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Income Tax Appellate Tribunal, DELHI “C” BENCH: NEW DELHI
Before: SHRI MAHAVIR SINGH & SHRI MANISH AGARWAL
ORDER PER MANISH AGARWAL, AM :
These three appeals are filed by the Revenue against the separate orders of Ld. Commissioner of Income Tax (A), [“Ld.CIT(A)”] having commons issues. Therefore, they are being taken up and disposed of through a common order.
ITA No. 22/Del/2024 for AY 2017-18
The appeal has been filed by the Revenue against the order dated 06.11.2023 of Ld. Commissioner of Income Tax (A), National Faceless Appeal Centre (NFAC) in Appeal No.CIT(A), Delhi-9/10673/2019-20 for AY 2017-18 passed u/s 250 of the Income Tax Act, 1961 [“the Act”].
Brief facts of the case are that the respondent had filed its return of income on 29.12.2017, declaring total income at NIL after claiming set off of brought-forward business losses of Rs.11,85,66,591/- and book profit was declared at Rs.13,06,14,926/-. The case of the assessee was taken up for scrutiny, and the assessment was completed by making various additions totaling to Rs.23,55,07,517/- and after allowing the set off of brought forward looses, the total income was assessed at Rs.26,07,24,708/-,and the book profit was assessed at Rs.15,10,54,978/-. In First appeal, the ld. CIT(A) has partly allowed appeal of the assessee. Therefore, the Revenue is in appeal against the additions/disallowances deleted by CIT(A). The grounds of appeal taken by the Revenue are as under:-
“1. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs. 10,42,90,392/- on account of interest income.
2. Whether on facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs. 1,38,22,052/- on account of disallowance u/s 14A.
3. Whether on the facts and circumstances of the case and in law, the Ld.CIT(A) has erred in deleting the addition of Rs.11,25,69,330/- on account of provision of doubtful debts.”
Ground of appeal no. 1 is in relation to the deletion of addition of Rs.10,42,90,392/- made on account of interest income. Before us, the ld. CIT-DR submits that the assessee has made interest free advances and investments in the group companies on which no interest was charged. However, interest was paid on the borrowed funds. He, therefore, prayed that the AO has rightly made the disallowance, which deserves to be restored.
5. On the other hand, the ld. AR of the assessee supported the order of ld. CIT(A) and submit that similar disallowance was made in preceding years, wherein, the Coordinate Bench of the Tribunal in assessee’s own case for AY 2010-11 to 2013-14 in to 2107/Del/2017 vide order dated 29.01.2020, the Coordinate Bench has deleted the disallowances made. He thus submitted that ld. CIT(A) by following the said orders of Tribunal has deleted the disallowances, which orders deserved to be uphold.
After perusing the facts of the case and arguments advanced by both the parties, it is seem that this issue is already decided in favour of the assessee in preceding years by the Coordinate Bench, wherein, in for AY 2012-13, the Coordinate Bench has observed as under:-
“11. We find that the loans and advances including interest free advances are far less than the own funds. And hence, the presumption that the own funds have been utilized for extending the loans and advances sets in. When the assessee has got own funds available at their disposal, no disallowance is called for as enunciated in various judgments. The decision of Hon’ble Punjab & Haryana High Court in the case of Bright Enterprises Pvt. Ltd. Vs. CIT in dated 24.07.2015, it was held that if there are interest free funds available then it will be presumed that these have been made out of interest free funds. Similar view was held in the case of CIT Vs. Kapsons Associates Investment Pvt. Ltd. (2015) 381 ITR 204 (P&H) wherein, the Hon'ble Court has held that interest on investment in other properties not for business purpose cannot be disallowed if the assessee is having sufficient interest free funds at its disposal. Similar view was taken by the Hon'ble Supreme Court in the case of Hero Cycles Pvt. Ltd. 63 Taxman 308 held that no disallowance is called for if the assessee has got own surplus fund.
Keeping in view the facts and circumstances of the case and the judicial pronouncements and keeping in view the fact that the assessee has got sufficient own funds to extend the loans interest free, we hereby direct that the disallowance made under section 36(1)(iii) be deleted.”
Further, it is see that ld. CIT(A), while deleting the disallowance has followed the aforesaid order of the Tribunal. Before us, both the parties have agreed that there is no change in the facts as existed in earlier years and in the year under appeal. Therefore, we find no infirmity in the order of ld. CIT(A) who has followed the order of the Tribunal for deleting the additions made by the AO. Accordingly, the order of ld. CIT(A) on this score is upheld. As a result ground of appeal no. 1 of the Revenue is dismissed.
Ground of appeal no. 2 of the Revenue is with regard to the deletion of disallowance made u/s. 14A of the Act of Rs.1,38,22,052/-.
The ld. CIT (DR) submits that the AO has made the disallowance by invoking the provisions of Rule 8D, and made disallowance at the rate of 1% average value of investments. He further submit that the ld. CIT(A) though has followed the order of the Hon’ble Tribunal in assessee’s own case for preceding years. However, ld. CIT(A) had ignored the fact that assessee is having dividend and interest income which were claimed as exempt u/s. 10(34) of the Act. In preceding years, the Coordinate Bench has directed to consider those investments which yielded exempt income for the computation of amount of disallowance u/s. 14A of the Act, however, ld. CIT(A) has deleted the entire disallowance made u/s. 14A of the Act. He, therefore, prayed for restoration of the disallowance made by the AO.
