2016 (9) TMI 150 - AT - Income Tax

Disallowance of interest expenditure under section 14 A read with Rule 8D - Held that - AO has disallowed ₹ 9,31,500/-working out @ 1.5% of the interest bearing funds relatable to investment in shares which is 17.68%. The assessee has contended that it had not incurred any expenditure directly or indirectly, on earning dividend income since, the investments therein were made from its own funds in the early years. This contention of the assessee, it appears, has not been controverted by the authorities below. However, even then it cannot be said that no expenses at all were incurred for earning exempt income. In this view of the matter, and going by the decisions of the coordinate Bench, we direct the AO to restrict the disallowance u/s 14A of the Act to 10% of the dividend income. Disallowance of bad debts - Held that - The debt in question has been written off as irrecoverable in the accounts of the assessee. Hence, in our considered view, this issue is covered by the ratio laid down by the Hon ble Supreme Court in TRF vs. CIT (2010 (2) TMI 211 - SUPREME COURT ). We, therefore, set aside the findings of the Ld. CIT(A) and allow the claim of bad debts Eligibility for the claim of depreciation in case of assets put on lease allowed Bogus long term capital loss - Held that - Since the assessee is unable to establish its claim and has failed to control the findings of the authorities below that the long term capital loss is bogus in view of the brokers note produced not being genuine, we uphold the findings of the learned CIT (A) and consequently dismissed these grounds raised by the assessee.

Summary

Issues Involved:
1. Disallowance of interest expenditure under Section 14A read with Rule 8D.
2. Disallowance of income reversal as bad debts under Section 36(1)(vii) read with Section 36(2).
3. Disallowance of investments written off.
4. Addition of notional interest.
5. Disallowance of income tax depreciation on WDV of leased assets.
6. Long term capital gains and capital loss on sale of shares/government securities.
7. Penalty proceedings under Section 271(1)(c).

Detailed Analysis:

1. Disallowance of Interest Expenditure under Section 14A read with Rule 8D:
- Assessment Year 2000-01: The Tribunal noted that the disallowance of ?9,31,500/- was made by the AO based on 1.5% of interest-bearing funds related to investment in shares. The Tribunal directed the AO to restrict the disallowance to 10% of the dividend income, partly allowing the appeal. The Tribunal also set aside the CIT(A)’s direction to apply Rule 8D, as it is applicable only from AY 2008-09.
- Assessment Year 2001-02: Similar to AY 2000-01, the Tribunal directed the AO to restrict the disallowance to 10% of the dividend income and allowed the appeal.

2. Disallowance of Income Reversal as Bad Debts under Section 36(1)(vii) read with Section 36(2):
- Assessment Year 2000-01: The Tribunal referred to the Supreme Court's decision in TRF Ltd. vs. CIT, stating that post 01/04/1989, it is sufficient if the bad debt is written off in the accounts of the assessee. The Tribunal set aside the CIT(A)’s findings and allowed the appeal.
- Assessment Year 2001-02 & 2003-04: Following the same reasoning as AY 2000-01, the Tribunal allowed the appeals.

3. Disallowance of Investments Written Off:
- Assessment Year 2000-01: The Tribunal upheld the CIT(A)’s findings, noting that the assessee failed to provide proof that the market value of shares had become nil. The appeal was dismissed.

4. Addition of Notional Interest:
- Assessment Year 2000-01: The Tribunal remitted the issue back to the AO for fresh examination, admitting additional evidence provided by the assessee.
- Assessment Year 2001-02: The Tribunal remitted the issue back to the AO for fresh examination, similar to AY 2000-01.

5. Disallowance of Income Tax Depreciation on WDV of Leased Assets:
- Assessment Year 2000-01: The Tribunal followed its earlier decision in the assessee’s own case for AY 1993-94, allowing the appeal.
- Assessment Year 2001-02, 2003-04, 2006-07, 2007-08: The Tribunal allowed the appeals, following the same reasoning as AY 2000-01.

6. Long Term Capital Gains and Capital Loss on Sale of Shares/Government Securities:
- Assessment Year 2000-01: The Tribunal upheld the CIT(A)’s findings, noting that the assessee failed to establish the genuineness of the broker’s note. The appeal was dismissed.

7. Penalty Proceedings under Section 271(1)(c):
- Assessment Year 2003-04 & 2007-08: The Tribunal dismissed the grounds related to penalty proceedings as premature since no penalty was levied on the assessee.

Conclusion:
The Tribunal provided a detailed examination of each issue, applying relevant legal principles and precedents. The appeals were partly allowed or dismissed based on the merits of each ground, with specific directions given for fresh examination where necessary.