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TMI Blog2024 (11) TMI 1253X X X X Extracts X X X X X X X X Extracts X X X X ..... d.[ 2021 (9) TMI 566 - SUPREME COURT] it will be presumed that interest free funds have been utilized for making the investments and further it is the assessee who has the right of appropriation and also the right to assert from what part of the fund a particular investment is made and, therefore, it may not be permissible for the revenue to make an estimation of a proportionate figure. Contentions of the ld. D/R become redundant. Depreciation on leased assets - HELD THAT:- We find force in the claim of the assessee. The Co-ordinate Bench in AY 2004-05 [ 2017 (11) TMI 1839 - ITAT MUMBAI] has considered a similar claim allowed as there is no new lease transaction. The assessee has claimed depreciation on its own fixed assets and depreciation claimed on leased assets were continuing from past tease transactions. Notably, in assessment year 1997-98 Tribunal while deciding the issue had allowed assessee's claim of depreciation. Addition made u/s 41(4) - assessee has written back bad debts which comprises of cash write back and non-cash write backs - HELD THAT:- We find force in the contention of the ld. Counsel for the assessee. The Coordinate bench in assessee s own case for AY 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... computation of income filed during the course of assessment proceedings - AO was of the firm belief that the ratio laid down in the case of Goetze India Pvt. Ltd. [ 2006 (3) TMI 75 - SUPREME COURT] squarely apply and as the said loss was not claimed vide revised return of income, the AO denied the claim of loss - HELD THAT:- When the matter was agitated before the ld. CIT(A), the ld. CIT(A) accepted the view taken by the AO without realizing the fact that the Hon ble Supreme Court has not put any fetter on the powers of the First Appellate Authority to consider the claim of loss through computation of income - we deem it fit to restore the issue to the file of the AO for examination/verification of the claim of loss as per the provisions of law and deciding the issue accordingly. Accordingly, Ground No. 4 is allowed for statistical purposes. - Shri Narendra Kumar Billaiya, Hon ble Accountant Member And Shri Raj Kumar Chauhan, Hon ble Judicial Member For the Assessee : Ms. Arati Vissanji, A/R For the Revenue : Mr. P.C. Chhotoray, Spl. Counsel, [D/R] ORDER PER NARENDRA KUMAR BILLAIYA, AM: I.T.A. No. 5792/Mum/2013 I.T.A. No. 5396/Mum/2013, are cross-appeals by the revenue and the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bove income in terms of Section 14A of the Act. Accordingly, the net claim as exempt, after reducing the suo moto disallowance, works out to Rs. 1,05,38,88,958/-. 8.1. The AO was of the firm belief that the exemption u/s 10(23G) of the Act, is available to any infrastructure capital fund or infrastructure capital company and since the assessee is a financial institution engaged in the business of banking, therefore, is neither an infrastructure capital company nor an infrastructure fund and also was not set up for mobilizing resources for the purpose of infrastructure development as specified in the memorandum explaining the amendment and Circular No. 762 dated 18/02/1998. Therefore, the assessee is not eligible for the claim of exemption u/s 10(23G) of the Act. The AO accordingly denied the claim of exemption. 8.2. The assessee challenged the addition before the ld. CIT(A) and reiterated its claim of exemption strongly relying upon the amended provision and CBDT Circular No. 762 dated 18/02/1998 and placed strong reliance on the decision of the Coordinate Bench in the case of Jammu And Kashmir Bank Ltd. vs Assistant Commissioner Of Income Tax (2008)114TTJ(ASR)728. After considerin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the Assessing Officer also held that the expenditure attributable to earning of exempt income from investment in infrastructure facilities as claimed by the assessee are also to be disallowed on account of interest cost and administrative cost. Following his methodology for preceding assessment year, the Assessing Officer applying the gross profit ratio of 15.63% shown by the assessee quantified the expenditure attributable to earning of exempt income under section 10(23G) of the Act at Rs. 43,75,09,156, after reducing the said amount from the exempt income claimed by the assessee under section 10(23G) of the Act at Rs. 69,24,18,459, the balance amount of Rs. 25,49,09,303, was disallowed from the claim of exemption under section 10(23G) of the Act. The assessee challenged the decision of the Assessing Officer before the first appellate authority. 