2017 (9) TMI 1834 - AT - Income Tax

Disallowance u/s 14A - no expenditure incurred in relation to any notional or anticipated income - HELD THAT - As no exempt income was earned by the assessee in the year under consideration and therefore the disallowance made by the AO u/s 14A and confirmed by the Ld. CIT (A) is not sustainable. We find merit in this contention of the learned counsel for the assessee and direct the AO to delete the disallowance made u/s 14A after verifying the claim of the assessee that no exempt income was earned by it in the year under consideration. The appeal of the assessee is accordingly allowed. Claim for deduction on account of bad debts written off - HELD THAT - Issue squarely covered in favour of the assessee by the decision of Hon ble Supreme Court in the case of TRF Ltd. 2010 (2) TMI 211 - Supreme Court as rightly held by the Ld. CIT (A). Even the CBDT has accepted this position and issued a circular no 12/2016 on 30.05.2016 directing that if any appeal is already filed by the revenue on this issue before any Court or Tribunal, the same may be withdrawn. We accordingly treat the appeal filed by the revenue on this issue as withdrawn and dismiss the same.

Summary

Issues:
Cross appeals against Ld. CIT (A) order - deduction for bad debts written off and disallowance u/s 14A.

Bad Debts Written Off:
The appellant, a finance and securities company, wrote off a loan given to another company. AO disallowed deduction under section 36(1)(vii) as the debt write-off was based on mutual understanding, not qualifying for deduction. Ld. CIT (A) relied on TRF Ltd. case, allowing the deduction as debts were written off in the books. Revenue appealed, citing CBDT circular. Tribunal upheld Ld. CIT (A)'s decision, dismissing the revenue's appeal based on TRF Ltd. judgment and CBDT circular, directing withdrawal of the revenue's appeal.

Disallowance u/s 14A:
Appellant offered disallowance of &8377;2,39,165 u/s 14A, but AO invoked Rule 8D, making a higher disallowance of &8377;7,66,226. Ld. CIT (A) confirmed the disallowance. Appellant contended no exempt income was earned, citing Redington (India) Ltd. case. Tribunal agreed, directing AO to delete the disallowance after verifying the claim. Appellant's appeal allowed, and revenue's appeal dismissed.

The Tribunal, after considering arguments and relevant material, upheld the Ld. CIT (A)'s decision on the bad debts written off issue, citing TRF Ltd. judgment and CBDT circular, dismissing the revenue's appeal. On the disallowance u/s 14A issue, the Tribunal accepted the appellant's claim of no exempt income earned, directing the AO to delete the disallowance. Appellant's appeal was allowed, while the revenue's appeal was dismissed.