Apollo Hospitals Enterprise Ltd., CHENNAI V. DCIT, CHENNAI

ITA 1598/CHNY/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 90453 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 9 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-05-2015
• Appeal Filed By: Assessee
• Bench Allotted: A
• Next Hearing Date: 30-04-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 16-08-2012
• Court: TRIBUNAL
• Department Lawyers: DR S MOHARANA
• Assessee Lawyers: T BANUSEKAR
• Keywords: Earning of tax free income; Bad and doubtful debts
• Section: 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : CHENNAI . . . , . ! , ' # $ [ BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ] ./ I.T.A.NOS.1598/MDS/2012 & 1819/MDS/2014 / ASSESSMENT YEARS : 2008-09 & 2009-10 M/S APOLLO HOSPITALS ENTERPRISE LTD ALI TOWERS, IV FLOOR 56, GREAMS ROAD CHENNAI 600 006 VS . THE DY. COMMISSIONER OF INCOME-TAX /JT. COMMISSIONER OF INCOME-TAX COMPANY CIRCLE I(1) CHENNAI [PAN AAACA 5443 N] ( %& / APPELLANT) ( '(%& /RESPONDENT) ./ I.T.A.NO.1622/MDS/2012 / ASSESSMENT YEAR : 2008-09 THE DY. COMMISSIONER OF INCOME-TAX COMPANY CIRCLE I(1) CHENNAI VS. M/S APOLLO HOSPITALS ENTERPRISE LTD ALI TOWERS, IV FLOOR 56, GREAMS ROAD CHENNAI 600 006 ( %& / APPELLANT) ( '(%& /RESPONDENT) ASSESSEE BY : SHRI T. BANUSEKAR, CA DEPARTMENT BY : DR. S. MOHARANA, CIT / DATE OF HEARING : 30-04-2015 / DATE OF PRONOUNCEMENT : 29-05-2015 / O R D E R PER N.R.S.GANESAN, JUDICIAL MEMBER BOTH THE ASSESSEE AND REVENUE FILED APPEALS FOR ASSESSMENT YEAR 2008-09. THE ASSESSEE HAS ALSO F ILED APPEAL FOR ITA NOS.1598 & 1622/12 1819/14 :- 2 -: ASSESSMENT YEAR 2009-10. SINCE COMMON ISSUE ARISES FOR CONSIDERATION IN ALL THE APPEALS, WE HEARD THEM TOGETHER AND DISP OSE OF THE APPEALS BY THIS COMMON ORDER. 2. LET US TAKE THE ASSESSEES APPEAL FOR ASSESSMENT Y EAR 2008- 09 FIRST. THE REVENUE IS ALSO IN APPEAL IN RESPECT OF THE PART RELIEF GIVEN BY THE CIT(A). 3. THE ONLY ISSUE ARISES FOR CONSIDERATION IS DISALLOW ANCE MADE BY THE ASSESSING OFFICER U/S 14A OF THE INCOME-TAX ACT. 4. SHRI T. BANUSEKAR, LD. REPRESENTATIVE FOR THE ASSE SSEE SUBMITTED THAT THE ASSESSEE MADE INVESTMENT TO THE EXTENT OF ` 8,75,33,077/- IN THE EQUITY SHARES OF COMPANIES AND EARNED EXEMPT INCOME U/S 10(34) OF THE ACT. THE ASSESSEE CLAIM ED BEFORE THE LOWER AUTHORITIES THAT NO EXPENDITURE WAS INCURRED FOR EA RNING THE EXEMPT INCOME. REFERRING TO RULE 8D(1) OF THE INCOME-TAX RULES, THE LD. REPRESENTATIVE SUBMITTED THAT THE ASSESSING OFFICER CAN DETERMINE THE EXPENDITURE UNDER SUB-RULE (2) ONLY IF HE IS NOT SA TISFIED