2024 (11) TMI 1253 - AT - Income Tax

Claim of exemption u/s 10(23G) - disallowance u/s 14 in respect of exempt income - contention of the assessee that it has more than sufficient interest free funds available for making the investments - HEKD THAT - As seen from the chart that the assessee has sufficient interest free funds available with it for making the impugned investment. Therefore, the ratio laid down in the case of CIT vs Reliance Utilities Power Ltd. 2009 (1) TMI 4 - BOMBAY HIGH COURT HDFC Bank 2014 (8) TMI 119 - BOMBAY HIGH COURT squarely apply wherein the Hon ble Superior Courts have held that, where the assessee has common pool of funds, it has to be presumed that the investment made is out of the interest free funds available with the assessee. While drawing such presumption, availability of interest free funds as on the date of balance-sheet has to be seen. As decided in South Indian Bank Ltd. 2021 (9) TMI 566 - SUPREME COURT it will be presumed that interest free funds have been utilized for making the investments and further it is the assessee who has the right of appropriation and also the right to assert from what part of the fund a particular investment is made and, therefore, it may not be permissible for the revenue to make an estimation of a proportionate figure. Contentions of the ld. D/R become redundant. Depreciation on leased assets - HELD THAT - We find force in the claim of the assessee. The Co-ordinate Bench in AY 2004-05 2017 (11) TMI 1839 - ITAT MUMBAI has considered a similar claim allowed as there is no new lease transaction. The assessee has claimed depreciation on its own fixed assets and depreciation claimed on leased assets were continuing from past tease transactions. Notably, in assessment year 1997-98 Tribunal while deciding the issue had allowed assessee's claim of depreciation. Addition made u/s 41(4) - assessee has written back bad debts which comprises of cash write back and non-cash write backs - HELD THAT - We find force in the contention of the ld. Counsel for the assessee. The Coordinate bench in assessee s own case for AY 2003-04 2023 (7) TMI 1500 - ITAT MUMBAI wherein as consistent with the view expressed by the Tribunal in the preceding assessment year as referred to above, we restore the issue to the file of the Assessing Officer for considering afresh. Amount written off and claimed as bad and doubtful debts - additions were challenged before the ld. CIT(A) and it was strongly contended that the bad debts written off by the assessee during the year under consideration, fulfil all the conditions laid down u/s 36(2) - HELD THAT - As the claim of the assessee falls under Clause (i), wherein it has been specifically mentioned that debt represents money lent in the ordinary course of the business of banking or money-lending which is carried on by the assessee. In our considered opinion, the contention of the ld. D/R that the ratio laid down by the Hon ble Supreme Court in the case of TRF Limited 2010 (2) TMI 211 - SUPREME COURT has been diluted in the case of Khyati Realtors Pvt. Ltd. 2022 (8) TMI 1141 - SUPREME COURT is not a proper way of interpreting the judgment of the Hon ble Supreme Court and since the ld. CIT(A) has rightly followed the decision of the Hon ble Supreme Court (supra), we do not find any error or infirmity in the findings of the ld. CIT(A) which calls for any interference. Accordingly, Ground are dismissed. Claim of business loss and sales promotion expenses - HELD THAT - There is no dispute that the loss claimed on sale of assets was in the ordinary course of business. It is also not in dispute that the discrepant notes not accepted by the RBI has to be written off as business loss and similarly, the offers made to credit card customers cannot be said to be for non-business purposes. Considering the facts of the case in totality and on finding that in earlier AYs a similar claim was allowed by the ld. First Appellate Authority, following the rule of consistency, the claim is allowed and the findings of the ld. CIT(A) cannot be faulted with. Accordingly, Ground is dismissed. Disallowance of club membership fees - HELD THAT - Hon ble Supreme Court in United Glass Manufacturing Co. Ltd. 2012 (9) TMI 914 - SUPREME COURT has held that club membership fees for employees are to be treated as business expenditure of a company under section 37. Disallowance of loss on investments made in South Asian Regional Apex Fund - said loss was claimed vide revised computation of income filed during the course of assessment proceedings - AO was of the firm belief that the ratio laid down in the case of Goetze India Pvt. Ltd. 2006 (3) TMI 75 - SUPREME COURT squarely apply and as the said loss was not claimed vide revised return of income, the AO denied the claim of loss - HELD THAT - When the matter was agitated before the ld. CIT(A), the ld. CIT(A) accepted the view taken by the AO without realizing the fact that the Hon ble Supreme Court has not put any fetter on the powers of the First Appellate Authority to consider the claim of loss through computation of income - we deem it fit to restore the issue to the file of the AO for examination/verification of the claim of loss as per the provisions of law and deciding the issue accordingly. Accordingly, Ground No. 4 is allowed for statistical purposes.

