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TMI Blog2018 (4) TMI 879X X X X Extracts X X X X X X X X Extracts X X X X ..... n favour of assessee Disallowance of bad debts u/s 36(1)(vii) r.w.section 36(2) - Held that:- interest amount that it is allowable under above provision and issue is covered by the judgement of Hon’ble Supreme Court in the case of TRF Ltd. (2010 (2) TMI 211 - SUPREME COURT). Since the assessee was an investment company and it was a principal business of the assessee to grant loan and advance which was also granted earlier, therefore, if the principal amount and interests is not recoverable from debtor company for last several years, the assessee correctly write off same in its books of account as irrecoverable. The claim of the assessee is supported by the balance sheet of the debtor company to show that they have accumulated losses. The decisions relied upon by Ld. Counsel for the assessee support the claim of bad debt on principal amount as well as on interests. The AO thus should not have rejected the claim of the assessee. The claim of the assessee thus allowable as bad debts as well as business loss. Addition u/s 14A - Held that:- In the absence of any satisfaction recorded by the AO, no disallowance should have been made by the authorities below. The assessee claimed th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Nalwa Metal & Alloys Ltd. and M/s Gagan Trading Co.Ltd. There is no infirmity pointed in the order of Ld.CIT(A) in following his order for AY 2007- 08. These grounds of appeal of the Revenue are dismissed. - ITA No. 1425/Del/2013, ITA No. 2246/Del/2013, ITA No. 1426/Del/2013, ITA No. 1428/Del/2013, ITA No. 2206/Del/2013, ITA No. 1429/Del/2013, ITA No. 2207/Del/2013, ITA No.6545/Del/2014, ITA No. 6972/Del/2014, ITA No.6546/2014 And ITA No. 6973/Del/2014 - - - Dated:- 16-4-2018 - SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI L.P.SAHU, ACCOUNTANT MEMBER For The Appellant : Sh. Ashwani Kumar, CA For The Respondent : Sh. S.R.Senapati, Sr.DR ORDER PER BHAVNESH SAINI, JUDICIAL MEMBER This order shall dispose of all the above cross-appeals filed in the case of the same assessee because the issues are common in all the matters. 2. We have heard Ld. Representatives of both the parties and perused the material on record. These appeals are decided as under:- ITA No. 1425/Del/2013 [Assessee s Appeal] (AY: 2005-06) ITA No. 2246/Del/2013 [Revenue s Appeal] (AY: 2005-06) 3. Both these cross-appeals are directed against the order of L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ale of shares and payments made through account payee cheques and subsequent details of receipt into bank were filed. The assessee has also filed copies of the bank accounts containing entries of purchase of the shares and sale proceeds are reflected. The assessee also provided copies of the DEMAT Account with ICICI Bank clearly showing both transactions. The AO disregarded all these positive evidences filed by the assessee and disallowed the incurring of the loss of ₹ 73,54,155.80 on mere suspicion. The trading loss should be allowed to the assessee. 3.2. Ld.CIT(A) considering the documentary evidences and material on record held that the genuineness of the transactions cannot be doubted and cannot be a ground for disallowance. Ld.CIT(A), however, referred to Explanation to section 73 of the Income Tax Act, 1961 (in short Act ) and noted that the assessee company is not covered by exception. The NBFC registration has been granted to the assessee company on 25.07.2005 after the end of the FY on 31.03.2005. Thus, it was not a financial or investment company covered by the exception, therefore, the loss claimed by the assessee was held to be loss in speculation business and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the Hon ble Punjab Haryana High Court w.e.f 01.04.2002. The formal order has been issued on 30.06.2003. The assessee filed application for a certificate of registration to commence/carry on business of a non banking financial institution with RBI on 09.03.2004 in which RBI have been informed that the scheme of arrangement and demerger was approved by the Hon ble Punjab Haryana High Court and consequent upon scheme of arrangement and demerger of Jindal Strips Ltd. has become an investment company and shall be registered as non banking finance company under the provision of section 45 IA of RBI Act, 1934. The assessee accordingly, made an application for certificate of registration to carry on business of a non-banking financial institution. The assessee also filed another letter dated 10.05.2005 in which it was informed that name of M/s Jindal Strips Ltd. earlier has been changed to Nalwa Sons Investment Ltd., i.e. the assessee. RBI accordingly issued a certificate of registration in favour of the assessee dated 25.07.2005 permitted to/commence/carry on business of non-banking financial institution subject to certain conditions. Ld. Counsel for the assessee, therefore, rightly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regating to ₹ 1438.24 lacs to be allowed as bad debt u/s 36(1)(vii) r.w.section 36(2) of the Act. The AO had