WITH THE CORRECTNESS OF THE CLAIM OF EXPENDITURE MADE BY THE ASSESSEE. IN THIS CASE, ACCORDING TO THE LD. REPRESENTATIVE, NO EXPEN DITURE WAS INCURRED, THEREFORE, THERE IS NO QUESTION OF ANY DISALLOWANCE UNDER RULE 80D(2). THE LD. REPRESENTATIVE FURTHER SUBMITTED THAT BORRO WED FUNDS WERE NOT USED FOR MAKING INVESTMENT IN THE COMPANIES. THERE FORE, THERE IS NO QUESTION OF ANY EXEMPT INCOME BY INVESTING THE BORR OWED FUNDS. ITA NOS.1598 & 1622/12 1819/14 :- 3 -: ACCORDING TO THE LD. REPRESENTATIVE, THE ASSESSEE IS A PROFIT MAKING COMPANY HENCE, INTEREST ON THE BORROWED FUNDS CANNO T BE LINKED TO THE INVESTMENT MADE BY THE ASSESSEE SO AS TO DISAL LOW THE CLAIM OF THE ASSESSEE U/S 14A OF THE ACT. THE LD. REPRESE NTATIVE FURTHER SUBMITTED THAT FOR EARNING THE DIVIDEND INCOME WHIC H IS EXEMPTED U/S 10(34), NO PERSONNEL EFFORT OR EXPENDITURE WAS REQU IRED. IN FACT, THE ASSESSEE HAS NOT INCURRED ANY EXPENDITURE AT ALL. PLACING RELIANCE ON THE DECISION OF THE DELHI BENCH OF THIS TRIBUNAL IN MARUTI UDYOG LTD VS DCIT [2005] 92 ITD 119, THE LD. REPRESENTATIVE SUBM ITTED THAT THE BURDEN OF PROVING IS ON THE REVENUE TO SHOW THAT IN TEREST PAID BY THE ASSESSEE ON BORROWED FUNDS RELATED TO THE INVESTMEN T MADE IN THE COMPANIES. IN THE ABSENCE OF ANY MATERIAL TO SHOW THAT THE BORROWED FUNDS WERE INVESTED IN THE COMPANIES FOR EARNING EX EMPT INCOME, ACCORDING TO THE LD. REPRESENTATIVE, THERE IS NO QU ESTION OF ANY DISALLOWANCE. 5. THE LD. REPRESENTATIVE FURTHER SUBMITTED THAT EXTER NAL COMMERCIAL BORROWING WAS MADE DURING THE ASSESSMENT YEAR 2003-04 AND IN THAT YEAR, NO INVESTMENT WAS MADE IN THE EQU ITY SHARES OF THE COMPANIES. DURING THE YEAR UNDER CONSIDERATION, AC CORDING TO THE LD. REPRESENTATIVE, THE ASSESSEE HAS BORROWED LOANS FR OM BANK OF INDIA AND CANARA BANK AND THE LOANS OUTSTANDING AS ON 31 .3.2008 WAS ` 175 CRORES. ACCORDING TO THE LD. REPRESENTATIVE, THE BANKS SANCTIONED ITA NOS.1598 & 1622/12 1819/14 :- 4 -: THE LOAN FOR SPECIFIC PROJECT. THE USAGE OF THE BO RROWED FUNDS IN ANY OTHER PROJECT OTHER THAN THE PURPOSE FOR WHICH THE LOAN WAS SANCTIONED WAS PRECLUDED. THE LD. REPRESENTATIVE F URTHER SUBMITTED THAT INVESTMENT DURING THE YEAR UNDER CONSIDERATION WAS ONLY ` 375 CRORES. THE NET CASH FLOW FROM FINANCIAL ACTIVITIE S INCLUDING OWN FUNDS AVAILABLE WITH THE ASSESSEE WAS ` 424 CRORES. ACCORDING TO THE LD. REPRESENTATIVE, THIS INFLOW OF OWN FUNDS WAS ON ACC OUNT OF PLACEMENT OF SHARES TO M/S APAX MAURITIUS FDI ONE LTD TO THE EXTENT OF ` 427 CRORES DURING OCTOBER, 2007. 