2021 (2) TMI 188 - HC - Income Tax

Disallowance u/s 14A r.w.r. 8D - whether the disallowance under Section 14A of the Act can be made while computing book profit of a Company under Section 115JB? - HELD THAT - The first two questions, as proposed by the Revenue, are no longer res integra in view of the decision in the case of Deputy Commissioner of Income Tax vs. Vasco Sales Marketing Corporation 2015 (10) TMI 1088 - KERALA HIGH COURT - This judgement refers to and rely upon the Supreme Court decision in the case of S.A. Builder Ltd. vs. Commissioner of Income Tax (A), Chandigarh 2006 (12) TMI 82 - SUPREME COURT . In view of the settled position of law, the disallowance under Section 14A would not be permissible. We do not find that the Tribunal has committed any error. Disallowance of bad debt claim - stand of the assessee was rejected by Revenue authorities on the ground that since it has advanced fresh loans during the year, therefore, it cannot be said that recovery of interest has become bad - according to the ld. CIT(A) taxes in actuality were not paid by the QFL on cessation of this liability - HELD THAT - We are in agreement with the view taken by the Tribunal 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 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. None of the three questions as proposed could be termed as the substantial questions of law for the purpose of Section 260A of the Act, 1961.

Summary

Issues:
- Disallowance under Section 14A of the Income Tax Act, 1961
- Disallowance under Section 115JB of the Income Tax Act, 1961
- Disallowance of bad debt claim

Issue 1: Disallowance under Section 14A of the Income Tax Act, 1961:
The High Court considered the Tribunal's decision to delete the disallowance of a sum under Section 14A of the Act. The Court referred to the settled position of law based on previous judgments and concluded that the disallowance under Section 14A would not be permissible. The Court found that the Tribunal did not commit any error in this regard. As a result, the first two questions proposed by the Revenue were no longer res integra, and the Court did not find any fault with the Tribunal's decision.

Issue 2: Disallowance under Section 115JB of the Income Tax Act, 1961:
The Court addressed the question of whether the disallowance under Section 14A of the Act can be made while computing the book profit of a Company under Section 115JB of the Act. Since the Court concluded that the disallowance under Section 14A was not permissible, the second question became academic in nature, and no further analysis or decision was required on this issue.

Issue 3: Disallowance of bad debt claim:
The Court examined the third question proposed by the Revenue regarding the disallowance of a bad debt claim. The Revenue argued that the Tribunal erred in not upholding the disallowance of the bad debt claim made by the Assessing Officer. The Court considered the arguments presented by both parties, where the Revenue contended that the subsidiary was not a customer of the assessee and the advances were not related to the day-to-day business. However, the respondent's counsel argued that no error, especially of law, was committed by the Tribunal in disallowing the bad debt claim. The Court reviewed the findings of the CIT(A) and the Tribunal, ultimately agreeing with the Tribunal's decision to allow the bad debt claim. The Court found that the Tribunal's decision was supported by a Madras High Court decision and dismissed the appeal, concluding that none of the proposed questions constituted substantial questions of law under Section 260A of the Act.

In summary, the High Court dismissed the appeal related to the disallowance under Section 14A of the Income Tax Act, 1961, as it was not permissible based on settled legal positions. The Court also found the disallowance under Section 115JB to be academic due to the previous conclusion. Regarding the disallowance of the bad debt claim, the Court upheld the Tribunal's decision, finding no substantial questions of law in the matter.