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TMI Blog2016 (10) TMI 1247X X X X Extracts X X X X X X X X Extracts X X X X ..... has filed an affidavit for condonation of delay by stating that the records of the case inadvertently got mixed up with other files and thereby there was short delay of three days in filing the appeal before the Tribunal. By referring to the affidavit, the ld. DR has requested for condoning the delay and to admit the appeal for hearing. The ld. Counsel for the assessee did not seriously object to the submissions of the ld. DR. Accordingly, we condone the delay of three days in filing the appeal and admit the appeal for hearing. 3. The only effective ground raised in the appeal of the Revenue is that the ld. CIT(A) has erred in directing the Assessing Officer to restrict the disallowance under section 14A of the Income Tax Act, 1961 ["Act" in short] to 2% of the exempted income instead of applying Rule 8D by relying on the decision of the Hon'ble Mumbai High Court in the case of Godrej & Boyce Mfg. Co. Ltd. v. DCIT [2010] 328 ITR 81. 3.1 Brief facts of the case are that the assessee is engaged in the business of manufacture and sale of tractors, engineering plastic components and batteries and trading in related parts and attachments. The assessee filed its return of income on 30 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, whereas, the assessee has not excluded any expenditure relatable to this exempt income. Accordingly, the assessee was asked to submit the expenditure directly relatable to the dividend income earned. In response thereto, vide its letter dated 21.12.2011, the assessee has furnished the details of employees directly involved in investments and treasury activities and their salaries and allowance to the extent of Rs..29,62,697/- shall be considered as expenditure as per Rule 8D(1). However, by applying clause (i), (ii) and (iii) to Rule 8D, the Assessing Officer has disallowed Rs..1,46,62,697/- as an expenditure incurred in relation to earning exempt income not allowable. On appeal, the ld. CIT(A) restricted the disallowance of expenditure under section 14A of the Act to 2% of the dividend income which works out to Rs..18,89,963/- i.e. 2% of Rs..9,44,98,000/-. On perusal of the assessment order, it is amply clear that the assessee as admitted applicability of Rule 8D and offered a sum of Rs..29,62,697/- as expenditure as per Rule 8D(1) towards earning of dividend income. However, during the course of appellate proceedings, the assessee has submitted before the ld. CIT(A) that Ru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... employees directly involved in investments and treasury activities and their salaries and allowance to the extent of Rs..38,32,986/- shall be considered as expenditure as per Rule 8D(1). However, by applying clause (i), (ii) and (iii) to Rule 8D, the Assessing Officer has disallowed Rs..2,86,76,429/- as an expenditure incurred in relation to earning exempt income not allowable. On appeal, by following the decision of the Tribunal in the case of M/s. Lakshmi Ring Travellers v. ACIT in I.T.A. No. 2083/Mds/2011 dated 02.03.2012, the ld. CIT(A) confirmed the disallowance made by the Assessing Officer. Against the above order of the ld. CIT(A), the assessee is in appeal before the Tribunal. 4.1 We have considered the rival submissions and perused the materials on record and find that the Assessing Officer has determined the expenditure in relation to income which does not form part of the total income under section 14A of the Act r.w.s Rule 8D (i), (ii) & (iii) of the Income Tax Rules and made the disallowance. In the case of M/s. Lakshmi Ring Travellers v. ACIT (supra), the Tribunal has held that section 14A(1) declares the law that the expenditure incurred by the assessee in relatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . In the assessee's appeal for the assessment year 2008-09, the only effective ground raised is with regard to confirmation of disallowance of bad debt written off of Rs..16,73,43,000/-. 6.1 In the Profit and Loss Account, the assessee had debited a sum of Rs..18,84,38,000/- towards debts/advances written off. During the course of assessment proceedings, the assessee was asked to furnish the break up details along with details for advances written off. While verifying the details, the Assessing Officer has noticed that the assessee had written off a sum of Rs..16,73,43,000/- receivable from its own sister concern M/s. Alpump Limited. The assessee was asked to explain the reasons for the write off of the above advances and also to furnish ledger account copy. The assessee, vide its submission dated 16.12.2011, has stated as under: "The vendor was supplying components for tractors From 2006. The vendor requested the company to provide advance for increasing the capacity to supply additional quantity to the company and also requested to adjust the advance against future supplies. Based on the request the company provided advance from time to time. The vendor could not supply