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TMI Blog2022 (7) TMI 374X X X X Extracts X X X X X X X X Extracts X X X X ..... wance u/s. 14A of the Act only such investments which yielded exempt income during the year should be taken into consideration, but not the entire investment. Going by that principle, we find that during the year, the investment in Karnataka Bank Ltd. alone yielded dividend income. Assessee s contention that such an initial investment to the tune of Rs.35.35 crores was made in the assessment year 2007-08 and for that year, the assessee had free cash reserves to the tune of Rs.81.70 croes, was considered by the coordinate Bench of this Tribunal [ 2020 (9) TMI 141 - ITAT DELHI] accepted the contention of the assessee as far as the investment in shares of Karnataka Bank Ltd. was concerned. It is, therefore, clear that no disallowance could be made towards interest expense u/r. 8D(2)(ii) of the rules. We accordingly uphold the finding of the ld. CIT(A) on this aspect and dismiss ground No. 2 of this appeal. Disallowance of business promotion expenses - Nature of expenditure - Revenue or capital expenditure - HELD THAT:- In so far as incurring of expenses is concerned, there is no doubt. There is no reason either for the authorities or for this tribunal to discard the policy manua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons and such additions, insofar as this appeal is concerned, include the addition of Rs.47,40,16,508/-on account of disallowance of bad debts and written off, Rs. 1,46,15,417/-on account of disallowance under section 14A of the Act read with Rule 8D of the Income Tax Rules 1962 ( the Rules ) and Rs. 1,95,10,255/-on account of disallowance of business promotion expenses. 3. When the assessee preferred appeal challenging the additions made in the assessment order, Ld. CIT(A) by way of impugned order deleted the additions made by the learned Assessing Officer. Revenue is therefore before us in this appeal, challenging the deletion of these three additions, which we discuss hereunder. 4. Insofar as the disallowance of bad debts written off is concerned, it could be seen from the record that during the year the assessee had written off certain loans given in the ordinary course of its business to various parties to the tune of Rs.47,40,16,508/-and claims that it was done based on prudential norms issued by the RBI. Assessee had written off the loans by diverting to the profit and loss account and crediting and reducing the same from the amount of loans and advances appearing on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore following the decision of the Hon ble Apex Court in the case of TRF Ltd vs. CIT 323 ITR 397, Bombay High Court in the case of DIT vs. Oman International Bank SAOG 313 ITR 128 (Bom) and Board circular No. 551 dated 23/1/1990, deleted the disallowance of Rs. 47,40,16,508/-. 7. It is the argument of the Ld. AR that the Prudential Norms are directions issued by the RBI to NBFCs, inter alia, in relation to classification of loans as good, non-performing asset (NPA), for which provision is to be created in the books of accounts, and loss asset, which is required to be written-off in the books of accounts; that the Prudential Norms define non-performing asset as any type of loan asset in respect of which recovery of the principal amount has remained overdue for a period of six months or more, or in respect of which the interest recovery has remained overdue for six months or more; and that the Prudential Norms also define the loss assets as the loans which are identified by the NBFC as non-recoverable either because such loans are unsecured or the value of security provided by the borrower has totally eroded or the borrower has committed a fraudulent act or omission. The Prude ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... debited a sum of Rs.47,40,16,508/-in P L Account in the nomenclature of loans written off . Assessee submitted that they are entitled to claim a deduction of the written off of loans amounting to Rs. 47,40,16,508/-under the provisions of section 36(1)(vii) of the Act read with section 36 (2) (i) of the Act. Assessee also relied upon the decision of the Hon ble Apex Court in the case of Vijaya Bank (supra). Insofar as the objection taken by the learned Assessing Officer, that the decision in the case of Vijaya Bank (supra) inasmuch as assessee is not a bank but NBFC does not hold much water because in paragraph No. 8 of such judgement, the Hon ble Apex Court said that it is not in dispute that section 36(1)(vii) of the Act applies both to banking and nonbanking business. A reading of this order clearly establishes that the provisions under section 36(1)(vii) of the Act are not only confined to the banking business but also to nonbanking business. 