68. As far as the assessee's eligibility for exemption under section 10(23G) of the Act is concerned, the learned Commissioner (Appeals) following CBDT circular no.762 dated 18th February 1998, held that the assessee is eligible to claim exemption under section 10(23G) of the Act, since, as per the said circular, a company which has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be read in isolation. In Para-17.4 of the Circular, it has been clarified that infrastructure capital company shall mean a company which has made investment by way of acquiring shares or providing long term finance to an enterprise engaged in the business of providing infrastructure facilities like roads, highway, bridges, Airport, Port, Rail system or any other public facilities of a similar nature has made notified by CBDT. Further, the expression long term finance has been explained to mean any loan or advance which is re- payable along with interest during the period not less than five years. Thus, a reading of CBDT circular no.762 dated 18th February 1998, makes it clear that even a company which is directly not carrying out development of infrastructure facilities would also be eligible for exemption if invests in shares or providing long term finance to an enterprise engaged in the business of providing infrastructure would be treated as infrastructure capital company. Undisputedly, the assessee has fulfilled the aforesaid condition as it has made investments or has advanced loans to companies engaged in the business of infrastructure development. Therefore, the assessee is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etrospective and computed expenditure at Rs. 544 Crores and came to the conclusion that the assessee is not eligible for any exemption u/s 10(15), 10(23G), 10(34) or 10(35) of the Act. 11.2. The assessee agitated the matter before the ld. CIT(A) and reiterated its contention that the investments in shares was made out of the assessee s own share capital reserves and non-interest bearing funds. After considering the facts and the submissions, the ld. CIT(A) observed that the AO has allocated expenses without establishing any nexus between the borrowed funds and the investments in tax-free bonds. Strong reliance was placed on the decision of the Co-ordinate Bench in the case of M/s HDFC Bank Ltd. in ITA No. 4529/Mum/2005; ITA No. 3650/Mum/2006; ITA No.3651/Mum/2006; ITA No. 4039/Mum/2007; ITA No. 991/Mum/2008. Finding support from the decision of the Tribunal (supra) and also assessee s own case by the order of the ld. First Appellate Authority in AY 2004-05, the ld. CIT(A) directed the AO to calculate the disallowance as directed in AY 2004-05. 12. Before us, the ld. D/R strongly objected to the findings given by the ld. CIT(A) and pointed out that the Coordinate Bench in the case o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respect of payment made out of mixed fund, it is the assessee who has such right of appropriation and also the right to assert from what part of the fund a particular investment is made and it may not be permissible for the Revenue to make an estimation of a proportionate figure. For accepting such a proposition, it would be helpful to refer to the decision of the Bombay High Court in Pr. CIT v. Bombay Dyeing and Mfg. Co. Ltd, where the answer was in favour of the assessee on the question, whether the Tribunal was justified in deleting the disallowance under Section 80M of the Act on the presumption that when the funds available to the assessee were both interest free and loans, the investments made would be out of the interest free funds available with the assessee, provided the interest free funds were sufficient to meet the investments. The resultant SLP of the Revenue challenging the Bombay High Court judgment was dismissed both on merit and on delay by this Court. The merit of the above proposition of law of the Bombay High Court would now be appreciated in the following discussion. 18. In the above context, it would be apposite to refer to a similar decision in Commissioner o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the above, the contentions of the ld. D/R become redundant. 14. Considering the facts in totality, in light of the judicial decisions discussed hereinabove, we do not find any reason to interfere with the findings of the ld. CIT(A). These grounds raised by the revenue are accordingly dismissed. 15. Ground Nos. 5 6 relate to the claim of depreciation on leased assets. 16. While scrutinising the return of income, the AO noticed that the assessee has claimed depreciation amounting to Rs. 3,74,51,40,333/- which comprises of depreciation on fixed assets of Rs. 3,18,33,34,873/- and on leased assets Rs. 56,18,05,460/-. The claim was revised vide letter dated 12/11/2008 to Rs. 3,69,81,85,720/- and Rs. 51,48,50,847/- respectively. 