ACIT CIRCLE 3 3 1, MUMBAI vs. SICOM INVESTMENTS & FINANCE LIMITED, MUMBAI
Income Tax Appellate Tribunal, “G” BENCH, MUMBAI
Before: SMT. BEENA PILLAI () & SHRI GIRISH AGRAWAL ()
Per: Smt. Beena Pillai, J.M.:
Present appeal filed by the revenue arises out of order dated
30/08/2024 passed by NFAC, Delhi for assessment year 2015-16
on following grounds of appeal:
“1. "Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) is right in deleting bad debt/capital loss disregarding the fact that principal amount of loan waived
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Sicom Investments & Finance Limited off by the assessee is capital in nature as the said loan was granted against the principal outstanding ?"
"Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred by allowing the provision of Standard Assets to the tune of Rs.3,00,00,000/-?"
"Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) is rightly justified by allowing provision of Standard Assets to the tune of Rs.3,00,00,000/- without appreciating the fact that said provision is contingent in nature?"
"Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) is rightly allowed the provision of Standard Assets to the tune of Rs.3,00,00,000/-in accordance with clause (c) of Explanation 1 of Section 115JB of the Act?"
"Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in deleting Rs.28,49,528/- being disallowance u/s.14A to arrive at Book Profit u/s. 115JB of the act in accordance with clause (f) of Explanation 1 of Section 115JB of the Act?"
"The Appellant craves leave to add, amend and/or vary grounds of Appeal before or during the course of hearing. "”
Brief facts of the case are as under:
2. Assessee is a non banking finance company engaged in the business of finance such as project finance, merchant banking, investment and trading in shares, financial services and advisory business. During the year under consideration the assessee filed its return of income on 28/09/2015, declaring total income at Rs. 14,95,05,630/- under the normal provisions of the act and book profit u/s 115 JB at Rs. 12,61,56,779/-. The case was selected for scrutiny by issuing notices u/s 143(2) and 142(1) of the Act calling for various details.
2.1 In response to the statutory notices, the assessee filed various details and submission in support of its claim. From the 3
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Sicom Investments & Finance Limited details filed Ld.AO noted that, the assessee earned income from sale of shares amounting to Rs.1.19 crores that was treated as exempted u/s 10(38) of the Act. The Ld.AO observed that, no dividend income was earned by the assessee during the year.
However, the Ld.AO invoked the provision of sec. 14A of the Act and disallowed certain expenditure incurred towards earning of exempt income.
2.2 Ld.AO further noted that the assessee in its board of directors meeting approved one time settlement of Rs. 10 crore in respect of MIELE Security Pvt. Ltd to whom the loan was granted.
Out of total principle outstanding Rs. 13 crores. The Ld.AO noted that differential amount of Rs. 3 crore was written off in the books as bad debts. The Ld.AO didn’t agree with the submission of the assessee and disallowed the claim.
Aggrieved by the order of the Ld.AO the assessee preferred the appeal before the Ld.CIT(A).
3. The Ld.CIT(A) on the issue of disallowances made by the Ld.AO, u/s 14A called upon various submission made by the assessee and observed as under:
“4.3. Admittedly the appellant in the year under consideration had exempt income u/s 10, which is not chargeable to tax. On perusal of return in ITBA database it transpired that the appellant had reported exempt income the tune of Rs.
1,19,09,821/- during the assessment year 2015-16. The AO has observed that there was LTCG for which the appellant has claimed exemption u/s 10(38).
4. In fact whether 14A disallowance can be made in a case where no exempt income was earned by the assessee during the previous year has been a subject matter of litigation over the years. With a view to overcome this dispute the and in the context of the present case, the decision of the Juri ictional ITAT, Mumbai, in Sapphire Land Development (P.) Ltd.v. DCIT [2023] 147 taxmann.com 50 (Mumbai Trib.) [20-07-2022]
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Sicom Investments & Finance Limited assumes significance. In the said case, it was held that disallowance of expenses calculated under section 14A read with rule 8D was to be restricted only to extent of exempt income earned by assessee during year. The relevant paragraphs are quoted as under:
"8. Section 14A read with rule 8D clearly mandates that if the AO is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of total income under this Act or where an assessee claims that no expenditure has been incurred by him in relation to income which does not form part of the total income under this Act, in that situation rule 8D will come into picture as mentioned
(supra) and a formula for calculation of disallowance has been prescribed.