6. THE LD. REPRESENTATIVE FURTHER SUBMITTED THAT OUT O F THE TOTAL INVESTMENT OF ` 706 CRORES, INVESTMENT IN THE SHARES OF INDRAPRAST HA MEDICAL CORPORATION LTD. IS ONLY ` 19.43 CRORES AND INVESTMENT IN MUTUAL FUNDS IS ` 333 CRORES. ACCORDING TO THE LD. REPRESENTATIVE, SINCE NO EXPENDITURE WAS INCURRED, THE CIT(A) IS NO T JUSTIFIED IN DISALLOWING THE CLAIM OF THE ASSESSEE. 7. ON THE CONTRARY, DR.S.MOHARANA, LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE ASSESSEE CLAIMED BEFORE THE ASSESSING OFFICER THAT THE ENTIRE DIVIDEND INCOME W AS EXEMPT. THE ASSESSEE HAS NOT SHOWN ANY EXPENDITURE FOR EARNING THE EXEMPT INCOME. THE ASSESSEE, IN FACT, INCURRED ROUTINE E XPENDITURE TO MAINTAIN ITS ESTABLISHMENT AND ADMINISTRATION. ACC ORDING TO THE LD. DR, A PORTION OF THE EXPENDITURE IS ATTRIBUTED TO EARNING OF THE ITA NOS.1598 & 1622/12 1819/14 :- 5 -: EXEMPT INCOME. ACCORDING TO LD. DR, THE ASSESSEE ALSO INCURS MANAGERIAL REMUNERATION. THE ASSESSEE CLAIMED ` 17,21,88,233/- TOWARDS INTEREST PAYMENT IN THE PROFIT & LOSS ACCOU NT. THEREFORE, ACCORDING TO THE LD. DR, THE SECOND AND THIRD LIMB OF RULE 8D WOULD COME INTO OPERATION. REFERRING TO SECTION 14A(2) O F THE ACT, THE LD. DR SUBMITTED THAT THE ASSESSING OFFICER HAS TO DETERMI NE THE EXPENDITURE RELATING TO INVESTMENT MADE BY THE ASSESSEE FOR EA RNING THE EXEMPT INCOME. THE LD. DR FURTHER SUBMITTED THAT THE ASS ESSING OFFICER HAS DISALLOWED ` 8,37,26,645/-. HOWEVER, THE CIT(A) HAS COME TO TH E CONCLUSION THAT THE SALE PROCEEDS OF INVESTMENT DUR ING THE YEAR UNDER CONSIDERATION WAS ` 1198 CRORES AND THE ASSESSEE HAS PLACED SALE PROCEEDS OF SHARES TO THE EXTENT OF ` 427 CRORES AS INVESTMENT. THEREFORE, THE CIT(A) CAME TO THE CONCLUSION THAT T HE ASSESSEE HAS SUFFICIENT INTEREST FREE FUNDS FOR MAKING THE INVES TMENT TO EARN TAX FREE INCOME. WITH REGARD TO THIRD LIMP OF RULE 8D( 2) THE CIT(A) CAME TO THE CONCLUSION THAT THERE IS NO SUBSTANCE IN THE ARGUMENT OF THE ASSESSEE. THEREFORE, HE CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER TO THE EXTENT OF ` 2,57,24,278/-. ACCORDING TO THE LD. DR, IN THE ABSENCE OF ANY MATERIAL TO SHOW THA T INTEREST FREE FUNDS WERE AVAILABLE WITH THE ASSESSEE, THE DISALLOWANCE MADE BY THE ASSESSING OFFICER TOWARDS PAYMENT OF INTEREST HAS T O BE SUSTAINED. EVEN THOUGH THE ASSESSEE BORROWED FUNDS FROM BANK OF INDIA AND CANARA BANK, IT IS NOT KNOWN WHETHER THE BORROWED F UNDS WERE USED ITA NOS.1598 & 1622/12 1819/14 :- 6 -: FOR THE PURPOSE FOR WHICH IT WAS BORROWED. THEREFO RE, ACCORDING TO THE LD. DR, THE CIT(A) OUGHT TO HAVE CONFIRMED THE ENTIRE DISALLOWANCE MADE BY THE ASSESSING OFFICER. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITHER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. FROM THE MATERIAL AVAILABLE ON RECORD, IT APPEARS THAT AS ON 31.3.200 8, THE ASSESSEE INVESTED ` 706,01,08,864/-. THE ASSESSEE EARNED EXEMPT INCO ME FROM SUCH INVESTMENTS TO THE EXTENT OF ` 8,75,33,077/-. THE CLAIM OF THE ASSESSEE IS THAT SUFFICIENT INTEREST FREE FUND S WERE AVAILABLE FOR INVESTMENT. THE ASSESSEE ALSO CLAIMS THAT LOANS B ORROWED FROM BANK OF INDIA AND CANARA BANK WHICH WERE OUTSTANDING TO THE EXTENT OF ` 175 CRORES AS ON 31.3.2008 WERE SANCTIONED BY THE B ANKS FOR A SPECIFIC PURPOSE. ACCORDING TO THE LD. REPRESENTATIVE, THE LOANS BORROWED FOR SPECIFIC PURPOSE CANNOT BE USED FOR ANY OTHER PURPO SE. THE LOWER AUTHORITIES DETERMINED THE PAYMENT OF INTEREST WHIC H IS NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME OF ` 5,80,02,367/-. THE CIT(A) HAS ALSO ACCEPTED THE CONTENTION OF THE ASSESSEE T HAT THE SALE PROCEEDS OF INVESTMENT DURING THE YEAR UNDER CONSID ERATION WAS ` 1198 CRORES AND THE SALES PROCEEDS WERE UTILIZED FO R MAKING INVESTMENT IN THE MUTUAL FUNDS. THE ASSESSING OFFI CER HAS NO OCCASION TO EXAMINE THE AVAILABILITY OF THE INTEREST FREE FU NDS. THOUGH THE ASSESSEE CLAIMS THAT SALE PROCEEDS OF INVESTMENT DU RING THE YEAR ITA NOS.1598 & 1622/12 1819/14 :- 7 -: UNDER CONSIDERATION WAS AVAILABLE TO THE EXTENT OF ` 1198 CRORES, THE SAME WAS NOT CONSIDERED BY THE ASSESSING OFFICER. THOUGH THE ASSESSEE CLAIMS THAT THE LOAN WAS BORROWED FOR A SP ECIFIC PURPOSE, IT IS NOT KNOWN THE PURPOSE FOR WHICH THE LOANS WERE BORR OWED FROM BANK OF INDIA AND CANARA BANK. IT IS ALSO NEEDS TO BE VERIFIED WHETHER, THE BORROWED FUNDS ARE UTILIZED FOR THE PURPOSE FOR WHI CH IT WAS BORROWED OR IT WAS DIVERTED FOR ANY OTHER PURPOSE. IT IS AL SO NOT KNOWN THE PROFIT OF THE ASSESSEE DURING THE YEAR UNDER CONSI DERATION WHICH MAY BE AVAILABLE FOR MAKING INVESTMENT. THEREFORE, THI S TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE MATTER NEEDS TO BE RE-E XAMINED BY THE ASSESSING OFFICER. THE ASSESSING OFFICER SHALL EXA MINE THE MATTER WITH REGARD TO AVAILABILITY OF THE INTEREST FREE FUNDS, SALE PROCEEDS OF THE SHARES AND THE NET PROFIT AVAILABLE WITH THE ASSES SEE FOR THE YEAR UNDER CONSIDERATION. SINCE THE ASSESSEE HAS MADE HUGE INVESTMENT IN EQUITY SHARES OF OTHER COMPANIES AND EARNED DIVI DEND INCOME, NATURALLY, THE ASSESSEE HAS TO INCUR CERTAIN EXPEN DITURE. THEREFORE, THE CLAIM OF THE ASSESSEE THAT NO EXPENDITURE WAS INCURRED FOR EARNING THE DIVIDEND INCOME MAY NOT BE CORRECT. S INCE THE ASSESSEE HAS TO