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TMI Blog2020 (9) TMI 814X X X X Extracts X X X X X X X X Extracts X X X X ..... smiss the appeal of the revenue in limini. 3. Grounds of appeals urged by the assessee relate to the following issues: a) Disallowance of provision made towards interest payable to Central Excise Department. b) Disallowance of interest expenditure payable to micro, small and medium enterprises. c) Disallowance of part of weighted deduction claimed u/s 35(2AB) of the Act. d) Disallowance made u/s 14A of the Act. e) Disallowance of claim of provisions for bad and doubtful debts. 4. The assessee company is in the business of manufacture of fuel injection equipments, auto electric items, portable electric power tools, etc. The A.O. completed the assessment determining the total income of the assessee at Rs. 946.15 Crores by making various additions. The appeal filed by the assessee before Ld. CIT(A) was partly allowed. Aggrieved by the decision rendered by Ld. CIT(A) on the issues cited in the preceding paragraphs, the assessee has filed this appeal before us. 5. The first issue relates to disallowance of claim of interest payable on sales tax, excise duty and customs duty. During the year under consideration, the assessee claimed a sum of Rs. 51,49,959/- as interest payab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sue is decided against the assessee by the Tribunal in assessee's own case for the assessment year 2004-05 in IT(TP)A No.670(B)/2011 dated 20-08-2015. He submitted a copy of this Tribunal order and has drawn our attention to para-4 on page-10 of the Tribunal order. For the sake of ready reference, we reproduce para-4 of this Tribunal order as under; " As regards of appeal no.8 is concerned, against the order of the CIT(A) in upholding the order of the AO in not allowing deduction for provision made towards interest payable to Central Excise Department and Sates Tax Department at Rs. 4,29,67,460/- the learned counsel for the assessee submitted that this issue is covered against the assessee by the decision of this Tribunal in assessee's own case for assessment year 2000-01 and 2001-02 which is placed at pages 3 to 58 of the case laws paper book filed before us. The Tribunal, at para-6 of its order, has observed that this issue stands covered by the decision of this Bench of the Tribunal in assessee's own case for assessment years 1994-05 and 1999-00 wherein the action of the CIT(A) on disallowing interest payable to Central Excise Department has been upheld by the Trib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efully perused the provisions of MSMED Act. Section 23 of MSMED Act has specifically provided that the interest paid to the Micro, Small & Medium Enterprises on account of delayed payment is not allowable as deduction from income. For ready reference we quote Section 23 and Section 24 as under : " Section 23 - Interest not to be allowed as deduction from income. Notwithstanding anything contained in the Income tax Act, 1961 (43 of 1961), the amount of interest payable or paid by any buyer, under or in accordance with the provisions of this Act, shall not, for the purposes of computation of income under the Income Tax Act, 1961, be allowed as deduction. Section 24 - Overriding effect. The provisions of Sections 15 to 23 shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force." Thus it is clear that Section 23 of MSMED Act has specifically prohibited the assessee from claiming the deduction from the income on account of interest paid to MSME. Section 24 is having overriding effect to the extent of any inconsistent provisions contained in any other law for the time being. We further note that as per the Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ell as decision of the Hon'ble Madras High Court in the case of CIT Vs. Wheels India Pvt. Ltd. 336 ITR 513 wherein it was held that the income earned by the assessee from the R & D Centre cannot be reduced for the for the purpose of allowing the deduction under Section 35(2AB) because the said income is part of the total & 751/Bang/2014 income of the assessee. Accordingly in principle the issue was decided in favour of the assessee that the income earned by the assessee from R&D Centre cannot be reduced from the expenditure for the purpose of deduction under Section 35(2AB) of the Act. However, since the relevant details and facts were not available before the Tribunal to give a finding about the nature of the receipt whether income /revenue or reimbursement of the expenditure or grants therefore, the issue was set aside to the record of the Assessing Officer for limited purpose of verification of the said fact. The learned Departmental Representative has raised a very serious objection that neither the Assessing Officer nor this Tribunal has jurisdiction to tinker with the amount of expenditure as given in the approval certificate by the DSIR. In support of his contention he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee