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TMI Blog2019 (5) TMI 35X X X X Extracts X X X X X X X X Extracts X X X X ..... r a company [the principal business of which is the business of trading in shares of banking or the granting of loans and advances); its total income mainly consists of income derived from the granting of loans and advances. Such being the case, the CIT(A) clearly falls into error in holding that the loss reported pertains to a speculative transaction; the ITAT acted correctly in law in setting aside that finding. Therefore, no question of law arises in this aspect. Write-off of bad debts - Write off of the principal amount - HELD THAT:- ITAT s decision that since the claim for interest had been allowed in the past and was even granted in the current assessment year, the assessee legitimately could claim the write-off as bad debts even towards the principal, was based upon the ruling of the Supreme Court and of this Court [especially IFCI Venture Capital [ 2007 (7) TMI 674 - DELHI HIGH COURT] ], no question of law arises that the assessee in the first instance did not claim the write-off as a deduction per se that does not stop it or preclude it from claiming relief, given the judgment of the Supreme Court in Kedarnath Jute Mfg. Co. Ltd. v. CIT, (Central), Calcutta [ 1971 (8) T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctness of the ITAT s findings with regard to the disallowance under Section 14A. 4. The facts are that although the original entity i.e. Jindal Strips Ltd. was engaged in multifarious activities, pursuant to the de-merger and corporate restructuring process undertaken in 2004-2005, the assessee, however, CONTINUED with the principal objective of functioning as a non-banking financial institution, i.e. advancing loans and engaging in investment activities. It reported a loss for assessment year (AY) 2005-06, to the tune of ₹ 73,54,155/-. The AO after due inquiry was of the opinion that this amount could not be allowed as loss and added it back under Section 68, holding transactions to be suspect. 5. The CIT(A) upon being approached in appeal, granted relief but the Appellate Commissioner, however, held that though the veracity of the transactions stood established, the assessee, had indulged in speculative transactions and therefore, on operation of explanation to Section 73, it is disentitled to the loss, and was rather entitled to setoff the speculative loss against the speculative profit. The ITAT, however, set aside the findings of the CIT(A) holding that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany consists in the purchase and sale of shares of other companies, it is deemed to be carrying on a speculative business. In the present case, assessee falls within the exception carved out in the part of the section, which is found in the parenthesis ( other than a company whose gross total income consists mainly of income which is chargeable under the heads Interest on securities , Income from house property , Capital gains and Income from other sources , or a company [the principal business of which is the business of trading in shares of banking or the granting of loans and advances); its total income mainly consists of income derived from the granting of loans and advances. Such being the case, the CIT(A) clearly falls into error in holding that the loss reported pertains to a speculative transaction; the ITAT acted correctly in law in setting aside that finding. Therefore, no question of law arises in this aspect. 11. As to the second question [in ITA 1142/2018], which is write off of the principal amount, this Court notices that the relief was granted on interest. The AO disallowed the interest. Interestingly, the assessee had not claimed write-off of the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts and circumstances of this case. 14. On the last question urged by the Revenue i.e. disallowance under Section 14A, this Court notices that at the outset the period when the disallowance was to be calculated- in both appeals, was when there was no Rule 8D setting out the formula for calculating disallowance, under Section 14A(3). The assessee had claimed that it incurred no expenditure in earning dividend (i.e. tax exempt) income, which constituted approximately 40% of its income. The AO rejected its argument, and roughly apportioned about 9-10% of the exempt income, which bore some proportion to the tax exempt income: for instance, in AY 2005-06, the tax exempt income was ₹ 4.06 crores and the disallowance by the AO (and the CIT (A)) was ₹ 36,35,873/-; for AY 2006-07, the tax exempt income was ₹ 6.50 crores and the disallowance calculated was ₹ 72.62 lakhs. 15. The tribunal s reasoning for the first year, which prevailed in its analysis for the second year, is as follows: .. 7. We have heard the rival submissions. It is not a dispute that Rule 8D is applicable from AY 2008-09. The assessee submitted before the AO that it has n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... leading to tax exempt income. The Assessing Officer, under section 14A read with rule 3D of the Income-tax Rules, 1962, disallowed expenditure in respect of the dividend earned by the assessee holding that interest bearings funds had been used to earn tax-free dividend. The Commissioner (Appeals) held that the Revenue had not been able to prove that interest bearing funds were used. This was confirmed by the Tribunal holding that as the Assessing Officer had failed to prove that interest bearing funds were used, it would not invite disallowance under section 14A. On appeal: Held, dismissing the appeal, that as there was no tangible material on record that could have enabled the Assessing Officer to record satisfaction in terms of section 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 e ..... X X X X Extracts X X X X X X X X Extracts X X X X
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