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2020 (5) TMI 461 - AT - Income TaxAllowability of the bad debts or business loss - HELD THAT - AO as well as the Appellate Authorities under the law can review the facts of the case and redetermined the taxability of income and the claims to be allowed against the same in the subsequent years and if certain mistake or wrong decisions has been rendered in the earlier years, the same cannot be perpetuated for subsequent year and it will not be a legal impediment even though the assessment for the earlier years has attained finality. Another important thing is that the claim of income or loss or any deduction has to be examined afresh in the year in which it is claimed. Law as culled out from the aforesaid judgment is that the bad debt or loss which is claimed in this year has to be determined in this year only without distributing the earlier assessment which has attained finality, and therefore, we hold that the claim of loss made in this year is allowable as business loss. Business loss or bad debt - Set off - One fundamental principle while deciding such kind of matters is that, tax due should be collected as enshrined in the taxing statute and which is also the mandate of the Constitution of India. Here assessee is fastened with tax liability on a hypothetical income which did not materialize /received and in this situation a justice oriented approach is warranted when assessee has, on one hand incurred huge loss and on other, tax is charged merely on technicality that, since assessee had offered the tax under one particular head which it is claiming in this year to be set-off in the other head, is precluded from doing so. When assessee itself has pointed out its bonafide and legal claim before the AO that correct head in which it is assessable is business income , then acquiescence by the assessee in earlier year cannot be the ground to tax the same or deny any legal claim. We hold that the claim for the amount as business loss or bad debt is allowable in revenue account in this year and is allowed to be set-off in the revenue account as claimed by the assessee and not as a capital loss. - Decided in favour of assessee. Addition pertaining to sale of property in terms of Section 50C - Reference to DVO - HELD THAT - Before the Appellate Authority, the assessee has categorically stated that though the circle rate of the vicinity area was higher than prevailing market rate but the land in question which was sold was adjacent to cremation ground which adversely affected the market rate of the property, and therefore, the property could not be fetched the circle rate and was sold at the lower rate than the circle rate. As the buyer who has to contest the stamp value of the property before the Valuation Authority in which assessee has no control. In any case, when the assessee has disputed the stamp duty valuation because of clinching circumstances, then in our opinion matter should have been referred to DVO for the valuation of the said property. Accordingly, we remand this issue to the file of the Assessing Officer who shall refer the matter for the valuation of the property to the DVO and assessee will substantiate its case before the AO or DVO to justify the sale price. Accordingly, this ground is partly allowed for statistical purpose. Disallowance u/s.14A - suo motu disallowance - HELD THAT - It is an admitted fact that firstly the dividend yielding investment were only ₹ 4,54,065/- and disallowance @ 0.5% worked out to ₹ 2196/- which has been suo motu offered for disallowance in the return of income. This Tribunal in assessee s own case in the case of Vireet Investment Pvt. Ltd. 2017 (6) TMI 1124 - ITAT DELHI held that average value of investment which has yielded income during the year shall only be considered for the purpose of disallowance u/s.14A, and therefore, respectfully following the same no addition over and above can be made. In any case, the dividend income received by the assessee is merely which in any case the disallowance could not have been exceeded the exempt income. Thus, the order of the ld. CIT(A) is upheld and the grounds raised by the Revenue is dismissed.
Issues Involved:
1. Disallowance of claim of bad debt under section 36(1)(vii) read with section 36(2) of the Income Tax Act. 2. Addition under section 50C of the Income Tax Act. 3. Disallowance under section 14A of the Income Tax Act. Detailed Analysis: Issue 1: Disallowance of Claim of Bad Debt The assessee, a public limited company engaged in real estate, claimed a bad debt of ?77,98,88,400/- related to the sale of shares of its subsidiary. The shares were initially purchased to acquire land for business purposes. The sale agreement included obtaining CLU (Change Land Use) permissions, which the assessee failed to secure due to governmental acquisition of the land. Consequently, the buyer refused to pay the balance amount, leading the assessee to write off the amount as bad debt. Assessing Officer's (AO) Stand: - The AO disallowed the claim, arguing that the amount receivable was capital in nature and not trade receivable. The AO also noted that the conditions under section 36(2) were not met as the amount was not included in the income of any earlier years. CIT (A)'s Stand: - The CIT (A) upheld the AO's decision, stating that the bad debt was related to an investment transaction and not a business transaction. The CIT (A) allowed the carry forward of the capital loss but disallowed the claim as a bad debt. Tribunal's Decision: - The Tribunal ruled in favor of the assessee, stating that the transaction was part of its business activities, and the loss should be treated as a business loss. The Tribunal emphasized that the correct head of income should be determined in the year of the claim, regardless of how it was treated in earlier years. The Tribunal cited several Supreme Court judgments to support its decision, including the principle that the AO in the subsequent year could determine the correct head of income. Issue 2: Addition under Section 50C The assessee sold a property for ?12,61,00,000/-, while the stamp duty valuation was ?15,92,49,744/-. The AO added the difference of ?3,31,49,744/- under section 50C, as the assessee did not contest the valuation. CIT (A)'s Stand: - The CIT (A) confirmed the addition, stating that the assessee did not provide sufficient evidence to substantiate its claim that the market value was lower due to the property's proximity to a cremation ground. Tribunal's Decision: - The Tribunal remanded the issue back to the AO, directing that the matter be referred to the DVO (District Valuation Officer) for proper valuation. The Tribunal noted that the assessee had disputed the valuation and provided valid reasons for the lower market value. Issue 3: Disallowance under Section 14A The AO disallowed ?1,60,32,530/- under section 14A, related to dividend income of ?29,707/-. The assessee had made a suo motu disallowance of ?2,196/-. CIT (A)'s Stand: - The CIT (A) deleted the disallowance, noting that the investment in question was made for business purposes, and only a small portion was in mutual funds. Tribunal's Decision: - The Tribunal upheld the CIT (A)'s decision, stating that the disallowance should not exceed the exempt income. The Tribunal also referenced its own decision in the assessee's case for a previous year, which aligned with the Special Bench decision in Vireet Investment Pvt. Ltd. Conclusion: - Claim of Bad Debt: Allowed as business loss. - Addition under Section 50C: Remanded to AO for DVO valuation. - Disallowance under Section 14A: Deleted, as it should not exceed the exempt income. The Tribunal's decision was pronounced on 11th May 2020, with the assessee's appeal being partly allowed and the Revenue's appeal dismissed.
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