disallowed ₹ 32,49,97,000/- claimed by the assessee as bad debt. The assessee challenged the addition before Ld.CIT(A) and filed written submissions, same is reproduced in the appellate order in which the assessee explained that the AO has added a sum of ₹ 32,49,97,000/- as bad debts. In the income tax return for AY under appeal, the assessee has claimed a sum of ₹ 32,49,97,000/- being the amount written off as Not recoverable from the companies to whom loans were advanced. The details of the amount advanced with its break-up as to the principle amount and the interest amount involved are as under:- ( Rs. In Lacs) Principle amount Int. amount ( i) Jindal Holdings Ltd. 1097.25 946.00 ( ii) Colorado Trading Co.Ltd. 714.48 492.24 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s) becomes Sub Standard Assets if the assets in respect of which interest remained overdue for a period of six months or more, it should be written off in book of account. The assessee filed letter of Auditor in which he asked the assessee to substantiate the recoverability of the above said loans, therefore, the assessee was constrained to write off the same amount i.e. principal and interests in the books of accounts of the company. Similar is the position with respect to M/s Colorado Trading Company, therefore, the assessee claimed deduction u/s 36(1)(vii) of the Act. The assessee relied upon the decision of Hon ble Supreme Court in the case of Kedarnath Jute Manufacturing Company Ltd. 82 ITR 363 (SC). The assessee also filed additional ground of appeal to claim deduction of ₹ 1811.73 lakhs principal amount of loans advanced in earlier year to these parties which was written off and not recoverable during the year, considering the fact that grant of loan is a principal business of a company as NBFC. 5.2. Ld.CIT(A) as regards the writing off bad debt relating to interest amounting to ₹ 1438.24 lakhs noted that w.e.f. 01.04.1989 section 36(1)(vii) of the Act provide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quired to prove whether the amount had become bad during the year or not. The write off was bona fide. Under the circumstances, the assessee was duly entitled for deduction of the sum on account of bad debts and there was no infirmity in the reasoning given by the Tribunal on that point and, as such, no substantial question of law arose for court s consideration and the revenue s appeal was not maintainable. ( ii) ITAT, Hyderabd Bench in the case of ITW Signode India Ltd. vs DCIT [2007] 110 TTJ 170 (Hyderabad) in which in para 17 held as under:- 17. We have duly considered the rival contentions and the material on record. Of course, the fact that the outstanding balance due from Glen View includes commission and lease rent does not find a mention in the order of the AO as well as the CIT(A). However, papers placed in the paper book at PP.65 to 70 do reveal this fact and these papers were certainly before the lower authorities as the certificate appended to the paper book indicates. Therefore, it cannot be said to be a new fact brought on record. The assessee may have leased factory and plant to Glen View but that fact does not have any bearing on the claim of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other hand, Ld. DR submitted that the assessee was not an NBFC in AY under appeal. The deduction of interests allowed may be restored to the AO for verification. 6. We have considered rival submissions. On Ground No.1, it is held that the assessee was an NBFC in AY under appeal and the registration as such is effective from the date of application dated 09.03.2004 because of the scheme of arrangement and demerger approved by the Hon ble Punjab Haryana High Court vide judgement dated 30.06.2003 whereby the assessee shall be deemed to be an investment company and shall be registered as non banking financial company as per RBI Act. The assessee has filed the balance sheet of the debtor company to show that they have accumulated loss from earlier years. The investment was made by the assessee way back in 1998 and not in the year under consideration. The principal amount could not be recovered and even the interest was also not recoverable. The assessee company, therefore, written off the principal amount as well as interests as irrecoverable in its books of accounts as per section 36(1)(vii) of the Act. The assessee, therefore, satisfied the condition of section 36(1)(vii) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3/- by invoking the provisions of section1 4A of the income tax Act, 1961 on the account of expenses incurred to earn exempt income (Dividend) whereas no expenditures were incurred by it to earn the said income as the investments had come to the Appellant Company upon demerger and yielded dividend income without any further expenditure. 