2015 (3) TMI 139 - AT - Income Tax

Disallowance of deduction as bad debts - CIT(A) deleted addition - Held that - CIT(A) vide deleting the addition has noted that Assessee has fulfilled all the requirements u/s. 36(1)(vii) for claiming the amount as bad debts. He further relying on the decision Hon ble Apex Court in the case of TRF Ltd. Vs. CIT reported in 2010 (2) TMI 211 - SUPREME COURT allowed the claim of Assessee. Before us Revenue has not brought any material on record to controvert the findings of ld. CIT(A). We further find that the decision relied upon by ld. D.R. are distinguishable on facts and do not apply to the present case. In view of these facts we find no reason to interfere with the order of ld. CIT(A) Thus this ground of Revenue is dismissed - Decided in favour of assessee. Disallowance u/s 14A - CIT(A) deleted addition - Held that - Assessee was having shareholders funds comprising of Capital, reserves and surplus which were far in excess of the investment. In the case of Reliance Utilities (2009 (1) TMI 4 - HIGH COURT BOMBAY) the Hon ble Bombay High Court held that that if there are funds available both interest-free and overdraft and/or loans taken, then a presumption would arise that investments would be out of the interest-free funds generated or available with the company, if the interestfree funds were sufficient to meet the investments and therefore, interest was deductible. Further CIT(A) has also given a finding about availability of sufficient interest free funds. We further find that Revenue has not brought any material on record to controvert the findings of ld. CIT(A). In view of these facts, we find no reason to interfere with the order of ld. CIT(A) and thus this ground of Revenue is dismissed. - Decided in favour of assessee.

Summary

Issues:
1. Disallowance of bad debts claimed by the Assessee.
2. Disallowance of interest expenditure under section 14A r.w.r. 8D.

Issue 1: Disallowance of Bad Debts:
The Revenue appealed against the order of CIT(A)-VIII regarding the disallowance of bad debts claimed by the Assessee for A.Y. 2009-10. The Assessee, engaged in construction works, declared a total income of RS. 7,62,35,480/-. The dispute arose when the AO disallowed the claim of bad debts amounting to &8377; 1,03,21,009/-, contending that the bad debt pertained to a Joint Venture for work related to MSRDC. However, the CIT(A) allowed the claim, stating that the Assessee, being a subcontractor, had fulfilled all requirements under section 36(1)(vii) for claiming the bad debt. The CIT(A) referred to the Supreme Court decision in T.R.F. Limited vs. CIT and directed the AO to delete the addition. The ITAT upheld the CIT(A)'s decision, noting that the Revenue failed to provide evidence to challenge the findings. The ITAT dismissed the Revenue's appeal on this ground.

Issue 2: Disallowance of Interest Expenditure:
The second issue revolved around the disallowance of interest expenditure under section 14A r.w.r. 8D. The AO disallowed &8377; 22,32,577/- as he believed the Assessee had invested interest-bearing funds in shares without maintaining separate accounts for exempt income. The CIT(A) partially allowed the claim based on the Assessee's submissions and the decision in the Assessee's own case for A.Y. 08-09. The CIT(A) referred to Rule 8D and the availability of interest-free funds. The ITAT, after reviewing the Balance Sheet and relying on the decision in Reliance Utilities case, confirmed the CIT(A)'s decision, emphasizing the presence of sufficient interest-free funds. The ITAT found no merit in the Revenue's appeal on this issue and dismissed it accordingly.

In conclusion, the ITAT upheld the CIT(A)'s decisions on both issues, dismissing the Revenue's appeal in its entirety. The judgments were based on the Assessee's compliance with relevant provisions and the lack of evidence presented by the Revenue to challenge the findings.