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�नधा�रती क� ओर से/ Assessee by : Shri Anuj Kisnadwala (AR) राज�व ओर से / Revenue by : Shri Vishwas Mundhe (DR) सुनवाई क� तार�ख / Date of Hearing : 03-01-2017 घोषणा क� तार�ख / Date of Pronouncement : 20-01-2017 आयकर अ�ध�नयम, 1961 क� धारा 254(1) के अ�तग�त आदेश Order u/s.254(1)of the Income-tax Act,1961(Act) Per Pawan Singh, J.M. �या�यक सद�य iou iou iou �संह के अनुसार: iou 1. These two appeals filed by assessee(s) u/s. 253 of the Income-tax Act are directed against two separate orders of ld. Commissioner of Income-tax (Appeals)-7, Mumbai (for short the CIT(A) dated 27.08.2012 for Assessment Year (AY) 2008-09 and 2009-10. As the facts for both the years are similar, some common grounds are raised, thus both the appeal were clubbed, heard together and are decided by common order for avoiding conflicting decision. In Assessment Year-2008-09 the assessee has raised the following grounds of appeal:
1. Disallowance u/s.14A:
1. On facts and in law, the learned CIT(A) had failed to appreciate that applying Rule 8D without rejecting the claim of the appellant is bad-in-law. Under the facts and circumstances of the matter, he ought to have directed the assessing officer not to apply Rule 8D without rejecting the claim of the appellant while computing the disallowance 14A of the Act.
2. Without prejudice to Grounds of Appeal No.1 above, the learned CIT(A) had failed to appreciate that there should not be any disallowance under Rule 8D(2)(ii) r.w.s. 14A of the Act as no amount of interest was incurred for earning income exempt from tax.
2 & 159/M/2013 M/s. Smita Conductors Ltd.
3. On facts and in law, the learned CIT(A) had erred in not directing the Assessing Officer not to consider the share of profit from partnership firm while working out the disallowance u/s.14A of the Act.
4. On facts and in law, the learned CIT(A) had failed to appreciate that burden of proof remain with the Assessing Officer as the appellant has already submitted the working of the amount of disallowance u/s.14A.
Without prejudice to Ground of Appeal No.1, the learned CIT(A) ought to have directed the Assessing Officer to restrict the disallowance u/s.14A at Rs.5,160/-. II. On facts and in law, the learned CIT(A) had erred in not directing the Assessing Officer not to add Rs.32,84,775/- being the disallowance made by him u/s.14A read with rule 8D in the Book Profit ufs.115JB of the Act. III. On facts and in law, the learned CIT(A) had erred in confirming the addition of 12% to the commission paid amounting to Rs.4,79,445/-. Under the facts and. circumstances of the matter, he ought to have allowed the entire amount of the commission paid. IV. On facts and in law, the learned CIT(A) had erred in not directing the Assessing Officer to delete the addition of Rs.9,53,455/- being bad debts claimed. Under the facts and circumstances of the matter, he should have directed the Assessing Officer to delete the said addition. V. On facts and in law, the learned CIT(A) had erred in not appreciating the fact that Section 234C is chargeable on Returned Income and not Assessed Income.
2. The brief facts of the case are that the assessee a manufacturer of ACSR & Aluminum conductor. The assessee filed its return of income for relevant AY on 13.12.2010. The assessment was completed u/s 143(3) of the Act on 13.12.2010. The Assessing Officer (AO) while making the assessment order besides the other addition/disallowance made the disallowance of Rs. 32,84,775/- u/s 14A of the Act, disallowed the bad-debt of Rs. 9,35,455/- and made the addition of Rs. 4,79,445/- on account of commission payment. On appeal before the ld. CIT(A) the addition u/s 14A and disallowance of bad-debt was sustained. However, commission payment was restricted to 12%. Thus, further aggrieved by the order of ld. CIT(A), the present appeal is filed by assessee before us.
We have heard the ld. Authorized Representative (AR) of the assessee and ld. Departmental Representative (DR) for the Revenue and perused the material available on record. The first ground of appeal relates to the disallowance under section 14A read with Rule 8D of the Act. The learned and AR of the assessee argued that during the year under consideration the assessee earned exempt income consisting of profit from partnership of Rs.14186/- exempted under section 10(2A) and Rs. 2,03,22,503/- as dividend income exempted under section 10(34)/ 10(35) of the Act. No voluntary disallowance was offered by assessee. The assessing officer made the disallowance of Rs. 26,80,784/- under rule 8D(ii) and Rs. 6,01,991/- under rule 8D(iii). The AO made the disallowance without rejecting explanation and the books of account of the assessee. The assessee has sufficient interest free fund available with the assessee during the year. The assessee made investment in the mutual fund only during the year. The assessee only made the expenses of Rs. 5,160/- only. The 3 & 159/M/2013 M/s. Smita Conductors Ltd. dividend income was received directly in the bank account of the shareholder through ECS. All the details were provided to the assessing officer as per page 11 of the paper book before the Tribunal. The copy of statement of account and the balance sheet is also placed on record showing the interest free funds available with the assessee. The ld. and AR of the assessee relied upon the decision of CIT versus reliance utility Ltd 313 ITR 340(Bombay), CIT versus HDFC bank Ltd 366 ITR 505(Bombay) on the ratio that no interest disallows can be made under section 14A of the assessee own sufficient funds to cover up the value of investment. On the decision of DCIT versus REI Agro Ltd (Calcutta), M/s Global Calcium Private Limited in ITA No.2255/Mds/2013 he propound to the ratio that Assessing Officer must record his dissatisfaction before invoking provision of Rule 8D. In the alternative, the ld. AR of the assessee would argue that a token amount of Rs. 25,000/- may be disallowed under section 14 A of the Act. On the other hand the ld. DR for the revenue supported the order of authorities below. The ld. DR further argued that assessee was making huge investment during the year under consideration.
