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TMI Blog2013 (12) TMI 59X X X X Extracts X X X X X X X X Extracts X X X X ..... pany and is having activities in the nature of leasing, hire purchase, bill discounting, inter corporate deposits and investments. The income of the company is therefore in the nature of lease rent, hire charges, discounting charges, interest and dividend income, which is offered as business income only. In respect of bill discounting and inter corporate deposit, the company had duly offered said income from time to time. Even in earlier years such amounts written off against dues of bills discounting and inter corporate deposits were duly allowed in assessment only. It is therefore submitted that the said sum of Rs. 2,52,41,464/- be allowed as bad debts. Without prejudice to the above it is submitted that the said amount to respective parties were given in the ordinary course of the business and hence the same be granted as business loss. 2. The learned CIT (Appeals) has erred in confirming disallowance of Rs. 60.000/- towards administrative and other expenses correlating the same as expenditure incurred in earning dividend income, which is exempt from tax. On the basic of the facts and circumstances of the case, it is submitted that no specific expendi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o submitted that since the assessee-company was engaged in the business of banking/money lending and since the assessee-company is registered with RBI u/s. 451(A) of the Banking Regulation Act, the amount written off was admissible. Since the same has been written off in the books of account and the respective parties, it was submitted that the conditions of section 36(2) were satisfied in assessee's case. However AO was of the view that except for Rs. 6,70,347/- being tax offered in the profit and loss account in the case of Oversees Syndicate Ltd, none of the other items claimed as bad debt have been credited in the profit and loss account and therefore in view of the above provisions of the Act, claim was not tenable. He further observed that the main income of the assessee's company by way of lease income of Rs. 14.8 crore, hire purchase income at Rs. 3.77 crore and other incomes were very nominal like bill discounting of Rs. 0.13 crore and interest income of Rs. 0.55 crore. He therefore did not accept the plea of the assessee that the case was covered u/s. 36(2) whereby the assessee-company was to be treated as engaged in the business of banking and money lending with respect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ances/deposits and further advancement of the deposits in other concerns is not the regular business of the appellant/the alternative plea of the appellant's representative in respect of these items that the same may be considered as business loss u/s, 28 of the Income Tax Act cannot be accepted. No evidences had been adduced by the appellant company before the AO except that in the case of Mafatlal Industries Ltd., the amounts have been written off since the said company has gone into BIFR and the amounts have been written off in the books. In respect of Overseas Synthetics Ltd. and Precession Fasteners Ltd., deduction is claimed on the basis of amounts written off in the books. Merely writing off in the books of account would not make the claim as business expenditure and also the fact that the final outcome of the claim of the appellant in respect of Mafatlal Industries Ltd whereby proceedings are pending with BIFR has not reached finality. In view of the same, the alternative plea of the appellant u/s. 28 can also not be accepted in respect of these items. However in respect of bad debt claim of Rs. 12,11,182/- in respect of Hanskamal Grover who has since expired and Rs, 41,242 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to whether the ratio as laid down in the case laws now relied by assessee is applicable to the facts of this case or not. For this purpose matter is restored back to the file of AO. 10. In the result assessee's ground No. 1 is allowed for statistical purpose while that of revenue's appeal, is dismissed. 11. There is no ground no. 2 in assessee's appeal. 12. Ground No. 3 of assessee's appeal and ground no. 2 of revenue's appeal relate to disallowance u/s. 14A of the Act of interest of Rs. 22,27,840/- and Rs. 1,20,000/- out of administrative expenses. 13. During the assessment proceedings, AO observed that the assessee-company has made investments of Rs. 319.9 lacs which relate to investment where income was exempt u/s. 10(33). It was also noted by the AO that dividend income of Rs. 98,716/- had not been shown by the assessee-company and claimed as exempt. Having regard to the funds available with the assessee and borrowed funds, the AO made the following disallowance. Cost of fund invested in shares= Investment in shares x Interest expenses =Total funds available =31993354x26438914 383120796 = 22,07,840/- 14. Ld. CIT(A) gave partial relief to the assessee by observing as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... late to earning of income which is tax free. In this respect having regard to the total investments made of Rs. 12.17 lacs and tax free income earned of Rs. 98,716/-, I would consider it reasonable and fair that disallowance of Rs. 60,000/- on this account as some part of the man power and reserves would certainly be utilized for earning such investment. The appellant gets relief of Rs. 60,000/- out of this amount of Rs. 1,20,000/-. To summarize, the total addition u/s. 14A is reduced to Rs. 60,000/- as against Rs. 23,27,840/- and the appellant gets relief of Rs. 22,67,840/- on this account accordingly." 