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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 ..... owable on the net amount of expenditure, i.e., expenditure as reduced by related income - HELD THAT:- Following the order passed by the coordinate bench in 2008-09, we set aside the order passed by Ld CIT(A) on this issue and direct the A.O. to allow the deduction u/s 35(2AB) of the Act on the gross amount of expenditure. Disallowance u/s 14A - Interest disallowance made under rule 8D(2)(ii) of the I.T. Rules - HELD THAT:- Admittedly, the own funds available with the assessee is more than the value of investments as at the beginning and end of the financial year. Accordingly, the presumption is that the assessee has used his own funds for making the investments, in which case no disallowance out of interest expenditure as per rule 8D(2)(ii) of the I.T. Rules is called for. In this regard, we derive support from the decision rendered in the case of Reliance Industries Ltd. [ 2019 (1) TMI 757 - SUPREME COURT ] . Accordingly, we direct the A.O. to delete the interest disallowance made under rule 8D(2)(ii) of the I.T. Rules. Disallowance made out of administrative expenses, under rule 8D(2)(iii) - Since the factual aspects relating to this issue require examination, we restore the issu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 ₹ 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 ₹ 51,49,959/- as interest payable towards certain demands pertaining to sales tax of ₹ 7,59,346/- and customs duty of ₹ 43,90,613/-. The above said amount was debited to profit loss account and was not paid. The A.O. proposed to invoke provisions of section 43B of the Actin order to disallow the above said amount. However, the assessee contended that the provisions of section 43B of the Act are not applicable, sin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ₹ 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 Tribunal. Respectfully following the same, his ground of appeal (No.8) of the assessee is rejected . From the above Para, what is seen that this issue is covered against the assessee by the tribunal order in assessee's own case for the assessment years 2000-01 2001-02 and hence, this ground of the assessee is rejected by respectfully following this Tribunal order. Thus it is clear that this issue is cover ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 15 of the MSMED Act, the liability of the buyer to make the payment to MSME within the period as agreed between the parties or in case there is a delay beyond 45 days from the date of acceptance or date of deemed acceptance the interest payable as per Section 16 shall be three times of the bank rate notified by the RBI. Thus as per Section 16 of the MSMED Act, the payment of interest on delayed payment is in the nature of penalt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat 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 has relied upon a series of decisions however, we find that the decisions relied upon by the ld. DR on the issues that once the DSIR approved the R D Centre then the Assessing Officer cannot deny the claim of the assessee on the ground that the assessee is not eligible for weighted deduction under Section 35(2AB) of the Act. Further in the case in hand there is no dispute regarding the gross total expenditure and the receipts therefore, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvestment 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 yield exempt income should not be considered for computing average value of investments. The Ld. A.R. further submitted that the assessee gave scientific method of working for arriving at the expenditure relating to exempt income and the same was not examined properly by the tax authorities. He further submitted that this issue was restored to the file of the A.O. by the coordinate bench in assessment year 2008-09. He submitted tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (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 ₹ 12.04 crores in the profit loss account towards Provision for doubtful debts and claimed the same as deduction. The AO noticed that the mere provision created for doubtful debts is not allowable under the Income Tax Act and only the bad debts actually written off in the books of account is allowable as deduction u/s 36(1)(vii) of the Act. When questioned, the assessee placed its reliance on the decision rendered by Hon ble Supreme Court in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en 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 ₹ 16.94.455/- for the assessment year 1996-97 and ₹ 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 preferred appeal to the Commissioner of Income Tax (Appeals). The appellate Commissioner held the writing off does not necessarily require credit to be given to each debtor's account. If bad debts are debited in profit and loss account and credited to another account named as bad debt reserve account, bad debt suspense account etc, the requirement of writing off is met even though individual debtor's accounts are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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. In the latter case, the assessee would not be entitled to deduction after April 1, 1989 . 8. Coming to the second question, we may reiterate that it is not in dispute that Section 36(1)(vii) of the 1961 Act applies both to banking and non-banking businesses. The manner in which the write off is to be carried out has been explained hereinabove. It is important to note that the assessee Bank has not only been debiting the profit and loss acc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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