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TMI Blog2015 (7) TMI 248X X X X Extracts X X X X X X X X Extracts X X X X ..... write off of bad debts and write off of advances so that there is clarity while deciding the issue, we remand this issue also to the file of the AO with similar directions for de novo consideration of the issue after giving the assessee a fair opportunity of hearing. - Decided in favour of assessee. Disallowance of interest u/s 14A read with rule 8D - Held that:- In cases where there has been substantial investment for strategic purposes wherein the intention has been the expansion and support of the assessee's business, and not for the purpose of earning dividend, the provisions of section 14A of the Act ought not to have been invoked even if such expansion has occurred out of interest bearing borrowed funds. Ruling to this effect has been rendered by the Hon'ble Karnataka High Court in the case of CCI Ltd. (2012 (4) TMI 282 - KARNATAKA HIGH COURT ) relied on by the assessee. This is the proposition put forth in this case by the assessee, apart from its averments that its own funds are more than the investment in equities. We also find that the Assessing Officer has not considered the above arguments of the assessee and his finding that the assessee's net worth is negative suf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... H Sundar Rao, CIT(DR) ORDER Per: Bench: In all these appeals filed by the assessee as well as the revenue against the orders of the CIT(A) for the assessment years 2007-08, 2008-09 and 2009-10, similar issues are involved and therefore, they are heard and disposed of by this common and consolidated order. 2. ITA No.1277/Bang/2010(Assessment year 2007-08): The Assessing Officer (AO) had made the disallowance of (i) bad debts and advances written off (ii) interest u/s 14A of the Income-tax Act, 1961 [hereinafter referred to as 'the Act' for short] read with rule 8D of the Income Tax Rules, [hereinafter referred to as 'the Rules' for short], and (iii) set off of brought forward business loss. The learned counsel for the assessee submitted that similar issue had arisen in the assessee' own case for the assessment year 2006-07 and 'A' bench of this Tribunal, by order dated 23/01/2015 in ITA No.1276/Bang/2010, had deleted the disallowances. A copy of the said order is filed before us. 2.1 As regards the issue of bad debts and advances written off i.e. ground No.3 of abridged grounds of appeal filed by the assessee is concerned, we find that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng allowed. Debtors - Advances not recoverable. UB Distilleries Ltd. Rs.1,57,42,000 CSD Debtors - Shaw Wallace Distillery Books. Rs.1,40,83,000 Karnataka Breweries Distilleries Rs.2,76,91,000 Skokie Traders Pvt. Ltd. Rs.8,80,80,000 Midas Golden Distilleries Ltd. Rs.3,20,55,000 Salson Dist - TMU (Debtors) Rs.4,78,000 UD Distributors (TDV) Rs.20,57,489 Chitwan Distilleries Rs.25,00,000 6.3 Before the learned CIT (Appeals), the assessee put forth its explanations and submissions in support of its claim and also produced the ledger extracts and other evidences. The learned CIT (Appeals) while dealing with this issue declined to examine / look into the ledger extracts and other evidences while confirming the additions / disallowances; holding as under at page 11 of the impugned order :- . Even otherwise, the ledger extract and other evidences produced during ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laced before him, in a much as it was the same evidences which were placed before the Assessing Officer and therefore there was no case with the learned CIT (Appeals) for applying Rule 46A in the manner he did. The learned Authorised Representative argued that a detailed letter dt.27.9.2010 filed before the learned CIT (Appeals), placed at pages 198 to 205 of the assessee's paper book was only an elaboration of the evidences and explanations which were available before the Assessing Officer and not any fresh evidences. The learned Authorised Representative prayed that in the factual circumstances as laid out above, the issue in question may be restored to the file of the Assessing Officer for fresh consideration of the details and evidences in accordance with the principles laid down by the Hon'ble Apex Court in the case of TRF Ltd. (supra) and the decision of the co-ordinate bench in the assessee's own case for Assessment Year 2005-06 (supra). 6.5 The learned Departmental Representative for revenue submitted that since the assessee's claim of write off of bad debts was made in the statement of total income and not in the profit and loss account, it is not allowa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are of the opinion that it would be in the interest of equity and justice that it is absolutely necessary for the Assessing Officer to re-examine all the facts of the matter regarding the assessee's claims for write off of bad debts and write off of advances so that there is clarity while deciding the issue. We, therefore, restore these issues of the assessee's claims for write off of bad debts and write off of advances to the file of the Assessing Officer to be dealt with in the light of our observations after affording the assessee adequate opportunity of being heard and to file details required and after considering the submissions already made by the assessee in the light of the judicial pronouncements cited and relied on by the assessee (supra). It is ordered accordingly. Consequentially, ground No.3 of the assessee's appeal is treated as allowed for statistical purposes. Since the facts before us are also similar to the facts in the assessment year 2006-07, we remand this issue also to the file of the AO with similar directions for de novo consideration of the issue after giving the assessee a fair opportunity of hearing. The ground No.3 is accordingly allowed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the acquisition of investment held by Primo Distributors (15%), Shaw Wallace Company Ltd. (40%) and SWDL Benefit Trust (40%) that the entire control over Shaw Wallace Distilleries Ltd. has been acquired. It is also stated that through the amalgamation of Shaw Wallace Distilleries Ltd. (with effect from 1.4.2005) it has acquired 10 manufacturing units along with tie-up arrangements in many States, which gave rise to significant addition to turnover and profits. 