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2018 (12) TMI 1507 - AT - Income TaxAddition on account of premium received against transfer of tenancy rights - considering the receipts as Capital receipts - Held that - CIT(A) has decided the issue in favour of the assessee after considering the documentary evidences furnished by the assessee and the decision reached by the ITAT in the case of assessee for A.Y. 2005-06 which was followed in assessment year 2006-07, 2007-08 and 2008-09. CIT(A) has also followed the decision of Tribunal in A.Y. 2009-10. There being no contrary material on record from the side of Revenue to take a contrary view, we find no justification to disturb the findings reached by the CIT(A). We, think it appropriate to add that the asset, the tenancy right of which were transferred by the assessee was undoubtedly an income earning source and therefore, the amount received against transfer of tenancy rights should have been treated as compensation for sterilization of profit earning source and not in ordinary course of its business. For this, we find support from the decision of CIT vs. Saurashtra Cement Ltd. 2010 (7) TMI 11 - SUPREME COURT relied by the ld. AR. - Decided in favour of assessee. Disallowance u/s. 14A - Held that - Jurisdictional High Court after considering the decision of Special Bench of Tribunal in Cheminvest Ltd. 2009 (8) TMI 126 - ITAT DELHI-B and Rajendra Prasad Moody 1978 (10) TMI 133 - SUPREME COURT has held that merely because tax auditor had suggested in tax audit report that there ought to be such disallowance, it could not be a ground to make disallowance in terms of section 14A read with rule 8D. In the instant case also, the Assessing Officer has only speculated that the income from investment in share shall be exempt from tax, but there is no finding that any such income has been earned by the assessee or not. There are plethora of decisions to support the aforesaid finding. We accordingly, do not find any infirmity in the impugned order on this count. Accordingly, the appeal of the Revenue deserves to be dismissed. Disallowance of bad debt written off in the name of Punjab Fibers Ltd. - Held that - Non-recoverability of advance in the year under consideration either in terms of money or in terms of supply of goods. The assessee has filed copy of agreement between the parties which has been doubted without any verification and the impugned amount has been written off in the books of assessee as irrecoverable advance. Even if such write off is not held to be in the nature of bad debt, then also it certainly would be in the nature of business loss. CIT(A) appears to have further treated the impugned debt as loan given by the assessee on the premise that the purchases made in earlier years and in the year under consideration were not shown either in the sales or in the closing stock. This, however, at the most be a ground from making trading addition in the hands of the assessee or for rejection of books of account, but cannot be a valid ground to hold the money advanced as loan by the assessee to Punjab Fibers Ltd., which was advanced during the ordinary course of its business. No material is placed on record on behalf of the Revenue to substantiate that the amount advanced by assessee to M/s. Punjab Fibers Ltd. was a loan transaction and not an advance against supply of goods as per agreement produced. We accordingly, are not inclined to justify the sustenance of addition, being a business loss allowable u/s. 28 of the IT Act. Accordingly, the impugned addition deserves to be deleted and the cross-objection of the assessee has to be allowed.
Issues Involved:
1. Deletion of addition of ?1,25,00,000/- on account of premium received against transfer of tenancy rights. 2. Deletion of disallowance of ?4,77,433/- under section 14A read with Rule 8D of the Income Tax Act, 1961. 3. Disallowance of bad debt/business loss of ?3,95,00,000/-. Issue 1: Deletion of Addition of ?1,25,00,000/- on Account of Premium Received Against Transfer of Tenancy Rights The Assessing Officer (AO) treated the receipt of ?1,25,00,000/- as revenue receipts, arguing that the assessee transferred tenancy rights of part of the leased premises to M/s. Lalit Modi HUF, and this amount was to compensate business losses, thus constituting trading receipts. The assessee contended that the property was an income-generating asset and the receipts were capital in nature, compensating for the loss of an asset of enduring value. The CIT(A) deleted the addition, relying on the ITAT's decision in the assessee's own case for previous assessment years (2005-06, 2006-07, 2007-08, and 2008-09) and the CIT(A)'s decision for A.Y. 2009-10. The CIT(A) found that the tenancy rights were capital assets and the income from sub-letting was taxable as "Income from house property." The receipt of ?1.25 crores was held to be capital in nature, and the computation of long-term capital gains (LTCG) was examined, leading to an enhancement of ?16,58,310/- in LTCG due to the improper application of cost inflation indexing on the refundable security deposit. The Tribunal upheld the CIT(A)'s decision, finding no justification to interfere with the decision, as the tenancy rights were an income-earning source and the amount received should be treated as compensation for sterilization of profit-earning source, not business income. Issue 2: Deletion of Disallowance of ?4,77,433/- Under Section 14A Read with Rule 8D The AO noticed that the assessee had investments of ?72,32,400/- in shares but made no disallowance of expenses under section 14A. The AO disallowed ?4,77,433/- by applying Rule 8D, arguing that expenses for earning tax-free income should be disallowed, relying on the ITAT Special Bench decision in M/s. Cheminvest Ltd. vs. ITO. The CIT(A) deleted the disallowance, noting that the investments were made in 1990, no dividend income was earned, and the investments were not from interest-bearing funds. The Tribunal agreed, citing the jurisdictional High Court's decision in Maxopp Investment Ltd. vs. CIT and other relevant case laws, finding no error in the CIT(A)'s decision. Issue 3: Disallowance of Bad Debt/Business Loss of ?3,95,00,000/- The AO disallowed the bad debt written off by the assessee, arguing that the amount was an advance, not a bad debt for business purposes, and the agreement under which the amount was given was not authentic. The CIT(A) sustained the addition. The assessee argued that the amount was an advance for a business transaction with M/s. Punjab Fibres Ltd. for the supply of acrylic yarn, supported by a business agreement. The Tribunal found that the AO did not verify the agreement or make necessary inquiries. The advance was made in the normal course of business, and the loss due to non-recovery was deductible as a trading loss. The Tribunal concluded that the amount was a business loss allowable under section 28 of the IT Act and deleted the addition. Conclusion: The appeal of the Revenue was dismissed, and the cross-objection of the assessee was allowed. The Tribunal upheld the CIT(A)'s decisions on all issues, finding no justification to interfere with the findings and decisions reached by the CIT(A). The order was pronounced in the open court on 21.12.2018.
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