NECESSARILY SPEND A PART OF THE AMOUNT FOR M ANAGERIAL EXPENSES, THE DISALLOWANCE HAS TO BE COMPUTED UNDER RULE 8D. ACCORDINGLY, THE ORDERS OF THE LOWER AUTHORITIES AR E SET ASIDE AND THE ISSUE OF DISALLOWANCE OF INTEREST TO THE EXTENT OF ` 17,21,88,233/- IS REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER. THE ASSESSING ITA NOS.1598 & 1622/12 1819/14 :- 8 -: OFFICER SHALL EXAMINE THE MATTER AFRESH AND FIND OU T THE AVAILABILITY OF INTEREST FREE FUNDS WITH THE ASSESSEE AND UTILIZAT ION OF THE BORROWED FUNDS FOR THE PURPOSE FOR WHICH IT WAS BORROWED AND THEREAFTER DECIDE THE ISSUE IN ACCORDANCE WITH LAW AFTER GIVING A REA SONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. 9. NOW, COMING TO THE DEPARTMENTAL APPEAL FOR ASSESSME NT YEAR 2008-09, DR.S. MOHARANA, LD. DR SUBMITTED THAT THE ASSESSING OFFICER DISALLOWED A SUM OF ` 24,91,268/- WHICH WAS CLAIMED AS BAD DEBT. ACCORDING TO THE LD. DR, THE ASSESSEE HAS M ADE A PROVISION FOR BAD DEBT TO THE EXTENT OF ` 38,32,000/- IN THE PROFIT & LOSS ACCOUNT. THE ASSESSEE HAS ALSO MADE ADJUSTMENT IN THE MEMOR ANDUM OF INCOME BY CLAIMING EXPENSES TO THE EXTENT OF ` 1,63,71,557/-. IN ADDITION TO THIS ADJUSTMENT, THE ASSESSEE HAS ALSO CLAIMED A SUM OF ` 3,49,34,214/- AS BAD DEBT WRITTEN OFF IN THE BOOKS OF ACCOUNT. ACCORDING TO THE LD. DR, ADJUSTMENT OF INCOME IN TH E MEMORANDUM OF INCOME CLAIMING AS PROVISION FOR BAD DEBT OF ` 1,63,71,557/- IS NOT IN ORDER. THE ASSESSEE EXPLAINED BEFORE THE ASSESSIN G OFFICER THAT THIS AMOUNT OF ` 1,63,71,557/- WAS ON ACCOUNT OF BAD DEBTS FOR WHIC H PROVISION HAD BEEN MADE. HOWEVER, THIS WAS NOT ACC EPTED BY THE ASSESSING OFFICER. REFERRING TO THE PROFIT & LOSS ACCOUNT, THE ASSESSING OFFICER CAME TO THE CONCLUSION THAT THE P ROVISION MADE FOR BAD DEBT WAS ONLY TO THE EXTENT OF ` 38,32,000/-. SINCE THIS WAS NOT ITA NOS.1598 & 1622/12 1819/14 :- 9 -: WRITTEN OFF IN THE BOOKS OF ACCOUNT, ACCORDING TO T HE LD. DR, THE CLAIM OF THE ASSESSEE WAS RIGHTLY DISALLOWED AND ADDED T O THE TOTAL INCOME OF THE ASSESSEE. 10. ON THE CONTRARY, THE LD. REPRESENTATIVE SUBMITTED T HAT THE ASSESSING OFFICER DISALLOWED A PROVISION FOR BAD DE BT TO THE EXTENT OF ` 1,63,71,557/-. ACCORDING TO THE LD. REPRESENTATIVE , THE ASSESSEE INITIALLY MADE A PROVISION FOR BAD AND DOUBTFUL DEB T AND WRITTEN OFF THE SAME WHEN THERE WAS NO CHANCES OF RECOVERY. ACCORD ING TO THE LD. REPRESENTATIVE, WHEN THE PROVISION WAS MADE THE SAM E WAS DEBITED TO PROFIT & LOSS ACCOUNT AND ADDED BACK TO THE TOTA L INCOME. WHEN THE DEBT WAS ACTUALLY WRITTEN OFF, IT IS DEBITED TO THE PROVISION FOR BAD