2023 (5) TMI 317 - AT - Income Tax

Disallowance u/s 14A read with Rule 8D - HELD THAT - Disallowance u/s 14A read with Rule 8D was deleted by the Tribunal in assessee s own case for the subsequent assessment years 2021 (10) TMI 1105 - ITAT DELHI holding that the share of profit from the partnership is mere distribution of income and is already been taxed, hence provisions under section 14A are not attracted in such cases. We observe that the Tribunal also held that if there is no exempt income no disallowance is called for under section 14A and finally the Tribunal directed the AO to re-compute the disallowance keeping in view the guidelines mentioned therein. Following the judgement of the Tribunal we direct the Assessing Officer to re-compute the disallowance, if any, under section 14A read with Rule 8D of the I.T. Rules keeping in view the guide-lines set out by the Tribunal in the order for the assessment years 2011-12 to 2014-15. This ground is partly allowed. Disallowance of write off of bad debts - AO held that the amount written off by the assessee was not allowable as deduction u/s 36 since the same was not part of profit and loss account and was in the nature of trade advances - HELD THAT - We hold that since the assessee had advanced the loan to its employee on account of business interest and due to shut down of the operations entity the loan become irrecoverable and was written off by the assessee along with the imprest lying with the employee who was looking after day-to-day business and the same is allowable as business loss u/s 28 of the Act. As regards the Sundry advances written off, we observe that the same was provided as advances to various parties for entering into a new business of supply of packaged food items and since the business could not be materialized the assessee had written off the sundry advances given to various parties. Mumbai Tribunal in the case of DCIT Vs. M/s. Edelweiss Capital Ltd. 2011 (2) TMI 284 - ITAT MUMBAI held that the moneys advanced for development of web site of the assessee which was written off subsequently for the reason that the web site did not materialize and the advances became irrecoverable the write off claim by the assessee is a loss incidental to the business and, therefore, allowable as business loss in terms of the provisions of section 28 - Therefore, sundry advances written off by the assessee are allowable as deduction under section 28 of the Act as business loss. We direct the AO to delete the disallowance made out of bad debts. This ground is allowed. TP Adjustment in respect of receipt of receivables from AE - HELD THAT - As following the order of the co-ordinate bench in the case of L.T. Foods Ltd. ( 2022 (4) TMI 1499 - ITAT DELHI we direct the Assessing Officer to delete the transfer pricing adjustment made on account of receivables from AE. This ground is allowed. Deduction u/s 80IB(11A) - Denial of deduction as assessee was engaged in manufacture and sale-purchase of rice and not storage handling transportation of food grains as provided under that section - HELD THAT - On perusal of the order of the Tribunal in assessee s own case for the assessment year 2009-10 2021 (6) TMI 258 - ITAT DELHI we observe that the issue in appeal has been decided by the Tribunal in assessee s favour holding that the deduction u/s 80IB(11A) of the Act is allowable in the case of the assessee as it fulfills the parameters of the exemption clauses specified under this section.

Summary

Issues Involved:

1. Disallowance under section 14A read with Rule 8D of the Income Tax Rules.
2. Disallowance of write-off of bad debts.
3. Transfer pricing adjustment in respect of receipt of receivables from Associated Enterprises (AE).
4. Deduction under section 80IB(11A) of the Income Tax Act.

Summary:

Disallowance under section 14A read with Rule 8D:

The assessee received Rs.98,05,824/- as share of profit from a partnership firm, which was claimed as exempt under section 10 of the Income Tax Act. The Assessing Officer disallowed Rs.25,44,063/- under section 14A read with Rule 8D, which was upheld by the CIT (Appeals). The Tribunal, referencing its previous decisions, held that the share of profit from the partnership is mere distribution of income already taxed, and thus, provisions under section 14A are not attracted. The Tribunal directed the Assessing Officer to re-compute the disallowance, if any, following the guidelines set out in previous orders.

Disallowance of write-off of bad debts:

The assessee wrote off Rs.39,05,136/- as bad debts, comprising a loan to Mr. Amit Jain and advances paid for a new business venture. The Assessing Officer and CIT (Appeals) disallowed the write-off, stating it was not part of the profit and loss account and lacked evidence of irrecoverability. The Tribunal, however, found that the loan was advanced for business purposes and became irrecoverable due to the shutdown of operations. Citing various judicial precedents, the Tribunal allowed the write-off as a business loss under section 28 of the Act.

Transfer pricing adjustment in respect of receipt of receivables from AE:

The Transfer Pricing Officer (TPO) re-characterized the delay in receipt of receivables from AE as unsecured loans and imputed notional interest, which was upheld by the CIT (Appeals). The Tribunal, referencing the decision in L.T. Foods Ltd. and the jurisdictional High Court's ruling in Kusum Health Care Pvt. Ltd., held that such adjustments are unwarranted if no interest is charged from non-AEs on similar delays. The Tribunal directed the Assessing Officer to delete the transfer pricing adjustment.

Deduction under section 80IB(11A):

The Assessing Officer denied the deduction under section 80IB(11A), stating the assessee was engaged in manufacturing and sale-purchase of rice, not in storage, handling, and transportation of food grains. The CIT (Appeals) allowed the deduction, recognizing the integrated business of the assessee. The Tribunal, referencing its previous decision in the assessee's own case and the case of L.T. Foods Ltd., upheld the CIT (Appeals) decision, confirming that the assessee fulfilled the conditions for deduction under section 80IB(11A).

Conclusion:

The appeal of the assessee was partly allowed, and the appeal of the Revenue was dismissed. The Tribunal directed the Assessing Officer to re-compute the disallowance under section 14A, allowed the write-off of bad debts as business loss, deleted the transfer pricing adjustment, and upheld the deduction under section 80IB(11A).