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2023 (7) TMI 1148 - AT - Income TaxDisallowance u/s 14A r.w.r. 8D - HELD THAT - By respectfully following the above ratio in 24/08/2020 passed in ITA No. 1947/Del/2018 2020 (9) TMI 141 - ITAT DELHI and also considering the fact that the investment in shares of Karnataka Bank Limited has been made out of own funds of the assessee, we hold that no disallowance can be made out of interest expenditure under Clause (ii) of Rule 8D of the Rules. Disallowance of depreciation on vehicles given on finance lease - HELD THAT - Hon'ble Supreme Court in the case of ICDS Ltd. 2013 (1) TMI 344 - SUPREME COURT as reaffirmed the position that in a leasing transaction it is the lessor and not the lessee, who is entitled to claim deprecation on the leased assets - A.O. disallowed the excess claim of depreciation over and above the excess income - Disallowance of depreciation claimed on vehicles give on finance lease requires to be deleted. Ad-hoc disallowances of support service fee and reimbursement of expenses - HELD THAT - Considering the fact that the CIT(A) had observed in its order that payment has not been wholly and exclusively for the purpose of business of the assessee without referring to the documents produced by the assessee we are of the opinion that, if the issue involved is remanded to the file of CIT(A) for adjudicating the same afresh after considering all the documents produced by the Assessee, the substantial issue of the assessee is remanded to the file of CIT(A) with a direction to adjudicate the issue afresh after verifying the documents produced by the assessee in accordance with law. Disallowance of bad debts written off - HELD THAT - As decided in own case 2022 (7) TMI 374 - ITAT DLEHI on a careful consideration of the matter and analyzing the facts in the light of the addition of the Hon ble Apex Court in the case of Vijaya Bank 2010 (4) TMI 46 - SUPREME COURT we are of the considered opinion that in this matter the assessee not only debited the amount of doubtful debt to the P L Account but in fact registered the value of assets in the Balance Sheet, and therefore we find that it s not the case of mere creating provision but actual writing off of the bad debts, and accordingly the assessee is entitled to the deduction under section 36(1)(vii). Disallowance of interest on compulsory convertible debentures - whether the compulsory convertible debentures are in the nature of debt or equity? - HELD THAT - The Hon ble Rajasthan High Court in the case of CIT Vs. Secure Meters Ltd. 2008 (11) TMI 66 - HIGH COURT RAJASTHAN held that the expenses incurred on issue of debentures, whether convertible or not, were deductible as business expenditure under section 37(1) of the IT Act. The Court held that the debenture when issued is a debt, and therefore, whether it is convertible or non-convertible does not militate against the nature of the debenture. Thus we hold that CCDs are in the nature of borrowed fund and continued to be debt till conversion thereof into shares and consequently interest on CCDs is allowable as revenue deduction u/s 36(1)(iii) of the Act.
Issues Involved:
1. Disallowance under section 14A of the Act. 2. Disallowance of depreciation claimed on vehicles given on finance lease. 3. Ad-hoc disallowance of support service fees and reimbursement of expenses. 4. Disallowance of bad debts written off. 5. Disallowance of interest on Compulsorily Convertible Debentures (CCDs). Summary: 1. Disallowance under section 14A of the Act: The Tribunal addressed the disallowance under section 14A of the Income Tax Act, 1961, where the assessee had made investments in shares of Karnataka Bank Limited from its own funds. The Tribunal relied on previous judgments in the assessee's own case and held that no disallowance can be made out of interest expenditure under Clause (ii) of Rule 8D of the Rules. Consequently, the Tribunal allowed the assessee's appeals and dismissed the department's appeals on this issue. 2. Disallowance of depreciation claimed on vehicles given on finance lease: The Tribunal examined the disallowance of depreciation on vehicles given on finance lease. It referred to the Supreme Court's decision in ICDS Ltd. vs. CIT, which affirmed that the lessor is entitled to claim depreciation under section 32 of the Act. Following this precedent, the Tribunal allowed the assessee's appeal and deleted the disallowance. 3. Ad-hoc disallowance of support service fees and reimbursement of expenses: The Tribunal reviewed the ad-hoc disallowance of support service fees and reimbursement of expenses paid by the assessee to its group companies. The Tribunal found that the CIT(A) had not considered the documentary evidence provided by the assessee. Therefore, it remanded the issue back to the CIT(A) for fresh adjudication after verifying the documents produced by the assessee. 4. Disallowance of bad debts written off: The Tribunal addressed the disallowance of bad debts written off by the assessee. It relied on the Supreme Court's decision in Vijaya Bank vs. CIT, which held that actual write-off of bad debts is allowable as a deduction. Following the precedent set in the assessee's own case for the previous assessment year, the Tribunal found no merit in the department's appeals and allowed the assessee's appeal on this issue. 5. Disallowance of interest on Compulsorily Convertible Debentures (CCDs): The Tribunal examined the disallowance of interest on CCDs, which the assessee had issued to its holding company. It referred to various judicial pronouncements, including the Rajasthan High Court's decision in CIT vs. Secure Meters Ltd., which held that CCDs are in the nature of borrowed funds and continued to be debt until conversion into shares. Consequently, interest on CCDs is allowable as a revenue deduction under section 36(1)(iii) of the Act. The Tribunal allowed the assessee's appeal for A.Y. 2014-15 and dismissed the department's appeals for other assessment years on this issue. Conclusion: The Tribunal allowed the assessee's appeals in part and dismissed the department's appeals, providing relief to the assessee on various grounds related to disallowances under sections 14A, 32, 37(1), and 36(1)(iii) of the Income Tax Act, 1961.
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