On the other hand, ld. AR submitted that no satisfaction was recorded u/s. 14A(ii) of the Act, and the expenses which are directed related to earned exempt income should be considered which is not followed by the AO. The assessee is the promoter company of Dabur India Ltd. for which no expenses were incurred on the dividend earned for such investment. He further submits that assessee itself has disallowed a sum of Rs.8,17,040/- being the amount disallowable u/s. 14A of the Act and therefore, he prayed that further disallowance made by AO u/s. 14A of the Act was rightly deleted by ld. CIT(A) and he prayed for the confirmation of the order of CIT(A).
After considering the arguments put forth by both the parties and on perusal of the order of the Coordinate Bench of Tribunal in assessee’s own case in AY 2012-13, it is seem that assessee is having dividend income of Rs.51,18,44,694/- and exempted interest income of Rs.2,40,50,506/-. The assessee has suo moto added Rs.8,17,040/- on account of relatable expenses to earn income exempt u/s. 10(34) of the Act. Therefore, the provision of section 14A of the Act is applicable to the instant case. The AO by holding that assessee has earned exempt income and the suo moto disallowance was not sufficient is the satisfaction as provided in section 14A(ii) of the Act. However, the AO has computed the amount of disallowance at the rate of 1% of the average value of total investments, whereas; in assessee’s own case in AY 2012-13 the Tribunal hold that the investments which yielding exempt income should only be considered for making disallowance u/s. 14A of the Act. Thus, by following the decision of the Tribunal in for AY 2012-13, we direct the AO to re-compute the amount of disallowance u/s. 14A of the Act by taking into consideration the dividend yielding investments only. As a result, this ground of appeal of the Revenue is partly allowed.
12. Ground of appeal no. 3 of the Revenue is in relation to deletion of addition of Rs.11,25,69,330/- made by AO on account of the reversal of the provision for doubtful debts. Brief facts leading to this issue are that, during the year under appeal, assessee has written back the provisions for bad and doubtful debt of Rs.11,25,69,330/-. However, the same was disallowed by the Assessing Officer by holding that the provision is being made in terms of the RBI guidelines for NBFC's companies and, therefore, it is not an allowable expenditure u/s. 36(1)(viiia) of the Act. In First appeal, ld. CIT(A) has allowed the claim of the assessee by observing that the provisions made by the assessee in respective assessment years towards bad and doubtful debts were added back to the total income and after considering the year wise breakup of the such debts has deleted the disallowance made by the AO.
13. Before us, the ld. CIT (DR) supported the order of the AO and submits that assessee has reversed the provision for bad and doubtful debts and claimed it as expenditure during the year under appeal in the computation of income. However, such claim is not allowable in terms of section 36(1)(viiia) of the Act. Therefore, he prayed for restoration of the disallowance made by AO.
14. On the other hand, the learned AR of the assessee submitted that the provision for bad and doubtful debts were made on year to year basis in accordance with RBI guidelines. In the year under appeal, the same is added back to the total income as whenever the same claimed in the profit and loss account it was added back to total income and due taxes were paid in preceding years. In the year under appeal, the excess provision for bad and doubtful debts was reversed and, therefore, claimed as a deduction in the computation of income, as it had already been suffered tax in earlier years. He further submitted that in the preceding assessment year, i.e., AY 2016-17, a similar claim was made and allowed by the Assessing Officer (AO) after verification of the relevant facts. Thus, following the principle of consistency, assessee's claim deserves to be allowed on merits also. He contended that the learned CIT(A), after duly considering these facts, allowed the claim and deleted the disallowance made by the AO. Accordingly, he prayed for confirmation of the order of the learned CIT(A) on this account.
We have heard the rival submissions and perused the material available on record. It is seen that in the proceedings before the ld. CIT(A) assessee has filed a chart containing year wise details of provision made of bad and doubtful debts and the amount of reversal of the excess amount of provision made. In AY 2016-17 a sum of Rs.11,30,00,000/- was written back out of total provision made in preceding years, which was allowed by the AO. The copy of relevant order is placed in paper book pages 73 to 87. Further, the assessee has been able to demonstrate that the provision for bad and doubtful debts made in preceding years were offered for tax in the respective assessment years and therefore reversal of excess provision could not be further added to the total income and this would tantamount to double taxation of income. After considering these facts, the CIT(A) has deleted the disallowance made, wherein, we find no infirmity and therefore, the order of Ld. CIT(A) is uphold on this account. The ground of appeal no. 3 of the Revenue is dismissed.
In the result, appeal of the Revenue is partly allowed.
& 24/Del/2024 for AYs 2018-19 & 2020-21
During the course of the hearing, both parties stated that the facts and circumstances in with these years are identical to those of AY 2017-18. Accordingly, the observations made in apply mutatis mutandis to the present cases. Consequently, in line with the said order, the Revenue’s appeals are partly allowed.
In the result, appeals of the Revenue are partly allowed.