AND DOUBTFUL DEBT ACCOUNT AND CLAIMED AS DEDUCTION. THEREFORE, ACCORDING TO THE LD. REPRESENTATIVE, THE DEDUCTION CLAIMED BY THE ASSESSEE TO THE EXTENT OF ` 1,63,71,557/- IS EQUIVALENT TO THE PROVISION CREATED BY DEBITING TO THE PROFIT & LOSS ACCOUNT. ACCORDINGLY, THE ASSESSEE HAD WRITTEN OFF THE OPENING BALANCE IN THE PROVISIONAL ACCOUNT. ACCORDING TO THE LD. REPRESENTATIVE, THE RELEVANT DETAILS ARE EXTRACTED BY THE CIT(A) AT PAGE 9 OF HIS ORDER. T HE LD. REPRESENTATIVE SUBMITTED THAT BAD DEBT WRITTEN OFF TO THE EXTENT O F ` 1,63,71,557/- PERTAINS TO M/S SOUTH EASTERN COAL FIELDS LTD(SECL) . ACCORDING TO THE LD. REPRESENTATIVE, SUBSEQUENT TO BILLING TO SECL, VARIOUS DISCOUNTS AND REBATES WERE ALLOWED WHICH WAS INITIALLY PROVID ED FOR AND ITA NOS.1598 & 1622/12 1819/14 :- 10 -: SUBSEQUENTLY WRITTEN OFF. ACCORDING TO THE LD. REPR ESENTATIVE, THE PROVISION MADE WHICH WAS WRITTEN OFF IN THE ACCOUNT OF SECL WAS TO THE EXTENT OF ` 1,43,47,890/-. THE BALANCE OF ` 20,23,667/- WAS CLAIMED AS MISTAKE WHICH WAS FOUND DURING RECONCILI ATION OF ACCOUNTS. THEREFORE, ACCORDING TO THE LD. REPRESENTATIVE, THE CIT(A) HAS RIGHTLY ALLOWED THE BAD DEBT WRITTEN OFF TO THE EXTENT OF ` 1,43,47,890/-. HOWEVER, HE CONFIRMED THE DISALLOWANCE TO THE EXTE NT OF ` 20,23,667/-. 11. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITHER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. ADM ITTEDLY, THE ASSESSING OFFICER DISALLOWED THE CLAIM OF BAD DEBT TO THE EXTENT OF ` 1,63,71,557/-. ON APPEAL BY THE ASSESSEE, THE CIT (A) HAS ALLOWED THE CLAIM OF ` 1,43,47,890/-. HOWEVER, HE CONFIRMED THE DISALLOW ANCE TO THE EXTENT OF ` 20,23,667/-. THE CONTENTION OF THE REVENUE FROM THE GROUNDS OF APPEAL, IT APPEARS THAT THE MATTER N EEDS TO BE VERIFIED WHETHER THE DEBT WHICH WAS CLAIMED AS BAD WAS OFFER ED FOR TAXATION IN THE EARLIER ASSESSMENT YEAR. WE HAVE CAREFULLY GON E THROUGH THE PROVISIONS OF SECTION 36(2) OF THE ACT. FOR THE PU RPOSE OF CLAIMING A SUM AS BAD DEBT, IT IS NECESSARILY INCLUDED IN THE INCOME OF THE ASSESSEE IN THE PREVIOUS YEAR IN WHICH THE DEBT WAS CLAIMED AS BAD OR IN ANY OF THE EARLIER ASSESSMENT YEARS. IT IS ALSO NECESSARY THAT THE ASSESSEE HAS WRITTEN OFF THE SAME IN ITS ACCOUNTS. THE ASSESSEE ITA NOS.1598 & 1622/12 1819/14 :- 11 -: CLAIMS THAT THOUGH A PROVISION WAS MADE AND SUBSEQU ENTLY IT WAS WRITTEN OFF. THE ASSESSING OFFICER FOUND THAT IF T HE DEBT WAS WRITTEN OFF IT SHOULD HAVE BEEN EITHER DEBITED TO THE PROFI T & LOSS ACCOUNT AS BAD DEBT ACTUALLY WRITTEN OFF OR IT SHOULD HAVE BEE N DEBITED AGAINST THE PROVISION MADE FOR BAD