However, the total disallowance calculated under section 14A read with rule 8D is restricted to the extent of exempt income earned by the assessee."
[Emphasis provided]
4.5. Respectfully following the principle emerging from various judicial pronouncements, including that of the juri ictional tribunal, i.e. Hon'ble ITAT, Mumbai in Sapphire Land Development
(P.) Ltd (supra), it is concluded that since the appellant was having exempt income of Rs. 1,19,09,821/- during the year, the action of the AO was justified in making disallowance of Rs.
28,49,528/- by invoking the provisions of section 14A read with rule 8D. The addition is, therefore, confirmed. Accordingly, Ground
No. 1 to 4 are dismissed.”
1 On the issue of disallowances on the right off on account of waiver of the principle, the Ld.CIT(A) after considering the submission of the assessee observed and held as under: “4.8. Facts of the case narrated in the assessment order and written submission made by the Appellant has been considered. Conjoined reading of Section 36(1) (vii) along with Sec. 36(2) (i) of the I.T.Act, indicates that the amount of any bad debt written off, in the books of accounts from the receivable balance of loans advanced, during the year, which represents money lent in the ordinary course of business of banking or money lending which is carried on by an assessee will qualify or will be eligible for deduction. For this purpose even a loan written off unilaterally by a person, who is engaged in the business of banking or money lending, will be admissible for 5 ITA No. 5669/Mum/2024; A.Y. 2015 Sicom Investments & Finance Limited deduction, if such loan is written off from the books of accounts, and written off as receivable balance from the asset representing loan and advances. The AO in the assessment order passed has brought on record that the appellant is engaged in the business of financing. Having regard to the facts of the case and the extant provision of law, the AO is directed to delete the sum of Rs. 3,00,00,000/-added during assessment to arrive at total income to determine tax at normal rate. Hence, the ground no. 6 and 7 is allowed.”
2 The assessee also raised the issue pertaining to addition of Rs. 28,49,528/- disallowed u/s 14A and provision for standard assets of Rs. 6,36,48,400/- while computing book profits u/s 115JB of the Act. The assessee placed reliance on the decision of the Hon’ble Delhi Special Bench in case of ACIT V/s. Vireet Investment Pvt. Ltd. reported in [2017] 82 taxmann.com 415 which was accepted by the Ld.CIT(A) and the addition stood deleted. 3.3 In respect of the provision made for standard assets Ld.CIT(A) while deleting the addition observed and held as under: “4.12. Facts of the case appearing on the assessment order, written submission made by the appellant and extant provision of law has been considered. It has not been brought on record, in the assessment order, that the income which has been claimed as exempt u/s 10(38) by the appellant on account of LTCG, has not been recorded in the profit of loss account as a receipt, for the year. Further, on perusal of section 115JB [Explanation-1, clause- (f)] it appears that in the statute itself, it has categorically been provided, that adjustment in respect of income excluded being exempt u/s 10(38), no adjustment is required to be made. Having regard to the discussion made, the AO is directed to delete Rs. 28,49,528/- to arrive at total income for the purpose of MAT, u/s 115JB of the I.T.Act. As the 1st part of Ground No.5 of this appeal has been allowed the 2nd part is not being adjudicated separately.
13. Further, it has been noticed that the AO has disallowed a sum of Rs. 6,36,48,400/-, as Provision made for Sub Standard Assets, considering the provision so made by the appellant is not an ascertained liability, following explanation- 1(c) of sec. 115JB. In this regard, the appellant in it's written submission has clarified that this sum of Rs. 6,36,48,400/-, includes the 6 ITA No. 5669/Mum/2024; A.Y. 2015 Sicom Investments & Finance Limited sum of Rs. 3,00,00,000/- written off as loan being not recoverable from MIEL E-Security Pvt Ltd. A decision was taken in a board meeting of the appellant company to write off loan to the extent of Rs. 3,00,00,000/- and the sum was quantified. According the appellant, this principal sum of Rs. 3,00,00,000/- written off, being irrecoverable, is ascertainable and has been written off from the books of accounts. Having regard to the facts afore-stated the AO is directed to delete the sum of Rs. 3,00,00,000/-only, from the total income arrived at for the purpose of determining MAT, u/s 115JB of the Act. Hence, Ground No.8 & 9 of this appeal is allowed.”