15. Aggrieved by this order now both the parties are before us. Assessee is in appeal in respect of confirming of disallowance of Rs. 60,000/- in respect of expenses incurred for earning dividend income while revenue is in respect of deleting of disallowance of proportionate interest of Rs. 22,07,840/- made by AO u/s. 14A of the Act. At the time of hearing learned counsel of the assessee submitted that unless there was proof of actual expenditure incurred by the assessee to earn the exempt income, no disallowance can be made u/s. 14A of the Act. He therefore prayed that the disall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvolved in this ground is covered against the assessee and in favour of revenue by the decision of Madras High Court in the case of TN Power Finance and Infrastructure Development Corporation Ltd vs. JCIT 280 ITR 491. Therefore the same is dismissed. 21. Ground no. 5 in assessee's appeal is general and does not require adjudication. 22. Ground no. 3 in revenue's appeal relates to lease income of Rs. 4,44,367/- from various assets. Ld. CIT(A) has dealt with this ground as under:- "This relates to non-deletion of lease income of Rs. 4,44,367/ in respect of various assets given on lease on which no depreciation has been allowed in AY. 96-97. This ground appears to be consequential to the finding of the order for A Y. 96-97 and the AO is directed to give consequential effect as per the order of the earlier years including order No. CIT(A)-VIII/ITO/4(2)/21/02-03 dated 27-09-2004 for AY 1996-97. The directions in respect of the same may be followed for this year also." Since it is consequential to the finding on this issue by the Tribunal for A.Y. 1996-97 no separate finding is required by us. This ground is accordingly disposed off. 23. Ground no. 4 & 5 in revenue's ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . DR relied on the order of AO. 29. After hearing both the parties and perusing the record, we find that the contention of the learned counsel of the assessee is not correct when he says that Ld. CIT(A) has followed its order for A.Y. 2001-02 while deciding this issue as in the year 2001-02 bad debt in respect of hire purchase business of the assessee was allowed by Ld. CIT(A) which is not the case during the year under appeal. However we have confirmed the action of Ld. CIT(A) during the assessment year 2001-02 by following the earlier order of the Tribunal in assessee's case for A.Y. 2004-05. Therefore AO is directed to examine whether the facts of this year are similar to that of assessment year 2004-05 wherein bad debt written off by the assessee in the case of its business of hire purchases were allowed by the Tribunal. As far as bad debt in respect of bill discounting is concerned, the matter was restored to the file of AO during the assessment year 2001-02. Following the same, issue relating to bill discounting is restored back to the file of AO for fresh adjudication. This ground is allowed for statistical purpose. 30. Ground No. 3 relates to disallowance of sum of Rs. 15 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the expenditure is laid out or expended for the purpose of business. In light of aforesaid discussion it cannot be said the study was meant for the purpose of business of the assessee company. Had the study was meant for restructuring for expansion of the business or improving the efficiency, it would have been an expenditure for the purpose of business of assessee company. But it was not the case. Therefore, it cannot be said that the study was commissioned for the purpose of the business of the assessee company. Hence the expenditure made towards such consultancy cannot be treated as expenditure allowable u/s. 37 of the Income Tax Act, 1961." 32. It was also noted that even if such expenditure was considered as laid out and expended for the purpose of business of the assessee company, it cannot be said to be in the nature of revenue, as the study was meant for complete restructuring of the assessee company and suggestions given by E&Y were quite radical having impact of enduring nature. The AO also inferred that although no action has been taken on the suggestions of consultant, it cannot be ruled out that the possibility of any action in future. Therefore, such a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT(A) confirmed the action of AO. Before us learned counsel of the assessee reiterated the same submission as made before lower authorities and copy of the report from M/s. E & Y for which consultation fee of Rs. 15,75,555/- was paid was submitted. Ld. DR on the other hand relied on the order of lower authorities. 37. After hearing both the parties and perusing the record, we find that there is no dispute about the fact that this report was prepared by M/s E & Y on the directions of Gujarat Gas Company Ltd and the report was also submitted to Gujarat Gas Company Ltd. It is also not in dispute that study carried by E & Y related to amalgamation and merger for efficient and effective functioning of Gujarat Gas Company Ltd and other group companies. We further find that the finding of Ld. CIT(A) that the bills originally prepared by E & Y were in the name of Gujarat Gas Company Ltd only was not disputed before us. Since the study was commissioned by the Gujarat Gas Company Ltd for efficient and effective functioning of Gujarat Gas Company Ltd only, it cannot be said that this expenditure was incurred fully and exclusively for carrying on business of the assessee. Therefore we are not ..... X X X X Extracts X X X X X X X X Extracts X X X X
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