16.1. The AO questioned the claim of depreciation on lease transactions. Examining the claim threadbare, the AO disallowed the entire lease depreciation on all leased assets including assets capitalized prior to AY 1994-95 and not disallowed in the respective years amounting to Rs. 51,48,50,847/- respectively and allowing the principal component of Rs. 2,76,62,60,037/-, resulting in net disallowance of Rs. 2,25,14,09,190/-. 16.2. The assessee carried the matter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Ground no.3 is dismissed. 19. Respectfully following the decision of the Co-ordinate Bench, we decline to interfere with the findings of the ld. CIT(A). Accordingly, Ground Nos. 5 6 are dismissed. 20. Ground No. 7 relates to deletion of addition made u/s 41(4) of the Act. 21. During the course of scrutiny assessment proceedings, the AO noticed that the assessee has written back bad debts to the tune of Rs. 2,29,36,92,454/- which comprises of cash write back of Rs. 1,81,30,28,527/- and non-cash write backs amounting to Rs. 48,06,63,927/-. The AO further found that in its return of income, the assessee has offered an amount of Rs. 1,81,30,28,527/- being cash writebacks. The AO also found that in addition, the assessee has also received an amount of Rs. 13,19,56,074/- being cash received in respect of noncash write backs of earlier years. This amount was not credited to the profit and loss account but has been offered to tax. 21.1. When the assessee was asked to explain, it stated that u/s 41(4) of the Act, only the bad debts actually recovered in respect of bad debts allowed in earlier years have to be taxed in the current year. Strong reliance was placed on the decision of the Hon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the issue back to the file of Assessing Officer. For the sake of completeness the relevant extract of the said order by the Coordinate Bench in assessee's own case is reproduced herein below 21. We have heard rival contentions and perused the material available on record. Learned Counsels appearing for both the parties have agreed before us that the issue is covered by the decision of the Tribunal in the preceding assessment years. Notably, in assessment year 2000-01, the Tribunal while deciding identical issue in ITA no.4657/Mum./2004 and ITA no.4826/Mum./2004, dated 31st January 2017, has restored the matter back to the file of the Assessing Officer for considering afresh. In fact, in assessment year 2002-03 also in assessee's own case, the Tribunal while deciding identical issue in ITA no.836/Mum./2008 and ITA no.392/Mum./2008 dated 7th July 2017, has restored the issue to the Assessing Officer for considering afresh keeping in view the directions of the Tribunal in the preceding assessment year. Therefore, consistent with the view expressed by the Tribunal in the preceding assessment year as referred to above, we restore the issue to the file of the Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m of the assessee and came to the conclusion that the assessee has chosen not to comply with the factual queries raised in connection with the liability of bad debts u/s 36(1)(vii) and 36(2) of the Act. The AO was of the opinion that the assessee has not furnished the basic requirements like the date of debt, original amount, subsequent additions, the nature of debt, nature of securities obtained, whether the security obtained was insufficient, whether the bad debt claimed is net of realization from securities obtained, whether it was part write off or the full write off, the steps taken for recovery, the criteria for treating the particular debt as bad debt particularly when sufficient securities with the bank and the process of recovery is going on. 28. Though the AO categorically agreed that the debts have been written off in the accounts of the assessee but the write off is without valid reasons and proper basis. The AO without understanding the implications of the amended provisions, in his wisdom, disallowed the entire claim of bad debts and disallowed Rs. 8,79,08,01,208/-. 29. The additions were challenged before the ld. CIT(A) and it was strongly contended that the bad debt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... debt was part of the income of earlier year and (2) it has been actually written of in the books of accounts meaning thereby that the account of the debtor has been reduced to nil and if it is part write off then, the balance in the account of the debtor is reduced to that extent. Nothing further is required for the claim. The observations of the AO heavily relied upon by the ld. D/R that the amounts have been written off without valid reasons and proper basis, does not hold any water post amendment of Section 36(1)(vii) of the Act. 31.1. The ld. D/R has heavily relied upon the decision of the Hon ble Supreme Court in the case of Khyati Realtors Pvt. Ltd. (supra) and vehemently stated that the ratio laid down by the Hon ble Supreme Court in the case of TRF Limited vs. CIT (supra) have been diluted. 