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2022 (7) TMI 374 - AT - Income TaxDeduction u/s 36(1)(vii) - writing off of bad debts in the books of accounts of the assessee - CIT(A) recorded a finding that the writing off of the loans is an actual writing off and not a provision and the same is bona fide and based on its commercial expediency of the assessee - HELD THAT - As in the light of the addition of the Hon ble Apex Court in the case of Vijaya Bank ( 2010 (4) TMI 46 - SUPREME COURT we are of the considered opinion that in this matter the assessee not only debited the amount of doubtful debt to the P L Account but in fact registered the value of assets in the Balance Sheet, and therefore we find that it s not the case of mere creating provision but actual writing off of the bad debts, and accordingly the assessee is entitled to the deduction under section 36(1)(vii) of the Act. On this premise we uphold the findings of the Ld. CIT(A) and dismiss ground No. 1 of the appeal. Disallowance u/s. 14A r.w.r. 8D - HELD THAT - In view of the decision of Acb India Ltd. 2015 (4) TMI 224 - DELHI HIGH COURT for the purpose of computing the disallowance u/s. 14A of the Act only such investments which yielded exempt income during the year should be taken into consideration, but not the entire investment. Going by that principle, we find that during the year, the investment in Karnataka Bank Ltd. alone yielded dividend income. Assessee s contention that such an initial investment to the tune of Rs.35.35 crores was made in the assessment year 2007-08 and for that year, the assessee had free cash reserves to the tune of Rs.81.70 croes, was considered by the coordinate Bench of this Tribunal 2020 (9) TMI 141 - ITAT DELHI accepted the contention of the assessee as far as the investment in shares of Karnataka Bank Ltd. was concerned. It is, therefore, clear that no disallowance could be made towards interest expense u/r. 8D(2)(ii) of the rules. We accordingly uphold the finding of the ld. CIT(A) on this aspect and dismiss ground No. 2 of this appeal. Disallowance of business promotion expenses - Nature of expenditure - Revenue or capital expenditure - HELD THAT - In so far as incurring of expenses is concerned, there is no doubt. There is no reason either for the authorities or for this tribunal to discard the policy manual for support services fee and recovery of expenses from the subsidiaries, in accordance with which the allocation of expenses were made. It is also not in dispute that the expenses were incurred for the purpose of business. In CIT vs. Salora International Limited 2008 (8) TMI 138 - DELHI HIGH COURT held that the expenses incurred on advertisement and business promotion are to be treated as revenue expenditure. In the instant case, it is also pertinent to note that as a result of advertising and business promotion activities undertaken by REL on behalf of the assessee, loans granted by assessee have significantly increased from 1711,35,45,136/- in assessment year 2009-10 to Rs.4085,59,04,068/- in assessment year 2010-11, resulting to corresponding increase of interest income earned thereon from Rs.282,80,50,151/- in A.Y. 2009-10 to Rs.407,16,62,922/- in A.Y. 2010-11. Therefore, the business promotion expenses reimbursed by assessee to REL were for the purpose of business and hence, such expenditure has to be treated as revenue in nature. Consequently, this ground of Revenue s appeal is dismissed.
Issues Involved:
1. Disallowance of bad debts written off. 2. Disallowance under section 14A of the Income Tax Act read with Rule 8D of the Income Tax Rules. 3. Disallowance of business promotion expenses. Detailed Analysis: 1. Disallowance of Bad Debts Written Off: The assessee, a non-banking financial company (NBFC), claimed a deduction for bad debts amounting to Rs. 47,40,16,508/- written off in the ordinary course of its lending business. The Assessing Officer (AO) disallowed this claim, arguing that the write-off was merely a provision for bad and doubtful debts, not an actual write-off, and thus not allowable under the Income Tax Act. The CIT(A) found that the write-off was genuine and based on commercial expediency, supported by the assessee's compliance with RBI's prudential norms and actual reduction of loans and advances in the balance sheet. The Tribunal upheld the CIT(A)'s decision, referencing the Supreme Court's ruling in Vijaya Bank vs. CIT, which clarified that debiting the profit and loss account and reducing the asset side of the balance sheet constitutes an actual write-off. 2. Disallowance under Section 14A read with Rule 8D: The assessee received exempt dividend income and initially disallowed Rs. 3,06,93,175/- under section 14A of the Act, later revising it to Rs. 33,12,333/-. The AO, however, computed a higher disallowance, adding Rs. 1,46,15,417/- for interest under Rule 8D(2)(ii). The CIT(A) restricted the disallowance to Rs. 33,12,333/-, considering only the investments that yielded exempt income during the year. The Tribunal upheld this, noting that the investment in Karnataka Bank Ltd. alone yielded dividend and was funded by sufficient cash reserves in the relevant year, thus no interest disallowance was warranted. 3. Disallowance of Business Promotion Expenses: The assessee incurred Rs. 2,35,81,618/- in business promotion expenses, including Rs. 1,95,10,255/- reimbursed to Religare Enterprise Ltd. (REL) for expenses incurred on its behalf. The AO disallowed this amount, questioning the absence of an agreement and treating the expenses as capital in nature. The CIT(A) found the expenses to be revenue in nature, incurred for advertisement and sponsorship, and allocable to the assessee based on a policy manual. The Tribunal agreed, citing the Delhi High Court's ruling in CIT vs. Salora International Limited, which treated similar expenses as revenue expenditure. The Tribunal also noted the significant increase in the assessee's loans and interest income as a result of these promotional activities, further justifying the revenue nature of the expenses. Conclusion: The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decisions on all three issues. The bad debts were considered actual write-offs, the disallowance under section 14A was restricted to the revised amount, and the business promotion expenses were treated as revenue in nature.
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