2020 (12) TMI 97 - AT - Income Tax

Disallowance u/s.14A r.w Rule 8D - CIT-A re-worked out disallowance - HELD THAT - A perusal of section 14A would indicate that the expenditure attributable to earning of exempt income is to be disallowed. If the assessee has not debited any expenditure or has not claimed any expenditure for earning exempt income, then on presumptive basis expenditure cannot be calculated for disallowance. CIT(A) has appreciated the case of the assessee based on the details and explanation given by the assessee, and also observed inaccuracy in working out average investment i.e. instead of ₹ 41,89,019/-, the AO has taken the figure ₹ 1,07,72,757/- because as per the balance sheet, investment income which are exempted as on 31.3.2014 was ₹ 41,89.019 and as on 31.3.2013 was of ₹ 41,89,019/-. We find that the ld.CIT(A) has examined the issue critically and re-worked out disallowance in accordance with the provisions contained in section 14A and the rule referred thereto Disallowance of claim of bad debt - HELD THAT - This issue is squarely covered by the decision of TRF Ltd. 2010 (2) TMI 211 - SUPREME COURT and Reliance Petrochemical 2010 (3) TMI 80 - SUPREME COURT wherein it is held that as per the amended provision, condition precedent for claiming bad debts is that assessee has to write off amount of bad debts in its books of account - in order to claim deduction under section 36(1)(vii) it is sufficient for the assessee to demonstrate that debt in fact has become irrecoverable and it has been written as such in the accounts of the assessee. The assessee in the present case has given a detailed note regarding the reasons for writing off the amounts in its books of accounts before the ld.CIT(A), and held that the AO was not justified in denying the claim of the assessee. No reason to interfere in the order of the CIT(A). It is upheld, and the ground of appeal of the Revenue is rejected.

Summary

Issues:
1. Disallowance under section 14A r.w Rule 8D of the Act, 1961
2. Disallowance of claim of bad debt

Analysis:
1. The Revenue appealed against the order of the ld.CIT(A)-1, Ahmedabad regarding the disallowance under section 14A r.w Rule 8D of the Act, 1961. The AO calculated a disallowance of ?1,71,035, which the ld.CIT(A) reduced to ?53,373 after analyzing the details provided by the assessee. The ld.CIT(A) corrected the average value of investment income considered by the AO and the interest expenses, resulting in the revised disallowance amount. The Tribunal upheld the ld.CIT(A)'s decision, stating that if no expenditure is claimed for earning exempt income, then presumptive basis expenditure cannot be calculated for disallowance. The Tribunal found no infirmity in the ld.CIT(A)'s order and rejected the Revenue's appeal on this issue.

2. The AO disallowed a claim of bad debt amounting to ?1,73,37,301 made by the assessee. The AO contended that the assessee failed to substantiate that the debts had become bad and irrecoverable. However, the assessee provided detailed explanations and reasons for writing off the bad debts in its books of accounts. The ld.CIT(A) relied on legal precedents and held that the conditions for claiming bad debts deduction were satisfied as the debts were written off in the accounts. The Tribunal agreed with the ld.CIT(A)'s decision, citing legal judgments supporting the assessee's position. The Tribunal rejected the Revenue's appeal on this issue, upholding the order of the ld.CIT(A).

In conclusion, the Tribunal dismissed the Revenue's appeal, affirming the decisions of the ld.CIT(A) on both issues. The order was pronounced on 8th September 2020 at Ahmedabad.