DEBTS BY THE ASSESSEE. IN T HIS CASE, THE ASSESSING OFFICER FOUND THAT THE CURRENT YEAR PROVI SION FOR BAD DEBTS IS INADEQUATE TO COVER THE AMOUNT OF ` 1,63,71,557/-. THE ASSESSEE HAS CHOSEN NOT TO UTILIZE THE PROVISION OF ` 38,32,000/- FOR PARTIAL WRITING OFF OF THE BAD DEBT. THE CIT(A) HAS NOT EXAMINED WHETHER ANY OF THE BAD DEBT CLAIMED BY THE ASSESSEE WAS INCLUDED IN T HE INCOME OF THE ASSESSEE IN THE YEAR IN WHICH THE ASSESSEE CLAIMS IT AS BAD DEBT OR IN ANY OF THE EARLIER ASSESSMENT YEARS. THEREFORE, TH IS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE MATTER NEEDS TO BE RE-E XAMINED BY THE ASSESSING OFFICER. ACCORDINGLY, THE ORDERS OF THE LOWER AUTHORITIES ARE SET ASIDE AND THE ISSUE OF DISALLOWANCE OF ` 1,63,71,557/- IS REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER. THE ASS ESSING OFFICER SHALL RECONSIDER THE ISSUE AFRESH AND FIND OUT WHETHER TH E SUM OF ` 1,63,71,557/- WAS INCLUDED IN THE INCOME OF THE AS SESSEE IN THE PREVIOUS YEAR IN WHICH THE SAME WAS CLAIMED AS BAD DEBT OR IN ANY OF THE EARLIER ASSESSMENT YEARS. ALSO, THE ASSESSING OFFICER SHALL VERIFY WHETHER THE CLAIM OF ` 1,63,71,557/- WAS WRITTEN OFF IN THE BOOKS OF ACCOUNT AS CLAIMED BY THE ASSESSEE. ITA NOS.1598 & 1622/12 1819/14 :- 12 -: 12. NOW, COMING TO THE APPEAL OF THE ASSESSEE FOR ASS ESSMENT YEAR 2009-10, THE ONLY ISSUE FOR CONSIDERATION IS W ITH REGARD TO DISALLOWANCE U/S 14A OF THE ACT. 13. SHRI BANUSEKAR, LD. REPRESENTATIVE FOR THE ASSESSEE SUBMITTED THAT THE ASSESSING OFFICER HAS DISALLOWED A SUM OF ` 8,60,98,591/- U/S 14A OF THE ACT. THE ASSESSEE H AS RECEIVED DIVIDEND INCOME OF ` 16,72,81,373/- DURING THE YEAR UNDER CONSIDERATION AND THE SAME WAS CLAIMED WAS EXEMPT U/S 10(34) OF THE ACT. THE ASSESSING OFFICER FOUND THAT THE ASS ESSEE HAS NOT CLAIMED ANY EXPENDITURE FOR EARNING THE DIVIDEND IN COME. ACCORDING TO THE LD. REPRESENTATIVE, NO EXPENDITURE WAS INCUR RED FOR EARNING THE EXEMPT INCOME. ACCORDING TO THE LD. REPRESENTATIVE , BOTH THE AUTHORITIES BELOW FAILED TO APPRECIATE THE FACTS OF THE ASSESSEE. 14. ON THE CONTRARY, DR.S.MOHARANA, LD. DR SUBMITTED TH AT ADMITTEDLY THE ASSESSEE HAS RECEIVED EXEMPT INCOME U/S 10(34) OF THE ACT. HOWEVER, THE ASSESSEE CLAIMS THAT NO EXP ENDITURE WAS INCURRED. ACCORDING TO THE LD. DR, A PART OF THE E STABLISHMENT AND ADMINISTRATIVE EXPENSES INCURRED BY THE ASSESSEE I S ATTRIBUTABLE TO EARNING OF THE EXEMPT INCOME. A PART OF THE MANAGE RIAL AND DIRECTORS REMUNERATION ARE ALSO ATTRIBUTED TO THE DECISION MA KING PROCESS FOR MAKING THE INVESTMENT IN THE EQUITY SHARES OF THE C OMPANY. THE