Summary

Issues Involved:

1. Claim of exemption under Section 10(23G) and disallowance under Section 14A.
2. Depreciation on leased assets.
3. Addition under Section 41(4) related to bad debts recovery.
4. Claim of bad debts under Section 36(1)(vii).
5. Business loss and sales promotion expenses.
6. Disallowance of club membership fees.
7. Allocation of interest expenditure and other expenses under Section 14A.
8. Loss on investments in South Asian Regional Apex Fund.

Detailed Analysis:

1. Claim of Exemption under Section 10(23G) and Disallowance under Section 14A:

The tribunal examined the assessee's claim for exemption under Section 10(23G) of the Income Tax Act. The Assessing Officer (AO) had denied this exemption, arguing that the assessee, being a financial institution engaged in banking, did not qualify as an infrastructure capital company or fund. However, the Commissioner of Income Tax (Appeals) [CIT(A)] allowed the exemption, relying on past tribunal decisions and CBDT Circular No. 762, which clarified that companies investing in infrastructure could be treated as infrastructure capital companies. The tribunal upheld the CIT(A)'s decision, stating that the assessee met the conditions for exemption as it provided long-term finance to enterprises engaged in infrastructure development. Regarding disallowance under Section 14A, the tribunal directed the AO to recompute the disallowance following the tribunal's directions in earlier years.

2. Depreciation on Leased Assets:

The AO disallowed the depreciation claimed by the assessee on leased assets, arguing that the transactions were not genuine. The CIT(A) reversed this decision, citing past tribunal rulings in favor of the assessee. The tribunal upheld the CIT(A)'s decision, finding no new lease transactions in the assessment year and noting that the depreciation claim was consistent with previous years where it had been allowed.

3. Addition under Section 41(4) Related to Bad Debts Recovery:

The AO added back amounts related to bad debts written back, arguing that non-cash write-backs should be taxed. The CIT(A) deleted this addition, following the tribunal's past decisions that only actual recoveries should be taxed under Section 41(4). The tribunal agreed, stating that the CIT(A) correctly applied precedent by taxing only actual cash recoveries.

4. Claim of Bad Debts under Section 36(1)(vii):

The AO disallowed the entire claim of bad debts, arguing that the assessee failed to provide sufficient details. The CIT(A) reversed this decision, noting that post-1989, the assessee only needed to write off the debts in its books, not prove they were bad. The tribunal upheld the CIT(A)'s decision, emphasizing that the AO's requirement for additional proof was unnecessary following the legal amendments.

5. Business Loss and Sales Promotion Expenses:

The AO disallowed the claimed business loss, citing a lack of evidence. The CIT(A) allowed the claim, noting that similar claims had been accepted in previous years. The tribunal upheld the CIT(A)'s decision, recognizing the losses as part of ordinary business activities and consistent with prior rulings.

6. Disallowance of Club Membership Fees:

The AO disallowed club membership fees, but the CIT(A) deleted this addition, referencing decisions from the jurisdictional High Court. The tribunal agreed, citing Supreme Court and High Court rulings that treated such expenses as business expenditures.

7. Allocation of Interest Expenditure and Other Expenses under Section 14A:

The tribunal considered the allocation of interest and other expenses related to exempt income. The CIT(A) had followed previous orders, directing the AO to recompute disallowance based on past tribunal decisions. The tribunal found no reason to interfere, as the CIT(A)'s directions were consistent with established precedent.

8. Loss on Investments in South Asian Regional Apex Fund:

The AO denied the claim of loss on investments, citing the Supreme Court's decision in Goetze India Pvt. Ltd., which required claims to be made through revised returns. The CIT(A) upheld this view. However, the tribunal restored the issue to the AO for examination, noting that the CIT(A) had the authority to consider claims made through revised computations.

In conclusion, the tribunal upheld most of the CIT(A)'s decisions, emphasizing consistency with past rulings and legal amendments. The appeal by the revenue was dismissed, while the assessee's appeal was partly allowed for statistical purposes.