DCIT CORPORATE CIRCLE 2(1), CHENNAI vs. EIH ASSOCIATED HOTELS LTD., CHENNAI

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ITA 2831/CHNY/2017Status: DisposedITAT Chennai04 December 2019AY 2007-085 pages

In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal upheld the CIT(Appeals)'s deletion of Section 14A disallowance as there was no exempt income. It also allowed the bad debt write-off. However, it confirmed the disallowance of leave encashment as it was not paid and the relevant High Court judgment was stayed.

What were the facts?

The Revenue appealed against the deletion of disallowance under Section 14A and bad debt by the CIT(Appeals). The assessee filed a cross-objection regarding the disallowance of leave encashment.

What were the issues?

Whether disallowance under Section 14A is warranted without exempt income, and whether a bad debt can be written off if due from the government. Also, the allowability of leave encashment provision when the related High Court judgment is under stay.

Which sections of the Income-tax Act were involved?

Section 14A,Section 43B(f)

AI-generated summary — verify with the full judgment below

Cases cited in this judgment(2)Show list

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Income Tax Appellate Tribunal, ‘B’ BENCH, CHENNAI

Before: SHRI N.R.S. GANESAN & SHRI INTURI RAMA RAO

Hearing: 24.10.2019Pronounced: 04.12.2019

Heard together (2 matters)

ITA No.2831/chny/2017
C.O. No.35/Chny/2018

Read from the judgment's own cause title. This page is filed under one of them.

आदेश /O R D E R

PER N.R.S. GANESAN, JUDICIAL MEMBER:

1.

The Revenue has filed the appeal against the order of the Commissioner of Income Tax (Appeals)-6, Chennai, dated 15.09.2017, for the assessment year 2007-08. The assessee has also filed cross-objection against the very same order of the CIT(Appeals). Therefore, we heard the appeal of the Revenue and the cross-objection of the assessee together and disposing the same by this common order.

2.

Let’s first take the Revenue’s appeal. The first issue arises for consideration is disallowance made by the Assessing Officer under Section 14A of the Income-tax Act, 1961 (in short 'the Act').

3.

It is not in dispute that there was no exempt income earned by the assessee during the year under consideration. The CIT(Appeals) placing his reliance on the judgment of Madras High Court in Redington (India) Ltd. v. Addl. CIT (2017) 392 ITR 633, has deleted the addition made by the Assessing Officer. This Tribunal is of the considered opinion that when the CIT(Appeals) has placed his reliance on the judgment of Madras High Court, which is binding on all the authorities in State, there is no error in the order of the CIT(Appeals). Even in respect of investments made in subsidiary company, there was no exempt income earned by the assessee. therefore, there is no question of any addition / disallowance with regard to expenditure. Therefore, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed.

4.

The next issue arises for consideration is disallowance of bad debt to the extent of ₹1,21,967/-.

5.

The only grievance of the Revenue is that this amount of ₹1,21,967/- was due from Ministry of External Affairs, therefore, it cannot be written off. The Income-tax Act does not say that the amount due from Government cannot be written off. What is to be seen is whether the assessee has written off the amount as irrecoverable. It is not in dispute that the assessee has in fact written off the above said amount due from Ministry of External Affairs. Therefore, this Tribunal is of the considered opinion that the claim of the assessee has to be allowed. In case, it was recovered subsequently, the same has to be taken as income of the assessee in the year in which it was recovered, subject to the above observation. This Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed.

6.

Now coming to the cross-objection filed by the assessee, the only issue raised in the cross-objection is with regard to leave encashment to the extent of ₹14,41,057/-.

7.

The Assessing Officer as well as the CIT(Appeals) disallowed the provision for leave encashment on the basis of the judgment of Calcutta High Court in Exide Industries Ltd. v. Union of India (2007) 292 ITR 470. In the grounds of appeal, the assessee has raised an issue with regard to stay granted by Apex Court on the operation of the judgment of Calcutta High Court in Exide Industries Ltd. (supra). The Assessing Officer found that the stay was granted on 27.06.2007 by the Calcutta High Court and subsequent development was not available. The fact remains that the judgment of Calcutta High Court was stayed by the Apex Court and the appeal / SLP filed before the Apex Court is still pending.

Therefore, for all practical purposes, it has to be construed that Section 43B(f) of the Act continued to be in the statute book. Since, admittedly, leave encashment was not paid by the assessee, the CIT(Appeals) has rightly confirmed the order of the Assessing Officer. Therefore, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed.

8.

In the result, both the appeal of the Revenue as well as the cross-objection of the assessee stand dismissed.

Order pronounced in the court on 4th December, 2019 at Chennai.

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