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Income Tax Appellate Tribunal, AHMEDABAD – BENCH ‘A’
Before: SHRI RAJPAL YADAV, VICE- & SHRI WASEEM AHMED
आदेश/O R D E R
PER RAJPAL YADAV, VICE-PRESIDENT Revenue is in appeal before the Tribunal against order of the ld.CIT(A)-1, Ahmedabad dated 22.12.2017 passed for the Asstt.Year 2014- 15.
In this appeal, the Revenue has raised following two grounds. They read as under:
2 i) That the ld.CIT(A) has erred in law and on facts in restricting the disallowance from Rs.1,71,035/- to Rs.53,373/- made u/s.14A r.w Rule 8D of the Act, 1961. ii) That he ld.CIT(A) has erred in law and on facts in deleting the disallowance of claim of bad debt Rs.1,73,37,301/-.
Brief facts of the case are that the assessee is engaged in trading of printing machines, consumers and servicing. It has filed its return of income on 30.11.2014 declaring total income at Rs.3,78,60,550/-. The case of the assessee was selected for scrutiny assessment and notice under section 143(2) was issued and served upon the assessee on 16.09.2015. During the scrutiny assessment, it was noticed by the AO that the assessee has earned dividend income to the tune of Rs.9,79,373/- which was exempt from tax. The AO sought for information as to details of investments, from which the assessee has earned exempt income. Assessee furnished details of investment for the last two years and submitted that the assessee had made similar claim in the earlier year i.e. 2012-13 and the ITAT allowed such claim of the assessee. However, the ld.AO did not accept the contentions of the assessee and proceeded to calculate disallowance under section 14A of the Act r.w. Rule 1962 and added a sum of Rs.1,71,035-to the total income of the assessee.
With regard to ground no.2 in respect of disallowance of bad debt claim of Rs.1,73,37,301/-, it was noticed by the AO during the assessment proceedings that the assessee company had claimed total bad debts of Rs.1,87,89,529/- qua 14 parties. It was also noticed by the AO that out of these parties, ledger accounts of nine parties are running
3 account in the assessee’s books and the transactions have been taken place in the subsequent period. He noticed details of such parties in the impugned order at page no.7 and 8. The ld.AO sought explanation from the assessee as to why an amount of Rs.1,73,37,301/- involved in these nine parties could not be disallowed and added back to the income of the assessee. The assessee in response to the query of the AO furnished party wise details and reasons for written off such bad debts in the books of accounts. The assessee also relied upon the decision of Hon’ble Supreme Court in the case of TRF Ltd. Vs. CIT, 323 ITR 397 (SC). It was submitted by the assessee that the conditions provided in section 36(2)(i)(a) of the Act were satisfied as the amount has been written in the books of accounts of the assessee. The ld.AO did not satisfy with the details and explanation filed by the assessee. He was of the view that since ledger accounts of the nine parties were running and the assessee company had not produced any material on record to substantiate its claim that the said amounts of the debts have become bad and irrecoverable, the claim of the assessee was not justifiable, and therefore, he disallowed claim of the assessee and an amount of Rs.1,73,37,301/- added to the total income of the assessee.
Aggrieved by the order of the ld.AO assessee went in appeal before the first appellate authority on both the issues. Before the ld.CIT(A) it was argued by the assessee that the assessee has got net surplus interest of Rs.45,38,011/- and therefore if the assessee had net positive interest income, no disallowance of interest under section 14A/rwr 8D should be made. It was also submitted that no borrowed funds were utilized for earning the exempt income by the assessee and 4 that dividend income was directly credited in the bank account of the assessee, and no expenditure was claimed in respect of earning exempt income. After analysing the details furnished by the assessee, the ld.CIT(A) observed that the ld.AO erred in calculating the average value of the investment income by the assessee. Investment in income as on 31.3.2014 was Rs.41,89,019 and that of 31.3.2013 was Rs.41,89,019/- and therefore, average value of investment income came to Rs.41,89,019/- instead of Rs.1,07,72,757/- taken by the AO. It was also noticed by the ld.CIT(A) that the ld.AO has wrongly taken interest expenses of Rs.28,37,342/- instead of Rs.20,19,410/- while working of disallowance. Accordingly, after considering all these facts, the ld.CIT(A) worked out disallowance under section 14A r.w.s 8D at Rs.53,373/- and the balance deleted. Aggrieved Revenue is now before the Tribunal on both the issues.
Before us, the ld.DR supported the orders of the AO on both the issues, and submitted that the reasons given by the AO while disallowing the claim of the assessee are based on factual position of the case, and therefore, his order on these issues is not to be disturbed.
On the other hand, the ld.counsel for the assessee supported the order of the ld.CIT(A). He also relied upon decisions in the case of Karnavati Petro Chem. P. Ld. (ITA No.2228/Ahd/2012 dated 5.7.2013 and Nirma Credit & Capital Ltd. Vs. CIT, 85 taxmann.com 72 (Guj), to the proposition that where net interest is positive, then no disallowance under section 14A is called for. He also relied upon the order of the 5 ITAT, Ahmedabad Bench in the case of DCIT Vs. Adani Infrastructure & Developers P. Ltd. in dated 6.9.2018.
As regards disallowance of bad debts under section 36(1)(vii) is concerned, he submitted that position of law in this regard is settled so that after 1.4.1989 it is not necessary for the assessee to establish that the debt has in fact becomes irrecoverable. It is sufficient if the assessee has written off the debts in its books of accounts.
We have duly considered rival contentions and gone through the record carefully. As far as ground no.1 regarding disallowance of Rs.53,373/- made under section 14A read with rule 8D of the Act is concerned, a perusal of section 14A would indicate that the expenditure attributable to earning of exempt income is to be disallowed. If the assessee has not debited any expenditure or has not claimed any expenditure for earning exempt income, then on presumptive basis expenditure cannot be calculated for disallowance. The ld.CIT(A) has appreciated the case of the assessee based on the details and explanation given by the assessee, and also observed inaccuracy in working out average investment i.e. instead of Rs.41,89,019/-, the AO has taken the figure Rs.1,07,72,757/- because as per the balance sheet, investment income which are exempted as on 31.3.2014 was Rs.41,89.019 and as on 31.3.2013 was of Rs.41,89,019/-. We find that the ld.CIT(A) has examined the issue critically and re-worked out disallowance in accordance with the provisions contained in section 14A and the rule referred thereto. We do not find any infirmity in the order of the CIT(A) on this issue, which we confirm and this ground of appeal of the Revenue is rejected.
6 9. As regards disallowance of bad debts of Rs.1,73,37,301/- is concerned, it is suffice to say that this issue is squarely covered by the decision of TRF Ltd. (supra), and Reliance Petrochemical 322, ITR 158, wherein it is held that as per the amended provision, condition precedent for claiming bad debts is that assessee has to write off amount of bad debts in its books of account. Therefore, in order to claim deduction under section 36(1)(vii) it is sufficient for the assessee to demonstrate that debt in fact has become irrecoverable and it has been written as such in the accounts of the assessee. The assessee in the present case has given a detailed note regarding the reasons for writing off the amounts in its books of accounts before the ld.CIT(A), and after considering totality of the facts and in view of above two judgments cited supra, the ld.CIT(A) held that the AO was not justified in denying the claim of the assessee. We do not find any reason to interfere in the order of the CIT(A). It is upheld, and the ground of appeal of the Revenue is rejected.
In the result, appeal of the Revenue is dismissed.
Order pronounced in the Court on 8th September, 2020 at Ahmedabad.