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2017 (3) TMI 1165 - AT - Income TaxAddition u/s 14A - Held that - Hon ble Jurisdictional High Court in the case of CIT vs R.R.Sen & Brothers (P) Ltd 2013 (7) TMI 260 - Calcutta High Court wherein it was held that 1% of exempted income should have to be disallowed u/s 14A of the Act for asst years prior to Asst Year 2008-09. Respectfully following the said decision, we hold that only 1% of exempted income is to be disallowed u/s 14A of the Act. We find that the ld CIT(A) in the instant case had rightly directed the ld AO to disallow 1% of exempted income. Hence we hold that the order of the ld CIT(A) in this regard does not call for any interference Addition u/s 41 - Held that - We find that the Bangalore property comprising only land was sold to Advanta India Ltd which is totally independent of sale of Rubber Chemicals Business Undertaking. Similarly Belvedere Estate was also independently sold by the assessee which comprises of both land and building for ₹ 70,00,000/- and values have been distributed by the assessee towards land and building separately. Hence we hold that the ld AO had wrongly included the sale consideration of ₹ 98,35,830/- in respect of sale of Bangalore Land and ₹ 70,00,000/- towards Belvedere Estate while computing the business income u/s 41(2) of the Act. In respect of addition made towards Bangalore Land, the ld AO had accepted the contentions of the assessee in the remand report by stating that the contentions of the assessee may be considered as the ld AO had not adduced any reason in his assessment order for treating the same as business income u/s 41(2) of the Act. In view of this, we hold that the sale consideration of Bangalore Land to the tune of ₹ 98,35,830/- and towards Belvedere Estate at ₹ 70,00,000/- should not be treated as part and parcel of slump sale of Rubber Chemicals Business Undertaking and the gains arising from sale of Belvedere Estate and Bangalore Land should be assessed only as Capital Gains as reported by the assessee. Arguments advanced by the assessee before the ld CIT(A) and findings given thereon in respect of sale of Rubber Chemicals Business Undertaking on slump sale basis has not been refuted by the ld DR before us. We find that the decision relied upon by the ld AR on the Hon ble Jurisdictional High Court in the case of East India Electric Supply and Traction Co Ltd (2003 (5) TMI 46 - CALCUTTA High Court ) is well founded on the non-applicability of provisions of section 41(2) of the Act. Disallowance on account of depreciation claimed by the assessee on the WDV of the Block of Assets , the ld CIT(A) observed that the details filed by the assessee were sent to ld AO for remand who had agreed to the contentions of the assessee in the remand proceedings that the issue is covered in favour of the assessee by the order of this tribunal for Asst Years 1997-98 and 2004-05. Accordingly, the ld CIT(A) granted relief to the assessee in this regard. Hence we do not find any infirmity in the order of the ld CIT(A) in this regard. Disallowance of interest expenditure - Held that - Based on these categorical findings of the ld AO, the ld CIT(A) deleted the disallowance of interest made on adhoc basis for the Asst Year 2006-07. Against this order, the revenue had not challenged the issue before us though they had preferred an appeal against other issues for the Asst Year 2006-07. It is pertinent to note that the order of the ld CIT(A) for Asst Year 2006-07 was passed on 11.3.2013 and the very same ld CIT(A) had disposed off the appeal for the Asst Year 2007-08 on 12.3.2013. While this is so, we do not find any justifiable reason for the ld CIT(A) to shift his stand for the Asst Year 2007-08 alone when there is no change in the facts and circumstances of the case. We find lot of force in the argument of the ld AR that no disallowance could be made on an adhoc basis on mere guess work.We are also convinced that in respect of loans to employee directors at concessional rate of interest, the difference in rate thereon as compared with Rule 3 of the Rules has been duly considered as perquisite in the hands of the said employee directors and tax is deducted in terms of section 192 of the Act. This fact has not been refuted by the ld DR before us. We hereby direct the ld AO to delete the disallowance towards proportionate interest Addition towards profit of UNIQEMA business - Held that - Detailed note attached in the Audited financial statements of the assessee clearly nullifies the various allegations made by the ld AO in his assessment order. We also find that this aspect was brought to the notice of the ld AO by the assessee by filing the tax audit report in Form 3CD wherein the tax auditor in reply to Clause 8(a) and 8(b) thereon had reported about this aspect. We find that the ld AO had not examined the aspect as to whether the subject mentioned profits of ₹ 10.84 crores have been reported in the total profits of Croda (CCIPL) in its books. Hence as fairly conceded by the ld AR in this regard, we deem it fit and appropriate, to set aside this issue to the file of the ld AO, with a limited direction to verify the books of CCIPL in order to know whether ₹ 10.84 crores of profits have been reported by them in their books, and if the same is found to be true, then the said addition made in the hands of the assessee company is to be deleted. Disallowance of bad debts - Held that - From the details of bad debts placed on record, we find that the assessee had duly complied with the provisions of section 36(2) of the Act by offering the income in respect of such debts in earlier years. We find that the decision of the Hon ble Supreme Court in the case of Goetze India Ltd reported supra does not apply to appellate authorities wherein it has been opined that although it is not open for the ld AO to entertain the claim of the assessee unless the same has been made by a return / revised return , the appellate authorities have the powers to entertain the same. We also place reliance on the decision in the case of T.R.F Ltd vs CIT 2010 (2) TMI 211 - SUPREME COURT wherein it has been opined that it is not necessary for the assessee to establish that the debt, in fact , has become irrecoverable. It is enough if the bad debt has been written off as irrecoverable in the books of accounts of the assessee. Hence respectfully following the said decisions, we direct the ld AO to delete the disallowance of bad debts made in this regard.
