2015 (10) TMI 2060 - HC - Income Tax

Disallowance u/s. 14A - Tribunal restored back the issue of disallowance to the Assessing Officer for fresh consideration - Held that - As decided in assessee s own case on similar issue 2015 (10) TMI 1752 - BOMBAY HIGH COURT the impugned order of the Tribunal has restored both the issue to the Assessing Officer i.e. with regard to the applicability of Section 14A of the Act with a direction that in case the RespondentAssessee fails to satisfy the Assessing Officer of utilization of its own funds and/or interest free funds for the purpose of making investment in the light of the order in Reliance Utilities & Power Ltd. (2009 (1) TMI 4 - HIGH COURT BOMBAY), then in that event, the disallowance be determined under Section 14A of the Act. This, undoubtedly would be on an application of a reasonable method as held by this Court in Godrej & Boyce (2010 (8) TMI 77 - BOMBAY HIGH COURT). Thus, we are at a loss to understand the grievance of the revenue. No substantial question of law. - Decided against revenue. Claim of bad debts - Tribunal allowing written off amount as irrecoverable as the same has to be allowed as bad debt u/s 36 (1) (vii) r.w.s.36 (2) - Tribunal held that investment in ICDS was part of the business activity as interest accrued therefrom has been treated as business income and loss arising on such investment was allowed as business loss? - Held that - In view of the above acceptance of the interest received as business income by the revenue in the earlier years it is not open to it to now take up a plea that the amount which are written-off as interest not received cannot be allowed as loss on account of business. Thus the interest not received can be written off in terms of section 36 (1) (vii) of the Act. Moreover, once the interest received on ICDs is held to be income chargeable to tax under the head business income the lending on which this amount of interest was earned by the respondent has necessarily to be in the course of its activity of business and therefore allowed as business loss. The contention on behalf of the revenue that the amount received on settlement should have been first adjusted towards the principal amount and only thereafter the interest amount is not acceptable as there is nothing on record to indicate that debtors had directed the respondent to adjust the amount being repaid in a particular manner. Therefore, in view of sections 60 of the Indian Contract Act it is at the option of the person receiving money to adjust the same either against the principal or interest as it deem fit. Therefore, we find no reason to interfere with the order of the Tribunal as it does not give rise to any substantial question of law. - Decided against revenue.

Summary

Issues:
1. Disallowance under section 14A of the Income Tax Act, 1961
2. Allowance of written-off amount as bad debt under section 36 (1) (vii) r.w.s.36 (2)

Issue 1: Disallowance under section 14A of the Income Tax Act, 1961
The High Court addressed the issue of disallowance under section 14A of the Income Tax Act in the context of an appeal challenging the order of the Income Tax Appellate Tribunal (the Tribunal) for the assessment year 2002-03. The revenue questioned the Tribunal's decision to restore the issue of disallowance under section 14A for fresh consideration. However, the Court noted that a previous order had settled the matter against the revenue in favor of the respondent-assessee for the assessment year 2001-02. Consequently, the Court did not entertain this question as it did not give rise to any substantial question of law.

Issue 2: Allowance of written-off amount as bad debt under section 36 (1) (vii) r.w.s.36 (2)
Regarding the allowance of a written-off amount as a bad debt under section 36 (1) (vii) r.w.s.36 (2) of the Act, the respondent-assessee had debited an amount to the Profit and Loss A/c for InterCorporate Deposits (ICDs) that were written off during the assessment year. The Assessing Officer initially disallowed the claim for deduction on account of the write-off as ICDs. The Commissioner of Income Tax (Appeals) upheld this decision. However, the Tribunal, in its order, considered the interest received on ICDs as business income and accepted it for taxation from previous years. The Tribunal held that the interest received on ICDs being taxed as business income necessitated the allowance of the principal amount as business loss and the interest amount as bad debt under section 36 (1) (vii) read with section 36 (2) of the Act.

The Court found that the revenue's contention that the adjustment of amounts received from debtors on ICDs should have been done differently was not valid. It noted that the interest not received could be written off under section 36 (1) (vii) of the Act. Additionally, the Court emphasized that the interest earned on ICDs was part of the business activity, allowing for the deduction of the principal amount and interest as business loss. Referring to previous judgments, the Court concluded that the principal amount would also be allowed as a deduction under section 36 (2) (i) of the Act.

Moreover, the Court cited a previous case where similar contentions were raised by the revenue, ultimately leading to the dismissal of the appeal. The Court held that the issue did not give rise to any substantial question of law and, therefore, was not entertained. Consequently, the Court dismissed the appeal, stating that no costs were to be awarded.