6.4. The AO disallowed ₹ 36,35,873/- by invoking provisions of section 14A of the Act. The written submission of the assessee is reproduced in the appellate order in which the assessee briefly explained that the dividend income received by the assessee amounting to ₹ 4,06,58,564/- out of the total income of ₹ 10,08,56,000/-. The assessee has not incurred any expenditure for earning the said dividend income. The AO has also fairly noted that no interest element is involved. The AO should have followed the same in respect of other expenditure as the assessee has not incurred any expenditure for earning the dividend income. It was submitted that investments are existing since 1998 and has come to the assessee company upon demerger. The assessee does not incur any expenditure for earning the said dividend income. The assessee con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iture incurred to earn exempt income. It was, therefore, held that the AO should proceed u/s 14A(2) of the Act to collect material and evidences to determine expenses. In the case of Hero Cycles 323 ITR 518 (Punjab Haryana High Court), it was held that disallowance was not permissible where no nexus established between expenditure incurred and income generated. Where no expenditure incurred, no disallowance. The decision of Hon ble Delhi High Court in the case of Taikisha Engineering India Ltd. 370 ITR 338 (Delhi), it was held that no disallowance to be made in absence of satisfaction recorded by the AO as to why voluntary disclosure made by the assessee was unreasonable and unsatisfactory . In the case of Kapsons Associates 381 ITR 204 (Punjab Haryana High Court), it was held that when the assessee claimed old investment made out of capital and reserves, no separate amount borrowed for making investment and no reasons have been recorded to reject the explanation of the assessee, no disallowance be made. In the case of CIT vs Abhishek Industries Ltd. [2016] 380 ITR 652 (P H) by the Punjab Haryana High Court held as under:- Section 14A of the Income-tax Act, 1961, em ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 14A the findings recorded by the Commissioner (Appeals) and the Tribunal that the Assessing Officer had failed to discharge this onus were neither perverse nor arbitrary and, therefore, did not call for interference. 8. Considering the facts of the case and in the absence of any satisfaction recorded by the AO, no disallowance should have been made by the authorities below. The assessee claimed that no expenses have been incurred for earning dividend income and investments were existing since 1998 and further admittedly no interest element is involved to earn dividend income would show that no borrowed funds have been used for making investment. If AO was not satisfied with the explanation of the assessee, he should have brought some material on record to disbelieve the explanation of the assessee. He should record his satisfaction as to how the explanation of the assessee was unreasonable and unsatisfactory. In the absence of any evidence on record, disallowance made by the AO is not sustainable. We, accordingly, set aside the orders of the authorities below and delete the addition. This ground of appeal of the assessee is allowed. Ground No.4 4. That the orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... und No.5 5. That the order dated 03.01.2013 passed u/s 250 of the Income Tax Act, 1961 by the Learned Commissioner of Income tax (Appeals)-I, New Delhi is against law and facts on the file in as much as he was not justified to sustain the addition made by the Learned Assessing Officer of ₹ 3,60,000/- regarding expenditure for filing fees and for issue of preference share capital which had been claimed as a deduction u/s 35-D on the ground that the same represents capital expenditure and that it does not fulfill the conditions for claiming deduction u/s 35D. 10.1. Ld. Counsel for the assessee did not press this ground, the same is dismissed as not pressed. 11. The Revenue has raised Ground Nos. 1 2 as under:- 1. The Ld.CIT(A) has erred in law and on facts in holding remuneration paid to management consultant amounting to ₹ 6,00,000/- as business expenditure allowable u/s 37(1) of the Act though the same were incurred for expansion of the business. 2. The Ld.CIT(A) has erred in law and on facts by ignoring the provision of section 37 of the I.T. Act, wherein it is provided that the business expenditure not of capital nature is allowable unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AY 2005- 06 made the disallowance u/s 14A of the Act. Ld. Representatives of both the parities submitted that this issue is same has been considered under AY 2005-06. In AY 2005-06, we have deleted the entire addition u/s 14A of the Act. Following the order of AY 2005-06, we set aside the orders of the authorities below and delete the addition. This ground of appeal of the assessee is allowed. 14. In the result, the appeal of the assessee is partly allowed. ITA No.1428/Del/2013 (Assessee s Appeal) (AY 2008-09) ITA No. 2206/Del/2013 (Revenue s Appeal) (AY 2008-09) 15. Both these cross appeals are directed against the order of Ld.CIT(A)- XVI, Delhi dated 31.01.2013 for AY 2008-09. 