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2019 (12) TMI 1036 - AT - Income TaxDisallowance u/s 14A read with Rule 8D - HELD THAT - A comprehensive details of investment starting from 31.3.2005 upto 31.5.2015, has been placed by the assessee before the AO. Identical issue arose in the Asstt.Year 2008-09, wherein addition of ₹ 73.30 lakhs were deleted by the Tribunal, and order of the Tribunal was upheld by the Hon ble High Court 2017 (9) TMI 531 - GUJARAT HIGH COURT . In the Asstt.Year 2011-12 also ITAT has deleted the disallowance, and one of us (JM) is author of the order. Therefore, considering past history and the availability of funds with the assessee, we are of the view that the amounts which have been calculated by the assessee itself for taking care of the tax free income is sufficient, and no further disallowance is required to be made, because only two persons have been kept for tracking of these investments, and part salary payable to them have already been disallowed. Disallowance u/s 14A is required to be added back in the book profit for the purpose of section 115JB - HELD THAT - Disallowance worked out by the AO, and nothing left for making adjustment except the amounts the assessee itself added back, but apart from that we find that this issue is squarely covered in favour of the assessee by the decision of Special Bench of the Tribunal in the case of Vireet Investment, 2017 (6) TMI 1124 - ITAT DELHI . From the Asstt.Year 2008-09 to 2010-11, the issue has been decided in favour of the assessee by the ITAT. It is also covered by the decision of Hon ble Bombay high Court rendered in the case of Reliance Industries Ltd., 2019 (1) TMI 887 - BOMBAY HIGH COURT . In brief, the outcome of this order is that the disallowance under section 14A is not required to be added back in the book profit under section 115JB of the Act. Interest income from its subsidiary - HELD THAT - CIT(A) has rightly held that no notional interest income is to be assumed because the assessee has not charged interest on ICDs. from subsidiary. The assessee has offered such interest income as business income in earlier years, and therefore, advancement of loan was considered for the purpose of business. To our mind, the ld.CIT(A) has appreciated the controversy in right perspective. It was in the interest of the assessee to revive its subsidiary, otherwise, its share capital as well as advances of ₹ 2278 crores would be in jeopardy. Therefore, we do not find any merit in these grounds of appeal. Disallowance of 75% of foreign travel expenses - HELD THAT - Foreign visit was at least partly for business purposes and, therefore, just because this visit resulted in, assuming it is correct, personal benefit to the director, the expenses incurred on the visit cannot be disallowed as personal expenses. This is at best expense of the assessee company which resulted in benefit to the director. In any event, there is no material whatsoever to come to the conclusion that 75% time on this trip was used for personal purposes of the director. The case relied upon by the CIT(A) was a case in which a detailed analysis of the activities of the director was carried out and then this conclusion was drawn. There is no such material on record in this case. Once the CIT(A) came to the conclusion that the trip was for some business purposes, it was not open to him to deny any part of deduction for these expenses- particularly when there is no material to hold that the visit was for personal purposes. In view of these discussions, as also bearing in mind entirety of the case, we uphold the grievance of the assessee and direct the Assessing Officer to delete the impugned disallowance. Disallowance of bad debts - HELD THAT - The moment debts have been written off in the books, it is to be allowed without expecting the assessee to demonstrate whether debts have actually become bad or not. A reliance can be made to the decision of Hon ble Supreme Court in the case of TRF Ltd. 2010 (2) TMI 211 - SUPREME COURT . It is altogether irrelevant, whether QFL actually paid tax or not. If a liability has ceased, then it will be added back in the taxable income of the QFL. Now, if that concern was suffering huge loss, then that cannot be the reason to disallow claim of the assessee. If this type of logic is being accepted, then every business organization was required to show profit only. This is a misplaced notion at the end of the ld.CIT(A) for rejecting the claim of the assessee. We allow this ground of appeal, and delete disallowance of bad debts. In the other words, claim of bad debt at ₹ 170.91 lakhs is allowed. Non granting set off brought forward business loss against income from house property - HELD THAT - A decided in own case income from warehouse has been shown under the head income from house property which cannot be equated by any cannon of law as profit and gains from business or profession .Both the lower authorities made no mistake in not allowing set off of brought forward business losses against the Income from house property . Loss suffered by the assessee on sale of preferential shares - whether actual sale consideration of the shares supported by the valuation report can be replaced with fair market value of the shares? - HELD THAT - Full value of consideration would be replaced by way of deeming provision provided in section 50C