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TMI Blog2018 (8) TMI 1972X X X X Extracts X X X X X X X X Extracts X X X X ..... Write off of bad debts disallowed - HELD THAT:- Assessee was a publisher of newspaper and magazines. Though it say that one of its objects is to carry on business of money lending, obviously, it was only one of the incidental and/or other object and not its main object. That apart, we find that the loan given to Mr. Sanjay Khemani was the sole instance of a loan given to any person other than those who were not related to its main business assessee. Hence, in our opinion assessee s claim that it had advanced loan to Mr. Sanjay Khemani as a part of its business is not acceptable. As for the judgment of M/s. TRF Ltd. [ 2010 (2) TMI 211 - SUPREME COURT] relied on by the Ld.AR their Lordships did not hold that conditions set out in sections.36(1)(vii) and Sec.36(2) were not required to be satisfied while effecting a write off of bad debts. Therefore, in our opinion the lower authorities were justified disallowing claim as bad debt write off. We do not find any reason to interfere with the orders of the lower authorities. - Decided against assessee. - ITA No.710/Chny/2018, Cross Objection No.65/Chny/2018 - - - Dated:- 1-8-2018 - SHRI ABRAHAM P.GEORGE, ACCOUNTANT MEMBER AND SH ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts which have been cited before us, some of which have already been taken note of above. 32) In the first instance, it needs to be recognised that as per section 14A(1) of the Act, deduction of that expenditure is not to be allowed which has been incurred by the assessee in relation to income which does not form part of the total income under this Act . Axiomatically, it is that expenditure alone which has been incurred in relation to the income which is includible in total income that has to be disallowed. If an expenditure incurred has no causal connection with the exempted income, then such an expenditure would obviously be treated as not related to the income that is exempted from tax, and such expenditure would be allowed as business expenditure. To put it differently, such expenditure would then be considered as incurred in respect of other income which is to be treated as part of the total income. 33) There is no quarrel in assigning this meaning to section 14A of the Act. In fact, all the High Courts, whether it is the Delhi High Court on the one hand or the Punjab and Haryana High Court on the other hand, have agreed in providing this interpretation to section 14A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot form part of total income, then the related expenditure is outside the ambit of the applicability of section 14A.. xxx xxx xxx The theory of apportionment of expenditure between taxable and non-taxable has, in principle, been now widened under section 14 A. 35) The Delhi High Court, therefore, correctly observed that prior to introduction of Section 14A of the Act, the law was that when an assessee had a composite and indivisible business which had elements of both taxable and non-taxable income, the entire expenditure in respect of said business was deductible and, in such a case, the principle of apportionment of the expenditure relating to the nontaxable income did not apply. The principle of apportionment was made available only where the business was divisible. It is to find a cure to the aforesaid problem that the Legislature has not only inserted Section 14A by the Finance (Amendment) Act, 2001 but also made it retrospective, i.e., 1962 when the Income Tax Act itself came into force. The aforesaid intent was expressed loudly and clearly in the Memorandum explaining the provisions of the Finance Bill, 2001. We, thus, agree with the view taken by the Delhi High Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rading profit and if the object is to derive income by way of dividend then the profit would be said to have accrued from investment. To this extent, the High Court may be correct. At the same time, we do not agree with the test of dominant intention applied by the Punjab and Haryana High Court, which we have already discarded. In that event, the question is as to on what basis those cases are to be decided where the shares of other companies are purchased by the assessees as stock-in-trade and not as investment . We proceed to discuss this aspect hereinafter. 39) In those cases, where shares are held as stock-in-trade, the main purpose is to trade in those shares and earn profits therefrom. However, we are not concerned with those profits which would naturally be treated as income under the head profits and gains from business and profession . What happens is that, in the process, when the shares are held as stock-in-trade , certain dividend is also earned, though incidentally, which is also an income. However, by virtue of Section 10 (34) of the Act, this dividend income is not to be included in the total income and is exempt from tax. This triggers the applicability of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt in State Bank of Patiala also fail, though law in this respect has been clarified hereinabove. 41) Having regard to the language of Section 14A(2) of the Act, read with Rule 8D of the Rules, we also make it clear that before applying the theory of apportionment, the AO needs to record satisfaction that having regard to the kind of the assessee, suo moto disallowance under Section 14A was not correct. It will be in those cases where the assessee in his return has himself apportioned but the AO was not accepting the said apportionment. In that eventuality, it will have to record its satisfaction to this effect. Further, while recording such a satisfaction, nature of loan taken by the assessee for purchasing the shares/making the investment in shares is to be examined by the AO. 5. In our opinion, the decisions of the Tribunal relied on by the Ld.AR were either rendered prior to the judgment of the Hon ble Apex Court in the case of M/s.Maxopp Investment Ltd., or rendered without considering this judgment of the Hon ble Apex Court. Hence, these decisions cannot further the assessee s case. We are therefore, of the opinion that the Ld.CIT(A) fell in error in directing the AO ..... X X X X Extracts X X X X X X X X Extracts X X X X
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