2018 (8) TMI 1972 - AT - Income Tax

Disallowance u/s.14A r.w.r. Rule 8D - CIT-A directing the exclusion of investments made by the assessee in its subsidiary company, while computing the disallowance u/s.14A - whether strategic investments are to be excluded while computing disallowance u/s.14A? - HELD THAT - This issue has been clearly addressed by the Hon ble Apex Court in the case of M/s.Maxopp Investment Ltd. 2018 (3) TMI 805 - SUPREME COURT Decisions of the Tribunal relied on by the Ld.AR were either rendered prior to the judgment of the Hon ble Apex Court in the case of M/s.Maxopp Investment Ltd., or rendered without considering this judgment of the Hon ble Apex Court. Hence, these decisions cannot further the assessee s case. We are therefore, of the opinion that the Ld.CIT(A) fell in error in directing the AO to exclude the investments made by the assessee in M/s.Express Infrastructure Pvt. Ltd., for the purpose of computing disallowance u/s.14A of the Act. The order of the Ld.CIT(A) is set-aside and the disallowance made by the AO is reinstated. Write off of bad debts disallowed - HELD THAT - Assessee was a publisher of newspaper and magazines. Though it say that one of its objects is to carry on business of money lending, obviously, it was only one of the incidental and/or other object and not its main object. That apart, we find that the loan given to Mr. Sanjay Khemani was the sole instance of a loan given to any person other than those who were not related to its main business assessee. Hence, in our opinion assessee s claim that it had advanced loan to Mr. Sanjay Khemani as a part of its business is not acceptable. As for the judgment of M/s. TRF Ltd. 2010 (2) TMI 211 - SUPREME COURT relied on by the Ld.AR their Lordships did not hold that conditions set out in sections.36(1)(vii) and Sec.36(2) were not required to be satisfied while effecting a write off of bad debts. Therefore, in our opinion the lower authorities were justified disallowing claim as bad debt write off. We do not find any reason to interfere with the orders of the lower authorities. - Decided against assessee.

Summary

Issues Involved:
1. Disallowance under Section 14A of the Income Tax Act, 1961, read with Rule 8D of the Income Tax Rules, 1962.
2. Write-off of bad debts amounting to ?1,14,15,207.

Detailed Analysis:

1. Disallowance under Section 14A of the Income Tax Act, 1961, read with Rule 8D of the Income Tax Rules, 1962:

The Revenue's appeal centered on the disallowance made by the Assessing Officer (AO) under Section 14A of the Income Tax Act, 1961, read with Rule 8D of the Income Tax Rules, 1962, which was deleted by the Commissioner of Income Tax (Appeals) [CIT(A)]. The Revenue argued that the CIT(A) erred in excluding investments made by the assessee in its subsidiary company while computing the disallowance under Section 14A. The Revenue relied on the Supreme Court judgment in M/s. Maxopp Investment Ltd. vs. CIT, which clarified that the dominant purpose for making investments is irrelevant and that expenditure related to earning exempt income must be disallowed.

The Tribunal reviewed the rival contentions and the Supreme Court judgment in M/s. Maxopp Investment Ltd., which emphasized the theory of apportionment of expenses between taxable and non-taxable income. The Tribunal noted that decisions relied upon by the assessee were either rendered prior to the Supreme Court judgment or without considering it. Consequently, the Tribunal concluded that the CIT(A) erred in directing the AO to exclude the investments made by the assessee in its subsidiary for the purpose of computing disallowance under Section 14A. The Tribunal set aside the CIT(A)'s order and reinstated the disallowance made by the AO.

2. Write-off of bad debts amounting to ?1,14,15,207:

The assessee's Cross-Objection pertained to the disallowance of a bad debt write-off amounting to ?1,14,15,207, despite the Supreme Court judgment in M/s. TRF Ltd. vs. CIT. The assessee argued that one of its business objects was money lending, and the loan given to Mr. Sanjay Khemani was part of this business. The assessee contended that the loan, which was only partially repaid, was written off as a bad debt by the Board.

The Tribunal examined the rival contentions and the material on record. It noted that the assessee's primary business was publishing newspapers and magazines, and money lending was only an incidental object. The Tribunal found that the loan to Mr. Sanjay Khemani was a singular instance and not part of the assessee's main business activities. The Tribunal also observed that the Supreme Court in M/s. TRF Ltd. did not negate the requirement to satisfy conditions under Sections 36(1)(vii) and 36(2) for writing off bad debts. Therefore, the Tribunal upheld the lower authorities' decision to disallow the bad debt write-off claim.

Conclusion:

The Tribunal allowed the Revenue's appeal regarding the disallowance under Section 14A and dismissed the assessee's Cross-Objection related to the bad debt write-off. The order was pronounced on August 1, 2018, in Chennai.