2015 (10) TMI 11 - AT - Income Tax

Validity of re-opening of assessment u/s. 147 - addition made u/sec 2 (22)(e) - Held that - None of the case law cited by the assessee fits to the facts and circumstances of the case in hand. In this case the additions made as deemed dividend u/s 2(22)(e) of the Act have already been confirmed by the CIT(A) in relation to base year AY 2001-02. On the date of reopening of the assessment for the year under consideration, the AO had reasonable belief that the income of the assessee for the year under consideration had escaped assessment. Hence we do not find any merit in Ground No.1 in relation to the validity of the reopening of the assessment. - Decided against assessee. Additions in relation to provision for bad debts - Held that - The Hon ble Supreme Court in the case of T.R.F. Ltd. 2010 (2) TMI 211 - SUPREME COURT has held that in order to obtain a deduction in relation to bad debts, it is not necessary for the assessee to establish that the debt, in fact, has become irrecoverable; it is enough if the bad debt is written off as irrevocable in the accounts of the assessee. In view of above observations, this issue is restored to the file of the AO to examine it a fresh and decide the same in the light of the decision of the Hon ble Supreme Court (supra). - Decided in favour of assessee for statistical purposes. Addition u/s 14A made on account of disallowance of expenditure incurred in relation to earning of the exempt income - Held that - Jurisdictional High Court in the case of Godrej & Boyce manufacturing Co. Ltd. vs. DCIT 2010 (8) TMI 77 - BOMBAY HIGH COURT wherein, it has been held that the AO has to look into the working of the assessee at the time of making disallowance u/s 14A. The Hon ble Bombay High Court in the case of Reliance Utilities and Power Ltd. 2009 (1) TMI 4 - HIGH COURT BOMBAY has observed that if there are funds available with the assessee, both interest free and overdraft/loans taken, then presumption would arise that investments would be out of the interest free funds generated or available with the assessee. A similar view was taken by the Hon ble Bombay High Court in the case of HDFC Bank Ltd. 2014 (8) TMI 119 - BOMBAY HIGH COURT . We find that the above contentions of the assessee have not been examined by the AO. Further, he is not having the benefit of going through the decisions of the Hon ble Jurisdictional High Court on the issue at the time of making the assessment. We accordingly restore this issue also to the file of the AO with direction to examine the contentions of the assessee in the light of the above decisions of the Hon ble Jurisidictional High Court and decide the issue a fresh.- Decided in favour of assessee for statistical purposes.

Summary

Issues involved:
1. Validity of reopening of assessment u/s 147
2. Disallowance of Bad-Debts written off u/sec 36(1)(vii) r.w.s. 36(2)
3. Disallowance u/sec 14A of additional interest expenditure

Detailed Analysis:
1. Validity of reopening of assessment u/s 147:
The appeal was against the order of the Commissioner of Income Tax (Appeals) for assessment year 1998-99. The AO reopened the assessment based on unsecured loans received by the assessee, treating them as deemed dividend u/s 2(22)(e) for AY 2001-02. The assessee argued that since the additions for AY 2001-02 were deleted by the Tribunal, the reopening was invalid. The ITAT held that the case laws cited by the assessee were not applicable. The Tribunal found the AO had a reasonable belief for reopening, as the additions were confirmed by CIT(A) for AY 2001-02. Thus, the ground challenging the validity of reopening was dismissed.

2. Disallowance of Bad-Debts written off u/sec 36(1)(vii) r.w.s. 36(2):
The assessee contested the disallowance of bad debts written off under sec 36(1)(vii) due to a clerical error in financial statements. The AR argued that the debts were actually written off and cited the Supreme Court decision in T.R.F. Ltd. case. The ITAT directed the AO to reexamine the issue in light of the Supreme Court decision, as it was not necessary to prove irrecoverability for claiming bad debt deduction. The matter was remanded for fresh consideration.

3. Disallowance u/sec 14A of additional interest expenditure:
The assessee challenged the disallowance of expenses under sec 14A related to earning exempt income. The AR contended that separate accounts were maintained for different units, and investments were made from interest-free funds. The ITAT noted that the AO did not consider the working provided by the assessee or relevant High Court decisions. The matter was remanded to the AO for reevaluation in line with the jurisprudential decisions cited by the assessee. The appeal was partly allowed for statistical purposes.

In conclusion, the ITAT Mumbai addressed the issues of validity of reopening, bad debts disallowance, and disallowance of additional interest expenditure, remanding some matters for fresh consideration by the AO based on legal principles and factual contentions presented during the appeal.