BOMBAY REAL ESTATE DEVELOPMENT CO. P.LTD,MUMBAI vs. ACIT RG 1(1),

Although the assessee contested the disallowance u/s 14A before Ld. CIT(A), however, the said disallowance was confirmed. The assessee had also assailed the adjustment of both disallowance u/s 115JB, however, the same was also rejected. Aggrieved, the assessee is under further appeal before us. 5.1 Before us, Ld. Sr. Counsel has raised a plea that Ld. AO failed to record requisite satisfaction before proceeding to compute disallowance u/s 14A r.w.r. 8D and therefore, the disallowance was bad in law. However, we find that no suo-moto disallowance was offered by the assessee despite earning exempt income in the form of dividend income and LTCG. The Ld. AO specifically took note of the fact that most of the income earned by the assessee was in the form of dividend income and capital gains. The said analysis, in our opinion, was quite sufficient to establish that Ld. AO had recorded the requisite satisfaction before Assessment Years :2010-11 & 2013-14 proceeding to compute disallowance u/s 14A. Therefore, this plea raised by Ld. Sr. Counsel could not be accepted. 5.2 The Ld. Sr. Counsel submitted that while computing the disallowance, only those investments were to be considered which yielded exempt income during the year. Reliance has been placed on the decision of Delhi Tribunal (Special Bench) rendered in ACIT Vs. Vireet Investment (P.) Ltd. [82 Taxmann.com 415]. The working in this manner, as placed on record, would show that disallowance would come to Rs.21.64 Lacs. We concur with the said submissions made by Ld. Sr. Counsel. Accordingly, Ld. AO is directed to verify the computations and restrict the disallowance considering only those investments which have yielded exempt income during the year. The separate disallowance of Bank Charges for Rs.1.38 Lacs would not be warranted since it could not be said that the bank was used only for the purpose of earning exempt income. Ground No. 1 stand partly allowed. 5.3 In ground no.2, the assessee is aggrieved by adjustment of two disallowance while computing Book Profits u/s 115JB. We are of the opinion that unless the factum of debit of actual expenditure was brought on record, adjustment of disallowance u/s 14A while computing book profits u/s 115JB would not stand test of law. Similarly, disallowance u/s 40(a)(ia) was a statutory disallowance for want of TDS. Unless the same was specifically covered by manner of computations as provided u/s 115JB, the adjustment of the same would also not be justified. Therefore, both these disallowances would not be added back while computing Book Profits u/s115JB. 5.4 Resultantly, the appeal stands partly allowed. Assessment Years :2010-11 & 2013-14 AY 2013-14 6.1 The assessment for this year was framed u/s 143(3) on 26/02/2016. The assessee earned exempt income of Rs.176.55 Lacs but did not offer any disallowance u/s14A.The Ld. AO worked out expense disallowance of Rs.25.18 Lacs u/r 8D(2)(iii). The same, upon confirmation by Ld. CIT(A), is under further appeal before us. Finding the facts to be pari-materia the same, we direct Ld. AO to compute disallowance by considering only those investments which have actually yielded exempt income during the year. A chart has been placed before us for this year also which show that disallowance as worked out in this manner, would come to Rs.13.65 Lacs. The Ld. AO is directed to verify the same and restrict the disallowance to that extent. Ground-1 of the appeal stand partly allowed. 6.2 The second issue pertain to disallowance u/s 41(1). It transpired that the assessee reflected trade payable of Rs.201.45 Lacs as on 31/03/2013 against an entity namely M/s Status Marketing Private Limited in respect of hill view project. The assessee reworked the entire payable as on 31/03/2014 wherein a sum of Rs.128.21 Lacs was written- back as sundry balances written back. The balance amount of Rs.73.23 Lacs was shown to be remaining payable. However, Ld. AO show- caused as to why the amount of Rs.73.23 Lacs should not be treated as liability no longer payable and treated as its income u/s 41(1). The assessee submitted that the said liability was not paid by the assessee as the directors of M/s Status Marketing Private Limited owed certain liability towards directors of the assessee company in their individual capacity. However, since netting-off could not be proved, the amount of Assessment Years :2010-11 & 2013-14 Rs.73.23 Lacs was added to the income of the assessee u/s 41(1). The learned CIT(A) confirmed the stand of Ld.AO. Aggrieved, the assessee is under further appeal before us. 6.3 The Ld. Sr. Counsel explained that the outstanding amount of Rs.73.23 Lacs was not paid since the directors of other entity owed assessee aggregate sum of Rs.59.56 Lacs in their individual capacity. The debt was acknowledged by the said entity and hence the outstanding amount was not paid by the assessee. Nevertheless, the liability was subsisting and confirmed by the creditors also and therefore, the provisions of Sec. 41(1) were not applicable. The Ld. DR submitted that the onus to prove that the debts were subsisting was upon assessee. 6.4 After careful consideration, we find that on page no. 39 of the paper-book, the assessee has placed on record debt-confirmation dated 24/02/2016 issued by M/s Status Marketing Pvt. Ltd. The said confirmation letter acknowledges the fact that amount of Rs.90.43 Lacs was receivable from the assessee as on 31/03/2014. It also acknowledges the fact that amount of Rs.59.56 Lacs was due by the director of that entity to the assessee company against booking of flats in the Hill view park project. Upon perusal of the same, it could not be said that the amount payable by the assessee had ceased to exist or there was remission or cessation of trading liability. The factum of outstanding debt was duly acknowledged in the confirmation of M/s Status Marketing Pvt. Ltd. Therefore, the provisions of Sec. 41(1), in our considered opinion, could not be applied to the fact of the case. Therefore, by deleting the impugned addition, we allow this ground of appeal