Issues Involved:
1. Disallowance under Section 14A of the Income-tax Act, 1961. 2. Addition under Section 41(2) of the Act in respect of the sale of Rubber Chemicals business and Bangalore land, and disallowance of depreciation. 3. Disallowance of proportionate interest attributable to investments, capital work in progress, and loans to directors at lower rates of interest for AY 2007-08. 4. Addition towards profits of Uniqema business. 5. Disallowance of bad debts. Detailed Analysis: 1. Disallowance under Section 14A of the Income-tax Act, 1961: - Facts: The assessee earned dividend income and interest on tax-free bonds, claiming them as exempt under Section 10 of the Act. The AO disallowed expenses under Rule 8D(2)(ii) and Rule 8D(2)(iii), totaling ?2,30,90,922/-. The CIT(A) limited the disallowance to 1% of the exempted income. - Decision: The Tribunal held that Rule 8D applies only from AY 2008-09 onwards, and for earlier years, 1% of exempted income should be disallowed under Section 14A, as per the jurisdictional High Court's ruling in CIT vs. R.R. Sen & Brothers (P) Ltd. Thus, the CIT(A)'s order was upheld, dismissing the appeals of both the assessee and the revenue. 2. Addition under Section 41(2) of the Act in respect of the sale of Rubber Chemicals business and Bangalore land, and disallowance of depreciation: - Facts: The assessee sold its Rubber Chemicals business as a slump sale, receiving part cash and part securities, which were not realized due to unmet performance parameters. The AO treated the sale as an itemized sale and invoked Section 41(2), including the sale of Bangalore land and Belvedere Estate. - Decision: The Tribunal upheld the CIT(A)'s decision that the sale was a slump sale and not an itemized sale, following past tribunal decisions and Explanation 2 to Section 2(42C). The addition under Section 41(2) was deleted, and the sale of Bangalore land and Belvedere Estate was treated as capital gains. The disallowance of depreciation was also deleted, following the tribunal's decision for earlier years. 3. Disallowance of proportionate interest attributable to investments, capital work in progress, and loans to directors at lower rates of interest for AY 2007-08: - Facts: The AO disallowed ?59,00,000/- of interest expenditure on an ad-hoc basis, assuming borrowed funds were used for investments and loans to directors. The assessee argued that no loans were taken during the year and the interest was mainly for bill discounting charges. - Decision: The Tribunal found that no loans were taken by the assessee during the year, and the interest was for bill discounting charges. The CIT(A) had deleted a similar disallowance for AY 2006-07. The Tribunal directed the AO to delete the disallowance of ?59,00,000/-. 4. Addition towards profits of Uniqema business: - Facts: The assessee transferred its Uniqema business to Croda Chemicals (India) Pvt. Ltd. (CCIPL) but operated it on behalf of CCIPL for a period. The AO added the profits of ?10,84,00,000/- for this period to the assessee's income. - Decision: The Tribunal noted that the assessee's audited accounts disclosed the profits were for CCIPL. The Tribunal remanded the issue to the AO to verify if CCIPL included these profits in its books and, if so, to delete the addition in the assessee's hands. 5. Disallowance of bad debts: - Facts: The assessee wrote off bad debts of ?14,43,106/- in its books but did not claim them in the original or revised return, only during assessment proceedings. - Decision: The Tribunal held that appellate authorities could entertain such claims, following the Supreme Court's decision in Goetze India Ltd. The Tribunal directed the AO to allow the bad debts, as the assessee had complied with Section 36(2). Conclusion: - Assessee's Appeals: Partly allowed for AY 2006-07 and allowed for statistical purposes for AY 2007-08. - Revenue's Appeals: Dismissed for both AY 2006-07 and AY 2007-08.
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