BIRLA CAPITAL & FINANCIAL SERVICES LTD,MUMBAI vs. ITO 1(1)(4), MUMBAI

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ITA 7510/MUM/2012Status: DisposedITAT Mumbai22 September 2017AY 2009-105 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal allowed the appeal regarding the disallowance of expenses relatable to exempt income, following the Delhi High Court's decision that no disallowance can be made if there is no exempt income. For the bad debt claim, the Tribunal noted the assessee's readiness to produce additional evidence and remanded the issue for fresh consideration.

What were the facts?

The assessee claimed a deduction for bad debts amounting to Rs. 27,54,368/- related to hire purchase income from a sister concern, Birla Power Solutions Ltd., booked in 2003. The Assessing Officer and CIT(A) disallowed this claim due to lack of justification and evidence.

What were the issues?

Whether disallowance under Section 14A is permissible when no exempt income is earned, and whether the claim for bad debts from a sister concern is allowable without sufficient evidence of recoverability.

Which sections of the Income-tax Act were involved?

Section 14A

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Income Tax Appellate Tribunal, “B” BENCH, MUMBAI

For Appellant: Shri Pankaj R. Toprani, AR
For Respondent: Shri Suman Kumar, DR

This appeal by the Assessee is arising out of the order of CIT(A)-1 Mumbai, in appeal No. CIT(A)-I/IT-47/2011-12, dated 23-10-2012. The Assessment was framed by ITO ward 1(1)(4), Mumbai for the A.Y. 2009- 10 vide order dated 31-10-2011 under section 143(3) of the Income Tax Act, 1961(hereinafter ‘the Act’).

2.

The first issue in this appeal of assessee is against the order of CIT(A) confirming the disallowance of expenses relatable to exempt income at Rs. 32,001/- by invoking the provisions of section 14A of the Act read with Rule 8D of the Rules. For this assessee has raised following ground No.1: -

“1. The learned Commissioner of Income Tax (Appeals) erred in computing the disallowance u/s, 14A r.w. Rule BD of Rs. 32,0011- without

2 Birla Capital & Financial Services Ltd. (A.Y:2009-10) appreciating that there was no income which was claimed as exempt during the previous year and there was no expenditure incurred during the previous year in relation to income which was not chargeable to tax."

3.

At the outset, the learned Counsel for the assessee drew our attention to the assessment order and the orders of CIT(A) and stated that that before CIT(A) plea was taken that there is no exempt income claimed by assessee and this fact is recorded by CIT(A) in Para 3.3 and the relevant portion of the same is reads as under: -

“3.3…………………. the appellant has not earned any exempt income during the year but had made investment in assets which are capable of earning exempt income……………………….””

It means that the assessee has not earned any exempt income during the years and once there is no exempt income, no disallowances can be made by invoking the provisions of section 14A of the Act read with Rule 8D of the Rules. This proposition is supported by the decision of Hon’ble Delhi High Court in the case of Cheminvest Ltd. vs. CIT (2015) 378 ITR 33 (Delhi). As the issue is squarely covered in favour of assessee, respectfully following the Hon’ble Delhi High Court decision in the case of Cheminvest Ltd. (supra), we allow the claim of the assessee and disallowance made by the AO and confirmed by CIT(A) is hereby deleted. This issue of assessee’s appeal is allowed.

4.

The next issue in this appeal of assessee is against the order of CIT(A) confirming the disallowance of claim of deduction of bad debts by holding the same as the amount of Higher Purchase Income due from Birla Power Solutions Ltd. For this assessee has raised following ground No2: -

3 Birla Capital & Financial Services Ltd. (A.Y:2009-10) “2. The learned Commissioner of Income Tax (Appeals) erred in disallowing the claim of deduction of bad debts of Rs 27,54,368/- being the irrecoverable (amount of hire purchase income and cue from Birla Power Solutions Ltd. (Debtor)”

5.

We have heard the rival contentions and gone through the facts and circumstances of the case. We find from the facts of the case that the assessee has claimed bad debt of Birla Power Solutions Ltd. in the debtors account. There is outstanding of Rs. 27,54,368/- on account of higher purchase income booked in the year 2003, which is not recoverable. The AO made the addition as no justification or evidence was produced before him. The CIT(A) also confirmed the action of the AO by observing in Para 5.6 as under: -

“5.6. Regarding the claim Rs.27,54,368/- it is submitted that it pertains to sister concern MIS Birla Power Solutions Ltd. for hire purchase- income booked in the year 2003. both companies i.e. the appellant company and M/s. Birla Power Solutions Ltd belong to the '(ash Birla Group of Companies. During the assessment proceedings as well as the appellate proceedings, the appellant has not justified the said claim. Mere writing off-bad- debts in the books of accounts is not conclusive evidence, especially, in the scenario where both the debtor as well as the creditor belongs to the same group. Under such circumstances, the responsibility on the appellant is higher to prove the circumstances under which the debt has become bad and not recoverable. The appellant has not provided whether the sister concern has offered this income for taxation u/s. 41(1) of the Act. The appellant has also not produced any evidence in support of the 4 Birla Capital & Financial Services Ltd. (A.Y:2009-10) bad financial conditions of the sister concern, it is obligatory on the parts of appellant which is writing off the amount receivable from the sister concern to show that proper efforts were made for the purpose of recovery of such advances/loans paying which it would be susceptible to being included in the gamut of attempts of reducing the taxable income by reducing the profit and resultant reduction in the capital. Therefore, in the absence of evidence the claim of bad debts made by the appellant cannot be allowed.”

6.

Now, before us, the learned Counsel for the assessee stated that he is ready to produce the accounts of the year 2003, wherein this income has been booked i.e. the copy of account of Birla Power Solutions Ltd. and also he has to file additional evidences and for the same application is filed. The relevant application reads as under: -

“The Appellant in the above appeal craves leave to file before your honour, additional evidence in the form of Ledger Account copy of MIs Birla Power Solutions Ltd. (earlier known as Birla Yamaha Ltd."), Certificate from Registrar of Companies for change of Name, Profit & Loss Account and Balance Sheet of the Appellant for the year ended 31.03.2003 and details of [lire Purchase Income booked in the year 2003 stated against Serial No. 5 to 8 of the Paper book, which could not filed before lower authorities earlier for the reasons mentioned below:

1.

Before the AO and the CIT (A), the Appellant had stated, with regard to bad debt that hire purchase income of Rs. 27,54,368/- receivable from M/s. Birla Power Solutions Ltd. was offered for the year ended

5 Birla Capital & Financial Services Ltd. (A.Y:2009-10) 31.03.2003 because as per the provisions of Section 36 (2) of the Act, in order that bad debts in respect of income is written off, the said income should have been offered to tax. The Appellant was under a bonafide impression that its submissions would be accepted.'

7.

Since, these documents were not filed before the lower authorities, we are of the view that let the documents be filed before the AO and after considering these documents, he will decide the issue. This issue of assessee’s appeal is set aside and matter is remanded back to the file of the AO. The appeal is allowed for statistical purposes.

8.

In the result, the appeal of assessee is allowed for statistical purposes.

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