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Income Tax Appellate Tribunal, “A” BENCH : BANGALORE
Before: SMT ASHA VIJAYARAGHAVAN & SHRI INTURI RAMA RAO
These are the cross appeals filed by the assessee company as well as the revenue, directed against the order of learned CIT(A)-III, Bangalore dated 03.09.2013 for the assessment year 2006-07.
Briefly the facts of the case are as under:
i. The assessee is a company incorporated under the provisions of the Companies Act, 1956. It is engaged in the business of manufacture and sale of beer. The return of income for the assessment year 2006-07 was filed on 30.11.2006 declaring loss of Rs.25,57,39,022/-. After issuing notice under section 142, the assessment under section 143(3) was completed vide order dated 19.12.2008 at total income of Rs.2,25,40,768/-. While doing so, the learned AO made the disallowances under section 14A of Rs.26,37,28,791/-.
Being aggrieved, an appeal was preferred before the CIT(A)-III, Bangalore, who vide impugned order had partly allowed the appeal. The learned CIT(A) confirmed the addition on account of writing off of several advances to various parties on the ground that such write off cannot be allowed as bad debts under section 36(2) of the Act as the advance does not constitute debts which never formed part of the income of the assessee before. As regards the disallowances under section 14A, the learned CIT(A) held that no disallowance under section 14A can be made before the insertion of the rule read with 8D i.e., with effect from assessment year 2008-09 and accordingly he deleted the addition under section 14A of the Act. As regards the disallowances of depreciation on aircraft, he confirmed the disallowance that in the absence of passenger details who traveled on aircraft, the depreciation cannot be allowed.
Being aggrieved with that part of the order which is against it, the revenue is in appeal in and the assessee is in appeal in ITA No. 1800/Bangalore/2013.
We shall now first take up the assessee’s appeal. The assessee raised the following 12 grounds of appeal:
Ground Nos. 1, 2, 11 and 12 are general in nature do not require any adjudication. Ground Nos.3, 4 and 5 relates to confirming the addition on account of write off advances to various parties by the CIT(A). The AO had made addition on account of write off of advances to M/s. UB Transit Systems Ltd., of Rs.60,000/- and M/s. GSTAAD ofRs.6,15,856/- for want of details as to the true nature of the transaction and whether such advances were made during the course of business of the assessee. Even before the CIT(A), the assessee had not made any attempt to prove that these advances are made during the course of the business of the assessee company nor assessee had demonstrated that the conditions which are necessary for the allowance as a bad debt under the provisions of the section 36(2) are fulfilled. Even before us, the assessee had made no effort to demonstrate that the conditions necessary for allowances under section 36(2) are fulfilled nor the advances were made during the course of business out of commercial expediency. In the circumstances, we have no option but to confirm the addition of the CIT(A). Thus the grounds of appeal Nos. 3, 4 and 5 are dismissed.
Ground Nos. 6, 7 and 8 challenges the confirmation of disallowances of depreciation on aircraft. We find that the issue in these grounds of appeal are covered against the assessee in the assessee’s own case for the assessment years 1997-98, 2001-02 & 2002-03 in 1585/B/2013 dated 27.11.2015 wherein it was held as follows:
Respectfully following the same decision, we hold that the assessee is not entitled to depreciation on the aircraft. Accordingly, the grounds of appeal are dismissed.
9. Ground Nos. 9 and 10 are only consequential, does not require any adjudication and are dismissed as such.
In the result, the appeal filed by the assessee is dismissed.
Revenue’s appeal: The revenue raised 6 grounds of appeal as follows:
11. Ground Nos. 1 and 6 are general in nature. Do not require any adjudication. Ground Nos. 2 and 3 only challenges the directions of the CIT(A) to delete addition of Rs.26,37,28,791/- on account of investment in equity shares. During the course of the proceedings, the AO noticed that the assessee company earned dividend income of Rs.16,80,42,761/- and he further noticed that the assessee made an investment in equity shares for Rs.601,39,63,000/-, out of which paid up capital of the assessee is only Rs.591,90,94,000/-. Therefore the AO assumed that interest bearing funds have been utilized for the purpose of investing in the group companies and therefore invoked the provisions of section 14A and disallowed a sum of Rs.26,37,28,791/- applying the provisions of rule 8D, on appeal before the CIT(A), the addition was deleted holding that no disallowance under section 14A can be made prior to insertion of rule 8D.
Being aggrieved, the revenue is in appeal. We are informed at the bar that this issue was restored to the file of AO for fresh adjudication in the earlier years by the Hon’ble High Court for assessment year 2003-04 and by the Hon’ble tribunal for the assessment year 2004-05 and therefore on the parity of the same, we also remit this issue back to the file of AO for fresh adjudication in accordance with the law.
In the result, appeal filed by the revenue is partly allowed for statistical purposes.
Order pronounced in the open court on this 5th day of December, 2016