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2015 (10) TMI 2779 - AT - Income TaxDisallowance u/s 14A r.w.r. 8D - HELD THAT - We find that the assessee had received dividend of ₹ 1.06 lakhs during the year hat the AO and FAA had applied the provisions of section 14A of the Act r.w. Rule 8D hat the arguments of strategic investment and availability of funds were not dealt with. If the shares were not purchased from the borrowed funds then there was no justification in making disallowance of interest expenditure. The provisions of section 14A were brought in to Act to prevent the mischief of claiming expenses against the exempt income. But that does not mean that whenever an assessee claims exempt income automatic disallowance has to be made. The AO and the FAA have without considering the relevant facts made the disallowance. - Decided in favour of assessee. TDS u/s 194J or 192 - TDS on fee paid to the directors - disallowance made u/s. 40(a)(ia) - HELD THAT - sitting fees paid to the directors does not amount to fees paid for any professional services as has been mentioned in the explanation to section 194J(1). We further find from the memorandum explaining to provisions of the Finance Bill 2012 that as per clause No.71 it was specifically mentioned that there was no specific provision for deduction of tax on the remuneration paid to a director which is not in the nature of salary. We find the provisions of section 194J(1)(ba) speaks of any remuneration or fees or commission by whatever name called other than those on which tax is deductible u/s.192 to a director of a company on which tax has to be deducted at the applicable rate and the above provision has been inserted by the Finance Act, 2012 w.e.f., 01-07-2012. We, therefore, find force in the submission of the learned counsel for the assessee that no tax is required to be deducted u/s.194J out of such director's sitting fees for the A.Y. 2007-08. In this view of the matter, the order of the CIT(A) is set-aside and the ground raised by the assessee on the issue of TDS on sitting fees paid to Directors is allowed. Disallowance of bad debts written off u/s 36(2) - HELD THAT - We find that the assessee had claimed bad debts of ₹ 57.73 lacs only in the books of accounts and the AO and the FAA had not considered the amounts added back by it that it had written off only net amount receivable from BEST Undertaking. In our opinion he assessee is the right person to decide as to whether a particular amount has become bad or not. The AO/FAA cannot decide the issue referring to the entity from whom money is to be received. If the assessee had in its books of accounts written off an amount he revenue authorities cannot disallow in light of the judgment of the Hon ble Apex Court delivered in the case of TFR Ltd. 2010 (2) TMI 211 - SUPREME COURT - There is no doubt about the writing off the amount in question in the books of accounts. So, reversing the order of the FAA, we decide ground in favour of the assessee. Provision for doubtful debts written back - HELD THAT - We find that the assessee and added back the two sums i.e. ₹ 7.17 lacs and ₹ 5.91 lacs under the head provisions for doubtful debts and service tax payable respectively. Therefore, we are of the opinion that the action of the AO/FAA has resulted in taxing the same sum twice. Reversing the order of the FAA ground decided in favour of the assessee . Disallowance of interest on interest free loan granted - HELD THAT - We find that assessee had advanced money to Ferrari on account of purchase of shares of Radio Midday, that in the date wise summary a credit entry is appearing on 30th June 2008, that from the said entry it is clear that the shares of Radio (West) were bought by the assessee from Ferrari. Considering these facts we are of the opinion that money advanced by the assessee to M/s. Ferrari was solely for the purpose of buying the shares and that the transactions could not be termed as advance of interest free loan. Therefore, reversing the order of the FAA, we decide the last ground of appeal in favour of the assessee.
Issues Involved:
1. Disallowance under Section 14A read with Rule 8D of the Income Tax Act. 2. Disallowance under Section 40(a)(ia) of the Income Tax Act. 3. Disallowance of bad debts. 4. Taxing provision for doubtful debts and service tax payable written back. 5. Disallowance of interest. Detailed Analysis: 1. Disallowance under Section 14A read with Rule 8D of the Income Tax Act: The first ground of appeal concerns the disallowance under Section 14A read with Rule 8D, amounting to Rs. 1.02 crores. The Assessing Officer (AO) noted that the assessee's investment in shares and securities had increased, and it had received a dividend income of Rs. 1.06 lakhs. The AO held that expenses related to earning exempt income were not allowable and made a disallowance of Rs. 1,02,31,580/-. The First Appellate Authority (FAA) upheld this disallowance, stating that the assessee could not establish a clear nexus between the funds and the investments. The assessee argued that most investments were strategic and funded by non-interest-bearing funds. The Tribunal found that the AO and FAA did not consider the arguments regarding strategic investments and availability of funds. Citing the HDFC Bank Ltd. case, the Tribunal held that if investments were not made from borrowed funds, disallowance of interest expenditure was unjustified. Thus, the Tribunal decided this ground in favor of the assessee. 2. Disallowance under Section 40(a)(ia) of the Income Tax Act: The second issue involves the disallowance of Rs. 2.70 lakhs under Section 40(a)(ia) for non-deduction of tax on directors' sitting fees. The AO and FAA held that sitting fees were professional fees requiring tax deduction under Section 194J. The assessee argued that the amendment to Section 194J was effective from 1.5.2012 and not applicable for the relevant year. The Tribunal referred to the Bharat Forge Ltd. case, which held that sitting fees did not fall under professional services as per Section 194J. The Tribunal ruled in favor of the assessee, stating no tax deduction was required for the assessment year in question. 3. Disallowance of bad debts: The third issue pertains to the disallowance of bad debts amounting to Rs. 57.73 lakhs. The AO disallowed the claim, citing that the debts were deposits and advances, not receivables. The FAA confirmed this, subject to verification to avoid double taxation. The assessee argued that the bad debts were written off in accordance with Section 36(2) and should be allowed as business loss. The Tribunal found that the assessee had indeed written off the bad debts in its books and cited the Supreme Court's decision in the TRF Ltd. case, which held that writing off bad debts in the accounts was sufficient for deduction. The Tribunal reversed the FAA's order and decided this ground in favor of the assessee. 4. Taxing provision for doubtful debts and service tax payable written back: The fourth issue involves taxing provisions for doubtful debts (Rs. 7.17 lakhs) and service tax payable (Rs. 5.91 lakhs) written back. The assessee argued that these amounts were not deductible under Section 36(1)(vii) and should not be taxed upon being written back. The Tribunal found that these sums had already been added back by the assessee, resulting in double taxation. The Tribunal reversed the FAA's order and decided this ground in favor of the assessee. 5. Disallowance of interest: The final issue concerns the disallowance of interest amounting to Rs. 38.44 lakhs. The AO disallowed the interest, stating that the assessee had advanced interest-free loans while having borrowed funds. The FAA upheld this disallowance. The assessee argued that the advance was for purchasing shares and not an interest-free loan. The Tribunal found that the advance was indeed for buying shares and could not be termed as an interest-free loan. The Tribunal reversed the FAA's order and decided this ground in favor of the assessee. Conclusion: The appeal filed by the assessee was partly allowed, with the Tribunal ruling in favor of the assessee on several grounds, including disallowance under Section 14A, bad debts, provisions for doubtful debts, and interest disallowance.
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