no ground for the assessee to claim the deduction. Therefore, the ld. CIT(A) has rightly rejected the ground raised by the assessee and thus, the ground raised by the assessee is dismissed.

Summary

Issues Involved:
1. Condonation of delay in filing the appeal by the Revenue.
2. Disallowance under section 14A of the Income Tax Act, 1961.
3. Disallowance of bad debt written off.
4. Restriction of the claim of R&D expenditure under section 35(2AB) of the Act.

Issue-wise Detailed Analysis:

1. Condonation of Delay in Filing the Appeal by the Revenue:
The Revenue's appeal was filed late by three days due to the records being mixed up with other files. The Tribunal condoned the delay, noting that the assessee did not object seriously to the condonation request.

2. Disallowance under Section 14A of the Income Tax Act, 1961:
The core issue was whether the disallowance under section 14A should be restricted to 2% of the exempted income or computed as per Rule 8D. The Tribunal observed that the assessee earned dividend income exempt under section 10(34) but did not exclude any related expenditure. The Assessing Officer disallowed ?1,46,62,697/- as per Rule 8D, while the CIT(A) restricted it to 2% of the dividend income. The Tribunal cited the Bombay High Court's decision in Godrej & Boyce Mfg. Co. Ltd. v. DCIT, which held that Rule 8D applies from the assessment year 2008-09. Consequently, the Tribunal restored the Assessing Officer's order and allowed the Revenue's appeal.

For the assessment years 2009-10 and 2010-11, the Tribunal upheld the Assessing Officer's disallowance under Rule 8D, following the precedent set in M/s. Lakshmi Ring Travellers v. ACIT. The Tribunal dismissed the assessee's appeals for these years.

3. Disallowance of Bad Debt Written Off:
For the assessment year 2008-09, the assessee wrote off ?16,73,43,000/- as bad debt from its sister concern, M/s. Alpump Limited. The Assessing Officer disallowed this, arguing that the advances were not given in the normal course of business and there was no business exigency. The CIT(A) upheld this disallowance, referencing section 36(1)(vii) and section 36(2) of the Act, and the Madhya Pradesh High Court's decision in Binodiram Balchand & Co. v. CIT. The Tribunal agreed with the CIT(A), noting that the assessee failed to show efforts made for recovery and did not meet the conditions under section 36(2).

For the assessment years 2009-10 and 2010-11, the Tribunal dismissed the assessee's appeals on similar grounds, disallowing bad debts of ?6,42,23,108/- and ?1,15,00,000/- respectively.

4. Restriction of the Claim of R&D Expenditure under Section 35(2AB) of the Act:
For the assessment year 2010-11, the assessee claimed ?26,70,95,840/- under section 35(2AB) for R&D expenditure. The Assessing Officer restricted this to ?25,95,58,340/- as allowed by DSIR, disallowing the balance. The CIT(A) upheld this, and the Tribunal agreed, citing section 35(2AB)(2), which prohibits claiming the same expenditure under any other provision once claimed under section 35(2AB).

Conclusion:
The Tribunal allowed the Revenue's appeal for the assessment year 2008-09 and dismissed the assessee's appeals for the assessment years 2008-09 to 2010-11. The decisions were based on the application of Rule 8D for disallowance under section 14A, the non-fulfillment of conditions under section 36 for bad debt write-offs, and the statutory restriction on claiming R&D expenditure under multiple provisions.