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TMI Blog2013 (9) TMI 688X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO for fresh adjudication as and when the decision of the Hon'ble Supreme Court is rendered on this issue in the case of Exide Industries Ltd., which has been decided by Kolkata High court referred in [2007 (6) TMI 175 - CALCUTTA High Court ] and which is still pending before the Hon’ble Apex court. Disallowance of Bad Debts – A.O. disallowed the amount on the reason that no details were furnished – Held that:- The claim of amount satisfy the conditions of section 36(2) as these are taken into the books of account - These advances/ receivables are part of the business activity of the assessee and there is no dispute with reference to the amounts being receivable - Except the amount of TDS, which is claimed as bad debt, other amounts, in our view, are allowable as bad debt and in the alternative also as business loss - For the purpose of verification including the claim written off as TDS, the issues are restored to the file of the AO to examine the facts first and then decide according to law – Matter restored to the file of A.O. – Decided in favor of Assessee for statistical purpose. - ITA No. 6575/Mum/2010, ITA No. 6266/Mum/2010 - - - Dated:- 17-9-2013 - Shri B. Ramak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly 6.58 Total 21.08 The assessee also earned other income of ₹ 11.45 crores on deposits where borrowed funds are used for existing business and such interest income is offered to tax on which there is no dispute. The AO held that as there was expansion of business, the interest income on surplus funds parked would be taxed as income relying on Hon'ble Supreme Court decision in the case of Tuticorin Alkali Chemicals and Fertilizers Ltd. 227 ITR 172 and cannot be capitalized. The learned CIT(A) upheld the order of the AO and rejected the contention of the assessee of direct nexus between interest earned and interest expended. The CIT(A) held that income was assessable as income from other sources as revenue receipts and cannot be reduced from interest expenses during construction period. 4. It was the submission that there is a direct nexus between interest income and interest expenses so capitalised. The learned counsel explained that the fixed deposits are kept out of the borrowed funds or for the purpose of import of machinery and the third item pertains to EDCP account. It was also submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to tax or adjusted in the construction account. Therefore, without going into the various case law relied upon by the assessee, we restore the issue to the file of the AO to examine the nexus aspect of the earning of interest income on borrowed funds, specifically borrowed for the purpose of project which is under construction and decide accordingly. The assessee is free to raise the contentions raised before us and the AO is directed to examine the facts and law before deciding the issue. In case the AO considers that there is no nexus and income from interest has to be treated as income from other sources and adjustment for higher capitalisation as requested by the assessee without prejudice to the above the contentions, is also to be examined. With these directions, the issue in grounds No. 1 to 4 are restored to the file of the AO for examination of facts and necessary consideration. Grounds are allowed for statistical purpose. 7. Ground No. 5 pertains to disallowance of leave encashment of ₹ 1,03,25,488/-. During the year the assessee made a provision of leave encashment on actuarial basis which was disallowed by the AO as a provision. The learned CIT(A), relying on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mount of 5% of the dividend earned, i.e. ₹ 7,83,850/- can be considered as expenditure incurred for earning exempt income on a reasonable basis. Accordingly, the disallowance is restricted to an amount of ₹ 7,83,850/-. Ground is partly allowed. 11. Grounds No. 10 11pertain to disallowance of bad debt. The assessee has written off an amount of ₹ 1,36,74,180/- as bad debts in the books of account. The details of the amount are as under: - Sl. No. Particulars Amount (Rs.) 1 Accounted earlier as margin money receivable from bank, now written off 1,27,22,597 2 Written off on account of tax u/s 193 paid by the assessee during F.Y. 1999-2000 from interest on securities paid to the Bank but the amount was not received from the bank 7,58,221 3 Deposits given to landlord while taking flats on Leave and Licence written off 1,50,000 4 Advance to Employees written off 43,362 Tota ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mount on the reason that no details were furnished. The learned CIT(A) also did not examine the claim in its correct perspective and even the alternative claim was also not considered. The amounts satisfy the conditions of section 36(2) as these are taken into the books of account. These advances/ receivables are part of the business activity of the assessee and there is no dispute with reference to the amounts being receivable. Therefore, we are not in agreement with the opinion of the learned CIT(A) that the amounts are not satisfying the conditions of section 36(2). Even otherwise the amounts that are not recoverable can also be written off as loss incidental to business, as these arose in the course of assessee's business activity. Except the amount of TDS, which is claimed as bad debt, other amounts, in our view, are allowable as bad debt and in the alternative also as business loss. To the extent of claim of TDS, we are unable to understand the transactions as no details are placed and whether this amount was not received from the bank either as TDS certificate or as amount in cash etc. As stated earlier the AO did not examine the issue in the absence of complete details ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he decision of the Hon'ble High Court in the case of Liberty India to submit that the word used in 80IB is derived' therefore, there should be primary source of income and government incentives cannot be an eligible profit. 17. We have considered the issue and examined the facts as placed on record. There is no dispute with reference to the claim and the amount of reimbursement to the assessee. It was stated that total subsidy was apportioned to the eligible units. The basis of apportionment is not placed on record nor mentioned in the order. The nexus of reimbursement by way of subsidy is to be established so as to consider the claim of assessee that reimbursement infact reduces the interest claim. As seen from the record how the amounts are quantified, whether the amount is part of the unit interest cost claimed earlier were not examined/ not on record. After considering the arguments of both the sides, we deem it proper to set aside this particular issue to the file of the AO with the direction to examine whether the reimbursement of interest cost is reimbursement of revenue expenditure debited to the P L Account of that eligible unit to that extent either in this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . But since the same was not raised before the AO, we restore the issue to the file of the AO for fresh consideration. 20. Ground No. 17 raised by the assessee is an additional ground pertaining to disallowance of prior period expenses which as subject matter of the Revenue appeal in ITA No. 6226/Mum/2010. The assessee is a listed public company. It was submitted that the accounts the assessee are finalised within few days of the year end and most bills are not received till the finalisation and hence provision was made on estimated basis. In next year, actual invoices are booked against provision made and any shortfall was debited to P L Account. As per annexure to tax audit report, certain expenses of ₹ 13,71,417/- were shown as prior period expenses. The assessee submitted that out of the total expenses, ₹ 2,31,656/- pertained to current year and were inadvertently mentioned as prior period expenses. The AO disallowed the balance expenses of ₹ 11,39,761/-. Before the CIT(A) the assessee submitted that the expenses were incurred for purposes of business and hence should be allowed. The CIT(A) relying on the decision in the case of Sterlite Industries (India ..... X X X X Extracts X X X X X X X X Extracts X X X X
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