15.1. Ld. Counsel for the assessee did not press Ground No.1 of the appeal of the assessee, the same is dismissed as not pressed. Ground No.2 (Assessee s appeal) 2. That the order dated 31.01.2013 passed u/s 250 of the Income tax Act, 1961 by the Learned Commissioner of Income tax (Appeals) XVI, new Delhi is against law and facts on the file in as much as he was not justified in sustaining the addition on account of imputed interest on Non performing assets made by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said interest bearing advance to Jindal Steel Alloys Ltd. as nonperforming asset on the ground of non-recovery is contrary to the facts of the case. Ld.CIT(A) noted that since advance is already recovered in AY under appeal from Jindal Steel Alloys Ltd., therefore, on mercantile system of accounting, the AO is fully justified in adding the accrued interest income. Therefore, addition to the extent of ₹ 49,07,985/- was maintained. 15.3. However, as regards, the advance given to remaining two parties, Ld.CIT(A) noted that in AY 2007-08, he has deleted the addition vide order dated 31.01.2013 which is reproduced in the appellate order in which Ld.CIT(A) noted that since the assessee is a NBFC company shall have to follow RBI Guidelines strictly. No interest could be charged on presumptive basis. Ld.CIT(A) following his order of AY 2007-08 deleted the addition of interests of ₹ 5,19,220/- and ₹ 70,775/-. 16. The Revenue also raised following Ground Nos. 1, 2 and 3 which read as under:- 1. The Ld. CIT(A) has erred in law and on facts in directing the AO to delete the additions of ₹ 5,89,995/- made on account of interest on advances made to M/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd relied upon decision of Hon ble Supreme Court in the case of CIT vs Raman (A.) Co. [1968] 067 ITR 0011 (SC). On the other hand, Ld. DR relied upon the order of the AO. 16.4. After considering rival submissions, we do not find any merit in thess grounds of appeal of the Revenue. The assessee is a NBFC, the assessee has to follow RBI Guidelines with regard to accounting of NPAs and interests income relating thereto. The assessee followed RBI Guidelines. Ld.CIT(A) in AY 2007-08 decided the same issue in favour of the assessee. Since recovery of the principal amount is in dispute and no amount of loans outstanding against these parties have been recovered in past, therefore, the assessee correctly did not account for interests in the books of accounts. Ld.CIT(A), therefore, correctly deleted the addition on accrual of interests in respect of M/s Nalwa Metal Alloys Ltd. and M/s Gagan Trading Co.Ltd. There is no infirmity pointed in the order of Ld.CIT(A) in following his order for AY 2007- 08. These grounds of appeal of the Revenue are dismissed. 16.5. The assessee raised Ground No.3 which reads as under:- 3. That the order dated 31.01.2013 passed u/s 250 of the Income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idered in AY 2005-06. Following the reasons for decision for the same, we set aside the orders of the authorities below and delete the addition sustained by Ld.CIT(A). As regards, departmental appeal, whatever amount were disallowed by the assessee suo motu have been reduced by Ld.CIT(A). Therefore, there is no infirmity in the order of the Ld.CIT(A) in doing so. This ground of appeal of the assessee is allowed and departmental appeal is dismissed. 18. In the result, the appeal of the assessee is partly allowed and departmental appeal is dismissed. ITA No. 1429/Del/2013 [Assessee s Appeal] (AY: 2009-10) ITA No. 2207/Del/2013 [Revenue s Appeal] (AY: 2009-10) 19. Both these cross appeals are directed against the order of Ld.CIT(A)- XVI, Delhi dated 31.01.2013 for AY 2009-10. 19.1. Ld. Counsel for the assessee did not press Ground No.1 of the appeal of the assessee, the same is dismissed as withdrawn. 19.2. Ground Nos.2 3 of the appeal of the assessee read as under:- 2. That the order dated 31.01.2013 passed u/s 250 of the Income tax Act, 1961 by the Learned Commissioner of Income tax (Appeals)-XVI, New Delhi is against law and facts on the file ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee as is directed in AY 2008-09 (supra). Ground No.1, 2 3 of Revenue s appeal are, however, dismissed. 22. Ground No.3 of the appeal of the assessee and Ground No.4 of the department are similar as have been decided in AY 2008-09. Following the same reasons for decisions for AY 2008-09, we set aside the orders of the authorities below and delete the entire addition. The appeal of the assessee is allowed and Revenue s appeal is dismissed. 23. In the result, the appeal of the assessee is partly allowed and departmental appeal is dismissed. ITA No. 6545/Del/2014 [Assessee s Appeal] (AY: 2010-11) ITA No. 6972/Del/2014 [Revenue s Appeal] (AY: 2010-11) 24. Both these cross-appeals are directed against the order of Ld.CIT(A)- XVI, Delhi dated 30.09.2014 for AY 2010-11. The assessee filed the appeal on the following ground:- That the order dated 30.09.2014 passed u/s 250 of the Income Tax Act, 1961 by the Learned Commissioner of Income Tax (Appeals) XVI New Delhi is against law and facts on the file in as much as he was not justified to restrict the disallowance to the tune of ₹ 43.96 lakhs being the expenditure allegedly incurred in re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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