11. The second ground of denial of the deduction by the learned Assessing Officer is that the intention for alleged written off was merely to follow the Prudential norms laid down by RBI and has nothing to do with the actual bad debts a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would constitute a write off of an actual debt. However, if an assessee debits provision for doubtful debt to the P L 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, assessee would not be entitled to deduction after April 1, 1989. Hon ble Apex Court observed that if the assessee had not only debited the P L account but also correspondingly reduced the amount from Debtors A/c on the assets side of the Balance Sheet and, consequently, at the end of the year, the figure shown on the assets side was net of the alleged provision, amounted to actual write off for the purpose of availing benefit of deduction under the section. 13. Having considered the material placed on record, Ld. CIT(A) reached a conclusion on facts that the assessee had already disallowed in the computation of income the provision for NPA of Rs. 26,06,230/- and general provision of loans to the tune of Rs. 9,07,19,756/-created by it for the financial year 2009-10 which was reported separately in schedule R of the profit and loss account for the said y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the ld. Counsel before us is that in the year under consideration, only the investment in Karnataka Bank Ltd. alone yielded dividend and such investment in Karnataka Bank Ltd. was invested during the assessment year 2007-08; and that during such year, the perusal of balance sheet as on 31.03.2007 shows the cash reserves of Rs.81.70 crores and it was far exceeding the initial investment of Rs.35.35 crores in Karnataka Bank Ltd. He submits that this aspect was considered by the coordinate Bench of this Tribunal in assessee s own case for the assessment year 2007-08 in ITA No. 1947/Del/2018 and batch and by order dated 24.08.2020, the Tribunal upheld the contention of the assessee. 17. Learned DR places reliance on the CBDT Circular No. 05/2014 dated 11.02.2014 and also the decision of Supreme Court in the case of Max Opp. Investment Ltd. Vs. CIT (2018) 91 taxmann.com 154 and submits that the ld. Assessing Officer is right in making the addition. 18. We have gone through the record in the light of submissions made on either side. In so far as the application of section 14A read with Rule 8D is concerned, at the stage of this appeal, assessee does not dispute the same. It is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rship expenses and other expenses and that these expenses have been incurred in F.Y. 2009-10 and since the specific portion of the expenses were allocable to the assessee in this case, the assessee reimbursed the same to REL. He, therefore, found that the expenses are Revenue in nature but not capital. 21. Learned DR places heavy reliance on the assessment order. Ld. AR submits that the expenditure incurred by REL on behalf of the group/subsidiaries is allocated to the subsidiaries on the basis defined in policy manual for support service fee and recovery of expense from its subsidiary/joint ventures; that according to such manual, the advertisement and business promotion expenses would be allocated to the subsidiaries in the ratio of their turnover as per the audited financial statements of the last financial year without charging any mark-up; and that REL allocated expenses of Rs.1,95,10,255/- to the assessee as its share of business promotion and advertisement expenditure. The assessee places the sample copies of debit notes in this respect. Ld. AR further submitted that while making the payment of Rs. 1.95 crores to REL, assessee deducted tax at source u/s. 194C/194J and sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsequently, the Tribunal held the entire expenditure on advertisement to be of a revenue nature and allowed the same. The Tribunal also noted the decision of the Supreme Court in the case of Empire Jute Co. Ltd. v. CIT 119801124 ITR 1 wherein the Supreme Court held that there could be cases where the expenditure even if it was incurred for obtaining of a benefit of an enduring nature may, nevertheless, be on the revenue account and, in such cases, the test of enduring benefit may break down. 24. In the instant case, it is also pertinent to note that as a result of advertising and business promotion activities undertaken by REL on behalf of the assessee, loans granted by assessee have significantly increased from 1711,35,45,136/- in assessment year 2009-10 to Rs.4085,59,04,068/- in assessment year 2010-11, resulting to corresponding increase of interest income earned thereon from Rs.282,80,50,151/- in A.Y. 2009-10 to Rs.407,16,62,922/- in A.Y. 2010-11. Therefore, the business promotion expenses reimbursed by assessee to REL were for the purpose of business and hence, in the light of above decision of Hon ble Delhi High Court, we find that such expenditure has to be treated a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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