which is relatable to transfer of capital asset in the shape of land or building or both. No such provision has been provided with regard to the sale of shares. With effect from Asstt.Year 2018-19, a provision has been made for sale of shares also. It is section 50CA. Prior to insertion of this section, there is no power with the Revenue authorities to replace the full sale consideration with fair market value of the shares. Since the ld.CIT(A) was not having jurisdiction to replace the full sale consideration disclosed by the assessee with FMV, therefore, there is no need to examine the justification of valuation report in support of sale consideration shown by the assessee vis- -vis FMV determined by the ld.CIT(A). We do not deem it necessary to go into this issue, and make any discussion. In view of the above, we are of the view that the assessee is entitled for claim of capital loss suffered by it on sale of shares
Issues Involved:
1. Determination of expenses to be disallowed under Section 14A of the Income Tax Act read with Rule 8D of Income Tax Rules. 2. Whether disallowance under Section 14A should be added back in the book profit for the purpose of Section 115JB of the Act. 3. Deletion of addition by AO on the ground that the assessee must have shown interest income from its subsidiary. 4. Disallowance of 75% of foreign travel expenses. 5. Disallowance of bad debts. 6. Set off of brought forward business loss against income from house property. 7. Deletion of loss suffered on sale of preferential shares. Detailed Analysis: 1. Determination of Expenses to be Disallowed under Section 14A: The issues in these grounds of appeal relate to the determination of expenses required to be disallowed for the purpose of Section 14A of the Income Tax Act read with Rule 8D of Income Tax Rules. The assessee had allocated certain amounts towards expenditure required to be disallowed under Section 14A, but the AO made additional disallowances. The CIT(A) deleted the disallowance for the years 2013-14 and 2014-15 but upheld it for 2012-13 with certain directions to the AO. The Tribunal found that the assessee had sufficient interest-free funds and no borrowed funds were utilized for investments. Hence, the amounts calculated by the assessee were sufficient, and no further disallowance was required. The Tribunal allowed the assessee's appeal for 2012-13 and rejected the Revenue's appeals for 2012-13, 2013-14, and 2014-15. 2. Addition of Disallowance under Section 14A in Book Profit for Section 115JB: The Tribunal noted that the issue was covered in favor of the assessee by the decision of the Special Bench of the Tribunal in Vireet Investment and other cases. It was held that the disallowance under Section 14A is not required to be added back in the book profit under Section 115JB of the Act. The Tribunal allowed the assessee's appeal for 2012-13 and rejected the Revenue's appeals for 2013-14 and 2014-15. 3. Interest Income from Subsidiary: The AO added notional interest income on advances given to the subsidiary, Quick Flight Limited (QFL), which was not charged interest due to its financial difficulties. The CIT(A) deleted the addition, holding that the advances were given on account of business expediency and commercial consideration. The Tribunal upheld the CIT(A)'s decision, noting that the advancement of loans was for business purposes and in the interest of the assessee to revive its subsidiary. 4. Foreign Travel Expenses: The AO disallowed 75% of the foreign travel expenses incurred by the assessee, which was upheld by the CIT(A). The Tribunal found that similar disallowances were deleted in earlier years by the Tribunal. Following the earlier order, the Tribunal deleted the disallowance of foreign travel expenses for the year 2012-13. 5. Bad Debts: The assessee wrote off bad debts related to interest income from loans and advances given to QFL. The AO and CIT(A) disallowed the claim, but the Tribunal allowed it, holding that once the debts are written off in the books, they are to be allowed without requiring the assessee to demonstrate whether the debts have actually become bad. 6. Set Off of Brought Forward Business Loss Against Income from House Property: The Tribunal noted that the issue was decided against the assessee in earlier years by the ITAT. It was held that brought forward business losses can only be set off against business income and not against income from house property. The Tribunal dismissed the assessee's ground on this issue. 7. Loss on Sale of Preferential Shares: The AO treated the loss on sale of shares as speculative and a colorable device to reduce capital gain tax. The CIT(A) held that the transaction was genuine but adjusted the sale price to the fair market value. The Tribunal held that prior to the insertion of Section 50CA (applicable from AY 2018-19), there was no provision to replace the full sale consideration with fair market value. The Tribunal allowed the assessee's claim of capital loss on the sale of shares. Conclusion: The appeals of the Revenue were dismissed, and the appeal of the assessee was partly allowed. The Tribunal's decision provided significant relief to the assessee on multiple grounds, particularly on the disallowance under Section 14A, foreign travel expenses, bad debts, and loss on the sale of shares.
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