voluntarily, the A.O. added a sum of Rs. 3.25 crores to the total income of the assessee u/s 14A of the Act. The Ld. CIT(A) also confirmed the same. 12. We heard the parties on this issue and perused the record. The Ld. A.R. invited our attention to the copy of balance sheet placed at page 278 of the paper book and submitted that the own funds available with the assessee as on 31.3.2010 is more than the value of investment and hence it should be presumed that the investments have been made out of own funds. In that case, no disallowance out of interest expenditure in terms of rule 8D(2)(ii) of the I.T. Rules is called for. In support of this proposition, the Ld. A.R. placed his reliance on the decision rendered by Hon'ble Supreme Court in the case of CIT Vs. Reliance Industries Ltd. (2019) 102 Taxmann.com 52. With regard to the disallowance made out of administrative expenses under rule 8D(2)(iii) of the I.T. Rules, the Ld. A.R. submitted that most of the investments made by the assessee did not yield dividend income and hence, as per the decision rendered by Special bench of ITAT in the case of Vireet Investments P Ltd (165 ITD 27), the investments which did not yi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not yielded dividend income and hence, as per the principle laid down by special bench of ITAT in the case of Vireet Investments P Ltd (supra), the investments, which did not yield exempt income should not be considered for computing the average value of investments while working out disallowance under rule 8D of the I.T. Rules. The Ld A.R submitted that the assessee agrees to the computation of disallowance u/r 8D(2)(iii) of I T Rules by following the principle laid down in the case of Vireet Investments P Ltd (supra). Since the factual aspects relating to this issue require examination, we restore the issue of making disallowance under rule 8D(2)(iii) of the I.T. Rules to the file of the A.O. by following the principle laid down in the case of Vireet Investments P Ltd (supra). However, if the disallowance worked out by the A.O. turns out to be lower than the amount of disallowance made by the assessee in the return of income, then the disallowance made by the assessee should be restored. 16. The last issue relates to disallowance of provision for bad and doubtful debt u/s 36(1)(vii) of the Act. The A.O. noticed that the assessee has debited a sum of Rs. 12.04 crores in the prof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that, as per the decision rendered by the Hon'ble Supreme Court in the case of Vijaya Bank (supra), this disclosure amounts to write off as mentioned u/s 36(1)(vii) of the Act. Accordingly, he prayed for vacation of this disallowance. 18. We heard Ld. D.R. on this issue and perused the record. We notice that the Hon'ble Karnataka High Court has considered an identical issue in the case of Sandvik Asia Limited and it has been decided in favour of the assessee by following the decision rendered by Hon'ble Supreme Court in the case of Vijaya Bank. For the sake of convenience, we extract the order passed by the Hon'ble Karnataka High Court in the case of Sandvik Asia Limited. "2. The assessee claimed deduction in respect of doubtful debts for the assessment years 1996-97 and 1998-99. The assessee had adopted in the P & L account provision for doubtful debts of Rs. 16.94.455/- for the assessment year 1996-97 and Rs. 8,32,905/- for the assessment year 1998-99. Since the methodology followed by the assessee to write off was not in accordance with the provisions of Section 36(1)(vii) of the Income Tax Act, 1961, it's claim was not allowed. Aggrieved by the said order, the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aw prevailed up to and including the assessment year 1988-1989, However, by insertion (with effect from April 1, 1989) of a new Explanation in Section 36(2)(vii), it has been clarified that any bad debt written off as irrecoverable in the account of the assessee will not include any provision for bad and doubtful debt made in the accounts of the assessee. The said amendment indicates that before April 1, 1989, even a provision could be treated as a write off. However, after April 1, 1989, a distinct dichotomy is brought in by way of the said Explanation to Section 36(1)(vii). Consequently, after April 1, 1989, a mere provision for Bangalore bad debt would not be entitled to dichotomy, one must understand "how to write off". If an assessee debits an amount of doubtful debt to the profit and loss account and credits the asset account like sundry debtor's account, it would constitute a write off of an actual debt. However, if an assessee debits "provision for doubtful debt" to the profit and loss account and makes a corresponding credit to the "current liabilities and provisions" on the liabilities side of the balance sheet, then it would constitute a provision for doubtful debt ..... X X X X Extracts X X X X X X X X Extracts X X X X
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