We have considered the rival contention of the parties and gone through the orders of authorities below. We have noticed that the assessee earned dividend income of Rs.2,03,22,503/- and profit from partnership of Rs. 14,186/-which were claimed exempted by the assessee. The AO asked the assessee to furnish the details of the expenses incurred for earning exempt income. The assessee furnished its explanation along with the details of exempt income, profit and loss account and the balance sheet. The AO has not discussed in his order about the statement of account and the details of expenses incurred by the assessee, which was furnished before him during the assessment proceedings. The AO has not rejected the accounts filed by assessee. The AO invoked the provision of rule 8D for making disallowance u/s 14A. The AO disallowed Rs. 26,82,784/- under rule 8D(ii) and Rs. 6,01,991/-under rule 8D(iii). We have seen that assessee was having sufficient interest on the free fund available. The assessee had a reserve and surplus fund of Rs. 28,42,58,814/- as on 31st March 2008. The assessee made the investment of Rs. 17,01,81,310/ - in mutual funds during the year under consideration. Thus, keeping in view the fact and circumstances of the case, we deem it appropriate that a lump sum disallowance of Rs. 25,000/-under section 14A would meet the end of Justice. Hence the AO is directed to restrict the disallowance under section 14 A to Rs. 25,000/-. In the result this ground of appeal
is partly allowed.
5. Ground No. 2 relates the commission disallowance which was restricted to 12% by ld. CIT (Appeals). The ld. AR of the assessee argued that the similar disallowance was made by AO 4 & 159/M/2013 M/s. Smita Conductors Ltd. in earlier years, on appeal before CIT(A) the disallowance was restricted to 12%. The assessee as well as revenue filed appeal before the Tribunal. The Tribunal vide order dated 16 September 2015 in ITA No. 4272/M/2011 and ITA No. 4005/M/2011, dismissed the appeal of revenue and allowed the appeal of assessee. The ld DR for revenue not disputed the decision of earlier year.
6. We have considered the rival contention of parties and have gone through the order of Tribunal for AY 2007-08 and find that similar disallowance on account of commission expenses was made by Assessing Officer which was restricted to 12% by Commissioner (Appeals) . Both the parties filed cross appeal before the Tribunal wherein the following order was passed:- “ 10. Considering the facts the totality in the light of documentary evidences brought on record, we have no hesitation to hold that the commission of Rs.21,22,404/- was paid for the purpose of business and is to be allowed fully. Accordingly, we direct the AO to allow the commission of Rs.21,22,404/- in full. Accordingly, the ground raised
by the assessee is allowed and that of revenue is dismissed.
7. Thus considering the decision of Tribunal in assessee’s own case for earlier year on the similar disallowance, this ground of appeal raised by assessee is allowed.
8. Ground No. 3 relates to disallowance of bad debts. The landed AR of the assessee argued that the AO disallowed the claim of bed that without considering the facts of the case and the legal position. The ld. AR of the assessee submitted that during the assessment preceding the assessee furnished the details of bad debt which were written off in the balance-sheet of assessee. It was further argued that the ld. Commissioner (Appeals) failed to appreciate the fact brought before him. The ld CIT (A) wrongly concluded that the assessee has not proved that the debtors written off were offered as revenue income in any of the previous year. The ld CIT (A) not appreciated the decision of Hon’ble Apex Court in TRF Ltd Vs CIT 323 ITR 397(SC). The ld AR of the assessee further relied upon the CBDT Circular N0. 12/2016. On the other hand the landed AR for revenue supported the order of authorities below. The ld. DR further argued that assessee has not given any satisfactory explanation before the lower authorities.
9. We have considered the rival contention of the parties and gone through the order of authorities below and the CBDT circular dated 30th May 2016. During the assessment proceeding the AO notice that assessee claimed Rs. 9,53,455/- as bad debts. The assessee was asked to furnish evidence as to how the debts have become bad and to show the effort to recover such debts. The AO after considering the reply of assessee observed that the assessee has not established that debt has become bad and liable to be written off in the