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2017 (2) TMI 444 - AT - Income TaxDisallowance made u/s.14A - Held that - We find that the assessee had an exempt income to the tune of ₹ 7.97 lakhs,that the AO made disallowance of ₹ 2.84 lakhs, invoking the provisions of section 14 A r.w.r. 8D of the Rules, that the FAA enhanced disallowance to ₹ 21.80 lakhs,that both the authorities held that there was no proof that the assessee had sufficient own funds to make investments in shares during the year under consideration. We have gone through the balance sheet of the assessee as on 31.3.2010.We find that the reserve and surplus along with the capital of the assessee for the year (Rs.286 crores approx.) is far more than the investments made(Rs.2.99 crores). Nothing has been brought on record to prove that the shares purchased by the assessee for the year under appeal was not a strategic investment.We find that the AO/FAA has not mentioned anything about the expenditure incurred by the assessee for earning exempt income.In our opinion if the assessee does not claim any expenditure for earning exempt income no dis - allowance can be made invoking the provisions of section 14A r.w.r.8D of the Rules. - Decided in favour of assessee Addition under the head sundry balances written off - Held that - There is no bar on making a claim about the sums written off in a slump sale transaction. The assessee had taken over the assets as well as the liabilities of VI. In the remand report proceedings,the assessee had submitted the evidences proving that the erstwhile entity had offered the income under the head other income. It is found that grant receivable from ASIB of ₹ 71.78 lakhs was credited in the P&L A/c. for the period ended 22.5.2009. Thus, the amount written off during the year under consideration was already offered for taxation. FAA was not justified in rejecting the claim made by the assessee. VAT on service charges portion on natural gas is concerned it is found that the clients had disputed levy of services and finally did not pay such tax. The loss claimed by the assessee was directly linked with business activity and, therefore,was a business loss. The writing off of the amount is not in dispute. So, even if it could not be allowed u/s.36 the same is allowable u/s.28 of the Act. Therefore, we allow Ground No.2. Addition under the head insurance claim written off - Held that - We find that the claim had arisen after the slump sale took place,that the erstwhile company had claimed loss with the insurance company, that the claim was rejected, that the assessee discarded the assets for the year ended on 31.03.2008 and 31.03.2009. In the light of these developments the assessee wrote off the insurance claim of ₹ 9.37 crores. We have gone through the insurance claim lodged by the assessee and we find that all the conditions for allowing bad debts stand fulfilled i.e. offering the income in earlier year and writing off the amount in the books of account. Therefore, reversing the order of the FAA, we decide Ground No.3 in favour of the assessee. FAA was not justified in enhancing the book profit u/s. 115JB of the Act with regard to 14A disallowance. Addition on account of bogus expenditure - Held that - If we go through the above statement of BG and the letter of the assessee dt.3.12.2012, it becomes clear that the BG had made the disclosure of ₹ 5 crores in the capacity of MD of the company and that the assessee had promised to pay outstanding taxes.The land develop - ment A/c. clearly proves that accommodation entries were obtained for assessee company. Therefore, in our opinion the FAA was not justified in reversing the order of the AO.In our opinion, the AO had rightly made the disallowance of the impugned sum in the hands of the assessee
Issues Involved:
1. Disallowance under Section 14A of the Income Tax Act. 2. Addition under the head "Sundry Balances Written Off." 3. Addition under the head "Insurance Claim Written Off." 4. Levy of interest and penalties. 5. Addition on account of bogus expenditure. Detailed Analysis: 1. Disallowance under Section 14A of the Income Tax Act: The first issue pertains to the disallowance made under Section 14A of the Income Tax Act. The AO found that the assessee received exempt income by way of dividends and had made investments in shares but did not make any disallowance under Section 14A. The AO, applying Rule 8D, made a disallowance of ?21.80 lakhs. The FAA enhanced the disallowance to ?21.80 lakhs from ?2.84 lakhs. The assessee argued that the investments were made from its own funds and no expenditure was incurred for earning the exempt income. The Tribunal found that the assessee had sufficient own funds to make the investments and no evidence was provided to show that the investments were not strategic. Hence, the Tribunal ruled in favor of the assessee, stating that no disallowance can be made if no expenditure is claimed for earning exempt income. 2. Addition under the head "Sundry Balances Written Off": The second issue involves the addition of ?84.65 lakhs under "Sundry Balances Written Off." The AO disallowed the amount as the assessee failed to provide necessary details and proof that the amount was offered for tax in earlier years. The FAA upheld the AO's decision, stating that the conditions of Section 36 were not met. The Tribunal, however, found that the assessee had acquired a sponge iron unit and written off the balance amount of grants receivable and disputed service tax on VAT. The Tribunal ruled that there is no bar on making a claim for sums written off in a slump sale transaction and allowed the claim under Section 28 of the Act. 3. Addition under the head "Insurance Claim Written Off": The third issue concerns the addition of ?9.37 crores under "Insurance Claim Written Off." The AO disallowed the claim, stating that the write-offs were related to capital assets and thus considered it a capital loss. The FAA upheld this view, stating that the identity of the purchaser had changed due to the slump sale. The Tribunal found that the insurance claim was repudiated after the slump sale, and all conditions for allowing bad debts were fulfilled. Therefore, the Tribunal reversed the FAA's order and ruled in favor of the assessee. 4. Levy of Interest and Penalties: The fourth issue deals with the levy of interest and penalties. The Tribunal found these issues to be consequential or premature. Therefore, the ground related to the levy of interest was allowed for statistical purposes, and the ground related to penalties was dismissed. 5. Addition on account of bogus expenditure: The fifth issue involves the addition of ?5 crores on account of bogus expenditure. The AO added this amount as unexplained expenditure based on the statement of Balakrishna Goenka, who admitted that the expenditure was not genuine. The FAA deleted the addition, stating that the unaccounted cash should be assessed in the hands of BG. The Tribunal, however, found that the statement of BG and the letter from the assessee confirmed that the accommodation entries were obtained by the assessee company. Therefore, the Tribunal upheld the AO's decision and reversed the FAA's order. Conclusion: The Tribunal ruled in favor of the assessee on the issues of disallowance under Section 14A, addition under "Sundry Balances Written Off," and "Insurance Claim Written Off." However, it upheld the AO's decision on the addition of ?5 crores on account of bogus expenditure. The issues of levy of interest and penalties were considered consequential or premature. Appeals filed by the assessee were partly allowed, and the appeal of the AO was allowed.
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