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Income Tax Appellate Tribunal, DELHI BENCH ‘B’: NEW DELHI
Before: SHRI PRASHANT MAHARISHI & SHRI K.NARASIMHA CHARY
ORDER PER K. NARASIMHA CHARY, JM
Challenging the order dated 10.03.2016 in appeal No. 449/14-15 passed by the learned Commissioner of Income Tax (Appeals)-2, New Delhi (“Ld. CIT(A)”), for assessment year 2011-12,M/s. CHL Limited(“the assessee”)preferred this appeal on the following grounds :
“1. That the Ld. Commissioner of Income Tax (Appeals) grossly erred on facts and in law in sustaining the disallowance of Rs.1,14,10,793/- made by the Assessing Officer under Section 14A of the I.T. Act.
2. That the Ld. Commissioner of Income Tax (Appeals) grossly erred on facts and in law in sustaining an addition of Rs.35,00,000/- made by the Assessing Officer being bad debt claimed by the appellant in respect of corporate deposit with M/s. Ganga Auto General & Finance Limited (Actually, Delhi Auto & General Finance Pvt. Ltd.)
3. That the Ld. Commissioner of Income Tax (Appeals) grossly erred on facts and in law in sustaining the disallowance of Rs.54,32,000/- made by the Assessing Officer being bad debt claimed by the appellant on account of written off of investment.”
Brief facts of the case are that the assessee is engaged in the hotel business. For the assessment year 2011-12 they have filed their return of income on 26/9/2011 declaring an income of Rs.13,88,69,248/-. However, by order dated 6/3/2014, income of the assessee was determined at Rs.16,19,04,690/-by making certain additions including addition of Rs.1,14,19,793/-under section 14A of the Income Tax Act, 1961 (for short “the Act”) read with Rule 8D of the Income Tax Rules,1962 (“the Rules”) and made addition of Rs.89,32,000/-by disallowing the bad debts/advance as written off.
Aggrieved by such additions assessee preferred appeal before the Ld. CIT(A). Ld. CIT(A) by way of impugned order confirmed the same. Hence this appeal by the assessee.
Insofar as the addition under 14A of the Act read with Rule 8D of the Rules is concerned, in the assessment order, learned Assessing Officer noted that the dividend income was Rs.91,154/-. Ld. AR submitted that in view of the decision of the jurisdictional High Court in Joint Investments P. Ltd. vs. CIT (2015) 372 ITR 694, disallowance of expenditure u/s 14A of the Act cannot exceed the amount of tax-exempt income. In view of this binding precedent of the Hon’ble jurisdictional High Court, we find that the disallowance shall not exceed Rs.91,154/-. We, therefore, direct the Assessing Officer to restrict the disallowance to Rs. 91,154/-. Ground No. 1 of the appeal is accordingly allowed in part.
Now coming to ground No. 2 and 3, those relates to the addition of Rs.89,32,000/-under two counts, namely, Rs. 35 Lacs in respect of disallowance of bad debt written off by the assessee in respect of corporate deposit with the M/s Ganga Auto General And Finance Ltd (Delhi Auto And General Finance Ltd)., and Rs. 54,32,000/-investment written off. According to the learned Assessing Officer these amounts are deposits and investment, and not trading receipts and part of P&L Account and, therefore, the same is an item of Balance Sheet and not allowable as deduction. He accordingly made addition of these amounts.
It was submitted before the Ld. CIT(A) that the amount of Rs.35 lacs is in the nature of corporate deposit paid to M/s Delhi Auto andGeneral Finance Ltd, but since the interest was not paid from the inception, the assessee filed a suit against the said party but inasmuch as the prospect of any result, assessee decided to write off this amount from the books and claimed the same as bad date. It is further submitted that subsequently the amount was recovered and was offered to tax in the assessment year 2014- 15.
In respect of the amount of Rs.54,32,000/-it was submitted that the assessee tried to take over a closed sick unit of M/s Palm Pharmaceuticals Ltd and in that process paid such an amount to M/s Air Force Group Insulin Society and the Naval Group Housing Board under the orders of the Hon’ble High Court to the Palm Pharmaceuticals who owed a debt; that such a proposal could not be materialised and looking at the recoverability of such an amount,decided to write off the same as bad debt.
Ld. CIT(A) recorded that the assessee has not adduced any evidence that it took necessary recourse to legal proceedings for recovery of the amounts and the loss on account of non-recoverability of the amounts is capital in nature and therefore the same cannot be allowed.
It is submitted by the counsel for the assessee that inasmuch as the amount of Rs. 35 Lacs was recovered subsequently and offered to tax in the year 2014-15 and if no deduction is allowed it would amount to double taxation. He further submitted that the amount of Rs.54,32,000/-was paid to take over another concern in the year 2008-09 and the same could not be recovered till now.
Having regard to this set of facts, we are of the considered opinion that these issues have to be remanded to the file of the Assessing Officer for verification. If the amount of Rs. 35 Lacs is offered to tax in the year 2014- 15, in order to avoid the double taxation the learned Assessing Officer will give relief to the assessee in that year in respect of the sum of Rs. 35 Lacs that is brought to tax this year. In respect of the amount of Rs.54,32,000/-, the learned Assessing Officer will verify whether the business loss relates to this year and if so to allow deduction. We accordingly remand these issues to the file of the learned Assessing Officer for above specified verification. Grounds No. 2 and 3 are accordingly allowed for statistical purpose.
In the result, appeal of the assessee is allowed in part for statistical purpose. Order pronounced in the Open Court on 23rd January, 2020.