32. In our understanding of the law, the judgment has to be read in the context in which it is delivered and the facts of Khyati Realtors (supra), show that the assessee is engaged in the business of real estate and financing, advanced certain amount to a developer for booking commercial space in an upcoming project. Since the project failed and the assessee could not recover the said am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f debt is written off as irrecoverable in the accounts of the previous year [(being a previous year relevant to the assessment year commencing on the 1st day of April, 1988, or any earlier assessment year)] [ Inserted by Act 4 of 1988, Section 11 (w.e.f. 1.4.1989).] and the [Assessing Officer] [ Substituted by Act 4 of 1988, Section 2, for Income-tax Officer (w.e.f. 1.4.1988).] is satisfied that such debt or part became a bad debt in any earlier previous year not falling beyond a period of four previous years immediately preceding the previous year in which such debt or part is written off, the provisions of sub-section (6) of section 155 shall apply; (v) [where such debt or part of debt relates to advances made by an assessee to which clause (viia) of sub-section (1) applies, no such deduction shall be allowed unless the assessee has debited the amount of such debt or part of debt in that previous year to the provision for bad and doubtful debts account made under that clause.] [ Substituted by Act 26 of 1997, Section 7, for Clause (v) (w.r.e.f. 1.4.1992).] 32.2. A perusal of the above clearly shows that the claim of the assessee falls under Clause (i), wherein it has been specifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the submissions, the ld. CIT(A) found that identical issues was considered in AY 2005-06, wherein the claim was allowed following the decision for AY 2005-06, the ld. CIT(A) allowed the claim of loss. 34. Before us, the ld. D/R strongly supported the findings of the AO and the ld. Counsel reiterated what has been stated before the lower authorities. 35. We have given a thoughtful consideration to the orders of the authorities below. There is no dispute that the loss claimed on sale of assets was in the ordinary course of business. It is also not in dispute that the discrepant notes not accepted by the RBI has to be written off as business loss and similarly, the offers made to credit card customers cannot be said to be for non-business purposes. Considering the facts of the case in totality and on finding that in earlier AYs a similar claim was allowed by the ld. First Appellate Authority, following the rule of consistency, the claim is allowed and the findings of the ld. CIT(A) cannot be faulted with. Accordingly, Ground No. 10 is dismissed. 36. Ground No. 11 relates to club membership fees which was disallowed by the AO amounting to Rs. 31,43,756/-. 37. The addition was challe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... each other. Deduction under section 10(23G) [Para 4, pages 2 to 6 of the CIT(A) Order] [2] On the facts and circumstances of the case and in law, the CIT(A) erred in not directing the Assessing Officer to restrict the disallowance to only the direct expenses viz. interest on borrowings made for infrastructure financing. Allocation of interest expenditure and other expenses under section 14A in respect of exempt income under section 10(15) 10(34) and 10(35) [Para 5, pages 6 to 9 of the CIT(A) Order] [3] On the facts and circumstances of the case and in law, the CIT(A) erred in partly confirming the interest expenses and managerial and administrative expenses following the orders of his predecessor of the earlier assessment years instead of Rs. 320,20,362 as declared by the Appellant. Loss on Investments made in South Asian Regional Apex Fund - Rs. 22,80,364 [Para 13, pages 25 and 26 of the CIT(A) Order] [4] On the facts and circumstances of the case and in law, the CIT(A) erred in confirming the Assessing Officer's view in not allowing the loss in investments made in South Asian Regional Apex Fund made vide revised computation filed during the course of assessment proceedings as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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