Aggrieved by the impugned order, revenue is in appeal before this Tribunal on two issues.
4. Ground No. 1-3: The revenue is in appeal against allowing the assessee to treat principle loan waived off by the assessee has bad debts. Ld.DR relied on observation of the Ld.AO and submitted that, principle amount of loan waived off by the assessee, was treated as capital in nature and therefore don’t qualify to be claimed as bad debts. The Ld.DR emphasised that, the assessee doesn’t satisfy necessary criteria to consider the said amount as bad debts. He thus supported the addition made by Ld.AO.
4.1 On the contrary the Ld.AR submitted that sum of Rs. 3
crore was irrecoverable and therefore was treated as bad debt. It is submitted that the assessee is in the business of money lending and therefore alternatively the said amount is also available to the assessee to be considered as business loss.
We have perused the submission advance by both sides in the light of the record placed before us.
5. Admittedly the assessee has not been able to establish if debt or part thereof was taken into account while computing
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Sicom Investments & Finance Limited income of the assessee any of the previous years. Under such circumstance we agree with the Ld.DR that said amount of Rs. 3
crore doesn’t qualify to be claimed as bad debts.
5.1 However considering that the fact that the assessee is in business of money lending the said amount that cannot be recovered has to be allowed as business loss. We therefore direct the Ld.AO to allowed the claim of the assessee as business loss.
Accordingly ground No. 1 and 3 raised by the revenue stands dismissed.
6. Ground No. 3 and 4 is challenging the action of the Ld.CIT(A) to exclude the provision of standard assets of Rs. 3
crore and disallowances u/s 14A of Rs. 28,49,528/- while computing book profit u/s 115JB of the Act.
6.1 Ld.DR on this issue relied on the order passed by the Ld.AO.
6.2 Ld.AR on the contrary submitted that regarding consideration disallowances u/s 14A while computing book profits is now settled by the decision of Hon’ble Special Bench
Delhi in ACIT V/s. Vireet Investment Pvt. Ltd. (supra).
6.3 In respect of excluding the provision of standard assets while computing book profit u/s 115JB of the Act, Ld.AR submitted that the provision of standard assets was made in accordance with the RBI guidelines in respect of the non performing assets. It is submitted that, as the provision is made as per the statutory requirements of law the same cannot be added while computing book profit u/s 115JB of the Act.
We have perused advance submission of both the sides in the light of the record placed before us.
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The issue pertaining addition of 14A disallowances while computing 115JB book profits is now no longer res integra we therefore don’t find any infirmity in the view taken by the Ld.CIT(A) and the same is upheld. 7.1 In respect of including provision of standard asset for purposes computing book profit u/s 115JB of the Act, it is noted that, the reasons provided by the Ld.CIT(A) in para 4.13 reproduced herein above cannot be found fault with. There is no doubt that the amount that could not be recovered was an uncertain liability of MIEL E-Security Pvt Ltd and therefore cannot be included and also doesn’t form part of Explanation 1 to sec. 115JB of the Act. What is not considered therein cannot be added for purpose of computing book profits under the relevant section. We therefore don’t find any infirmity in the view taken by the Ld.CIT(A) on this issue and the same is upheld. Accordingly Grounds 4 and 5 raised by the revenue stands dismissed. In the result the appeals filed by the revenue stands dismissed. Order pronounced in the open court on 30/07/2025 (GIRISH AGRAWAL) Judicial Member Mumbai: Dated: 30/07/2025 Disha Raut, Stenographer Copy of the order forwarded to:
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(1)The Appellant
(2) The Respondent
(3) The CIT
(4) The CIT (Appeals)
(5) The DR, I.T.A.T.By order
(Asstt.