“Section 34(1)(a)”
The decision most relied on for Section 34(1)(a) is CIT v. Reliance Utilities & Power Ltd. (313 ITR 340), cited in 2,118 judgments on BharatTax.
Leading authorities on Section 34(1)(a)
Where an assessee claims that investments were made out of own funds, interest disallowance under Section 14A read with Rule 8D may not apply if the assessee demonstrates the availability of sufficient interest-free funds to cover such investments.
When an assessee possesses interest-free funds sufficient to cover investments yielding tax-free income, it is presumed that such investments were made from these interest-free funds, precluding disallowance of interest expenditure under Section 14A.
Disallowance computed under Section 14A, read with Rule 8D, cannot be added to book profits under Section 115JB for Minimum Alternate Tax (MAT) purposes. Additionally, for Section 14A disallowance, only investments that yielded exempt income during the year are considered for calculating their average value.
Disallowance under Section 14A, for expenditure incurred in relation to exempt income, is not permissible when the assessee has not earned any exempt income, such as dividend income under Section 10(34), during the year under consideration.
Where an assessee has sufficient interest-free funds, investments yielding exempt income are presumed to be made out of such funds, precluding disallowance of related interest expenditure under section 14A.
A provision for bad and doubtful debts debited to the profit and loss account and reduced from advances on the balance sheet constitutes a write-off for deduction purposes. This is true even if individual debtor accounts are not closed.
The case concerns the allowability of deductions for provisions made under Section 36 of the Income Tax Act, 1961, especially those related to bad and doubtful debts. It distinguishes such deductions from the recognition of interest income on non-performing assets (NPAs).
Liabilities accrued on a notional basis are allowable as deductions under the mercantile system of accounting even if their exact quantification or discharge is deferred to a future date or if the demand itself is disputed.