the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Alpump Limited has supplied materials worth of only Rs..12.26 lakhs during the year. As per ledger account as on 01.04.2007, Rs..8,95,74,350/- was due from M/s. Alpump Ltd. Therefore whatever the supplies made to be made by M/s Alpump Ltd can comfortably be adjusted against the opening balance. Thus, there was no need to give any further advances towards supply of materials. This clearly shows that these advances are not given for any supply of materials in the regular course of business. With regard to the contention of the assessee that these advances were utilized by the subsidiary for increasing its capacity to supply additional quantity, the Assessing Officer has opined that these advances given towards supply of materials can very well be adjusted towards its future supply commitments. Further, he noticed that these advances were mainly given during the current year and last year which can be easily collectible. It is not the case of the assessee that the advances are outstanding from last many years. Moreover, M/s. Alpump Limited is not any outside party to say that advances are irrecoverable for various reasons like bankruptcy or not traceable etc. Further, the Assessing Of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the decision of the Hon'ble High Court of Madhya Pradesh, in the case of Binodiram Balchand & Co. Vs. CIT as mentioned above is against the appellant's case. The write off as irrecoverable of any debt or part thereof is specifically is dealt under section 36(1)(vii) which is subjected to the provisions of section 36(2). For ready reference, the provisions of section 36(2) is reproduced hereunder: Section 36(2) - In making any deduction for bad debt or part thereof the following provisions shall apply - (i) no such deduction shall be allowed unless such debt or part thereof has been taken into account in computing the income of the assessee of the previous year in which the amount of such debt or part thereof is written off of an earlier previous year, or represents money lent in the ordinary course of the business of banking or money - lending which is carried on by the assessee (ii) if the amount ultimately recovered on any such debtor part of debit is less than the difference between the debt or part and the amount so deducted, the deficiency shall be deductible in the previous year in which the ultimate recovery is made; (iii) any such debt or part of debt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er concern. Anyway, whatever advances given by the assessee to its subsidiary can very well be adjusted towards its future supply commitments. It is not the case that the sister concern M/s. Alpump Ltd. is any outside party to say that the advances are irrecoverable for various reasons like bankruptcy or not traceable, etc. The advances were mainly given during the current year and last year which can be easily collectible. M/s. Alpump Ltd. is assessee's own subsidiary company, the affairs of which are very well under the control of the assessee being a major shareholder. Moreover, in view of the provisions of section 36(1)(vii) of the Act, for claiming loan advanced to sister concern/subsidiary as bad debts, it is obligatory on the part of the assessee, which is advancing such loans to sister concern/subsidiary to show that proper efforts were made for recovery purposes and otherwise, such entries would be susceptible to draw an adverse inference, putting such entries in gamut of attempts at reducing taxable income by reducing profit and resultant reduction in capital. In this case, the assessee has not explained any efforts stated to have been made for recovery of the advances. F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e us, the ld. Counsel for the assessee has argued that even though the competent authority being DSIR has not allowed the entire expenditure incurred towards R & D and restricted to the extent of Rs..25,95,58,340/-, the Assessing Officer should have allowed the balance expenditure under section 35(2) of the Act and pleaded that the disallowance made by the Assessing Officer should be deleted. 8.4 Per contra, the ld. DR has submitted that once the expenditure incurred towards R & D activities was allowed under section 35(2AB) of the Act, no deduction shall be allowed in respect of the R & D expenditure under any other provisions of the Act as specified under section 35(2AB)(2) of the Act. 8.5 We have considered rival submissions. In Form 3CL, the DSIR allowed the expenditure towards R & D to the extent of Rs..25,95,58,340/- and accordingly, the Assessing Officer restricted the expenditure under section 35(2AB) of the Act against assessee's claim of Rs..26,70,95,840/-. Before the ld. CIT(A), the assessee has claimed to allow the balance expenditure incurred towards R & D activities under section 35(2) of the Act @ 100%. The provisions of section 35(2) of the Act is meant for the pu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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