2019 (4) TMI 1668 - AT - Income Tax

Addition u/s 14A - Assessee received dividend income - HELD THAT - In the case in hand, the assessee has derived dividend income only from one company and no expenditure has been incurred. Therefore, no disallowance needs to be made. Direct the AO to delete the disallowance. Allowable business loss - advances given in the ordinary course of business - HELD THAT - Assessee has made advance to Shri Nikhil Talwar in F.Y. 2009-10. The advance was given in respect of tours and travels for business purposes. Shri Nikhil Talwar happens to be the President of the assessee company who died in June, 2013. Since no travelling bills/ bills of expenses incurred by Shri Nikhil Talwar were submitted, the assessee wrote off the advance given to Shri Nikhil Talwar. The advances were given in the ordinary course of business cannot be brushed aside lightly. It is true that the write off does not come within the purview of section 36(2) of the Act, but at the same time, the same has to be considered as business loss u/s 28 of the Act. Similar view has been taken by the Hon'ble Delhi High Court in the case of Mohan Meakin Ltd 2011 (5) TMI 243 - DELHI HIGH COURT and case of Lucky Goldstar Company Ltd 2018 (11) TMI 546 - ITAT KOLKATA . The write off may not be allowable as bad debt but the same is definitely allowable as business loss. Ground No. 2 is also allowed

Summary

Issues:
1. Disallowance of expenses under section 14A of the Income-tax Act, 1961.
2. Disallowance of business loss write-off.

Analysis:

Issue 1: Disallowance of expenses under section 14A:
The appeal was against the disallowance of expenses under section 14A of the Income-tax Act, 1961, pertaining to Assessment Year 2014-15. The Assessing Officer found that the assessee had not made any disallowance under section 14A despite receiving dividend income. The CIT(A) restricted the disallowance to the extent of dividend income. The appellant argued that no interest-bearing funds were utilized for investments, thus no disallowance should be made under section 14A. The ITAT Delhi agreed, citing that no borrowed funds were used for investments, leading to the deletion of the disallowance.

Issue 2: Disallowance of business loss write-off:
The second grievance was regarding the disallowance of a business loss write-off. The Assessing Officer disallowed the write-off amount, stating it cannot be allowed as a bad debt under section 36(2) of the Act. The CIT(A) confirmed the disallowance. However, the ITAT Delhi considered the advance given as a business loss under section 28 of the Act, following precedents from the Hon'ble Delhi High Court and a co-ordinate bench decision. Consequently, the ITAT Delhi directed the Assessing Officer to delete the addition of the write-off amount.

In conclusion, the ITAT Delhi allowed the appeal filed by the assessee, directing the Assessing Officer to delete both the disallowance under section 14A and the addition of the business loss write-off amount.