6.10 It is also argued by the assessee that the shares of Shaw Wallace Company Limited and Primo Distributors Ltd. are forming part of the overall strategy to acquire the business carried on by the Shaw Wallace Company Ltd. Regarding the fund invested in the shares of these companies, it is stated that no borrowal could be attributed to these investments, as these investments are not for earning any tax free income. The assessee claims that the provisions of section 14A cannot be applied to any of the investments made by it in shares. 6.11 The assessee has not furnished any details to prove that the investments were made as an overall strategy to acquire the business carried on by the Shaw Wallace Company Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shares is determined in accordance with the formula s provided under Rule 8D(1) of the Income Tax Rules,1962 as under : Aggregate of the following : (i) Nil (the amount of expenditure directly relating to income which does not form part of total income. (ii) A X B C Here, A = 173,30,55,000 (i.e. the amount of expenditure by way of interest other than the amount of interest directly relating to income which does not form part of total income. B = ₹ 505,60,79,500* average of 34550153 66671.06 after reducing 3663.67 lakhs (i.e., the average of value of investment, income form which doesnot or shallnot form part of the total income as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year. C = ₹ 160848.695 lakhs **(i.e. the average of total assets as appearing on the balance sheet of the assessee on the first day and the last day of the previous year. (Average of beginning and end + 86278.53 235418.86**) Therefore, * Excluding the value of investment of ₹ 3663.67 lacs made in Asian Opportunities and Investments Ltd. and Mc Dowell Nepal Limited as this investment is offered to tax a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed for purpose of earning the income (which include the interest income credited to profit and loss account) which form part of the total income. During the assessment year under consideration, the total expenses on interest finance charges are incurred to the extent of ₹ 173,30,55,000 against the total of borrowed and interest free fund available to the extent of ₹ 2435,35,48,000, thus the average cost of the borrowing works out to 7.11%, on application of this rate to the investment of ₹ 592,71,51,000, the disallowable amount out of interest and finance charges under section 14A of the Income Tax Act works out to ₹ 42,14,20,436. In addition to the interest and finance charges, for making the huge investments, the appellant has also to incur the expenses out of other expenses and therefore reasonable disallowance out of the other expenses is also to be made, on this regard, the disallowance made by the Assessing Officer at ₹ 2,52,80,397 is reasonable looking to the facts and circumstances of the case. Thus the total disallowance under section 14A works out to ₹ 44,67,00,833 (Rs.42,14,20,436 + ₹ 2,52,80,397), accordingly, the disall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsisting of capital and reserves and surplus far in excess of the total investments of ₹ 702.02 Crores, indicating that the assessee had sufficient non-interest bearing funds. It was conceded that the bank accounts of the assessee consisted of both interest free and interest bearing funds, and thus the assessee's funds were mixed in nature. It is contended by the learned Authorised Representative that even in such cases, no proportionate disallowance, as made by the authorities below, could be sustained as held in the cases of CIT V Suzlon Energy Ltd. (354 ITR 630) (Guj); DCIT V Maharashtra Seamless Ltd. 138 TTJ 244 (ITAT, Delhi) and Voltas Ltd. V ACIT 125 TTJ 601 (ITAT, Mumbai). 8.3.3 The learned Authorised Representative further submitted that the Assessing Officer had made a factual error at page 10 of the order of assessment by holding that the assessee's net own funds were negative even though the net worth was over ₹ 896 Crores. Even out of the total dividend earned amounting to ₹ 4,28,93,165, an amount of ₹ 1,69,29,000 was earned from its overseas subsidiary which is taxable, and the exempt dividend was only ₹ 2,59,66,165. The learne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orders of the authorities below suffer from nonconsideration of arguments, details and evidences put forth by the assessee, we, in the interest of equity and justice, set aside the disallowance under section 14A of the Act and restore the matter to the file of the Assessing Officer with the direction to consider the matter afresh in detail and decide the issue after affording the assessee adequate opportunity of being heard and to file details / evidence required and addressing the submissions made by the assessee in this regard. It is ordered accordingly. Consequently, grounds No.7 to 9 of the assessee's appeal are treated as allowed for statistical purposes. The facts and circumstances being similar, we remand this issue also to the file of the AO for re-consideration and in accordance with law after giving the assessee a fair opportunity of hearing. 2.3 Ground No.7 of the abridged grounds of appeal filed by the assessee is against the disallowance of set off of brought forward business loss of ₹ 16,13,58,199/-. We find that this issue is consequential to the findings of the AO on the first two issues i.e. bad debts and advances written off and disallowance u/s 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd perused and carefully considered the material on record, including the judicial decision cited and placed reliance on by the assessee. We find that the issue of foreign exchange loss on similar facts was before the coordinate bench of the Tribunal for consideration, in the assessee's own case for Assessment Year 2005-06 (supra), and the issue was decided in favour of the assessee, wherein at para 6 of the order it was held as under :- 6. On the issue of foreign exchange loss on conversion claim, as noted by the authorities below, details as in the paper book have been furnished to establish nexus of incurring this loss as a business loss in the hands of the assessee. The annexure furnished indicates the forward rate and the spot rate during the accounting year therefore resulted in loss amounting to ₹ 1.8 Crores is brought out clearly to be allowed as a business loss when primarily the assessee indicates that the loans were obtained in foreign exchange for working capital from its banks therefore indicated that a foreign exchange loss as noted by the bank was not to be borne by the banks but by the assessee. Therefore it is clear that the assessee has been able to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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