ASSESSEE HAS CLAIMED PAYMENT OF INTEREST TO THE EXT ENT OF ` ITA NOS.1598 & 1622/12 1819/14 :- 13 -: 16,25,04,341/-. THE CIT(A), AFTER VERIFYING THE BA LANCE SHEET AS ON 31.3.2009 FOUND THAT OWN FUNDS AVAILABLE WITH THE ASSESSEE WAS TO THE EXTENT OF ` 1370.85 CRORES AGAINST WHICH INVESTMENT SHOWN IN T HE FIXED ASSETS WAS TO THE EXTENT OF ` 940.66 CRORES. THE CIT(A) FURTHER FOUND THAT INVESTMENT IN EQUITY SHARES WAS MADE FRO M THE BORROWED FUNDS TO THE EXTENT OF ` 449.48 CRORES. THEREFORE, THE ASSESSING OFFICER HAS RIGHTLY DISALLOWED THE CLAIM OF THE AS SESSEE. 15. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITHER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. TH E CLAIM OF THE ASSESSEE IS THAT INTEREST FREE FUNDS WERE USED FOR MAKING INVESTMENT IN THE EQUITY SHARES OF THE COMPANY. THE ASSESSEE ALSO CLAIMS THAT NO EXPENDITURE WAS INCURRED FOR EARNING THE EXEMPT INCOME. THE ASSESSING OFFICER DISALLOWED THE CLAIM OF THE ASSE SSEE ON THE GROUND THAT THE ASSESSEE HAS INCURRED EXPENDITURE IN ADMI NISTRATIVE AND MANAGERIAL MATTERS INCLUDING REMUNERATION FOR DIREC TORS. THE CIT(A) FOUND THAT AS ON 31.3.2009, THE ASSESSEE HAS OWN F UNDS TO THE EXTENT OF ` 1370.85 CRORES AGAINST WHICH INVESTMENT TO THE E XTENT OF ` 940.66 CRORES WAS MADE IN FIXED ASSETS. BY TAKING INTO CONSIDERATION THE INVESTMENT MADE IN THE FIXED ASSETS TO THE EXTE NT OF ` 940.66 CRORES AND THE INVESTMENT IN EQUITY SHARES OF THE COMPANY TO THE EXTENT OF ` 899.93 CORES, THE POSSIBILITY OF DIVERSION OF BORR OWED FUNDS AS ON 31.3.2009 TO THE EXTENT OF ` 449.48 CRORES CANNOT BE RULED OUT. ITA NOS.1598 & 1622/12 1819/14 :- 14 -: WHILE TAKING THIS FIGURE, THE CIT(A) HAS NOT TAKEN INTO CONSIDERATION THE NET PROFIT AVAILABLE AS ON 31.3.2009 FOR MAKING INVESTMENTS. THE ASSESSEE BEING A COMPANY HAS TO NECESSARILY INCUR E XPENDITURE IN ESTABLISHMENT AND ADMINISTRATIVE MATTERS. THE MANA GERIAL AND DIRECTORS REMUNERATION EXPENSES WERE ALSO INCURRED BY THE ASSESSEE IN MAKING A DECISION WITH REGARD TO INVESTMENT MADE IN THE EQUITY SHARES. THEREFORE, THIS TRIBUNAL IS OF THE CONSIDE RED OPINION THAT THE MATTER NEEDS TO BE RE-EXAMINED BY THE ASSESSING OFF ICER BY TAKING INTO CONSIDERATION THE OWN FUNDS AVAILABLE WITH THE ASS ESSEE AND THE INVESTMENT MADE DURING THE YEAR UNDER CONSIDERATION AND THE PURPOSE FOR WHICH THE LOANS WERE BORROWED AND UTILIZATION T HEREOF. ACCORDINGLY, THE ORDERS OF THE LOWER AUTHORITIES AR E SET ASIDE AND THE ISSUE OF DISALLOWANCE U/S 14A IS REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER. THE ASSESSING OFFICER SHALL REC ONSIDER THE ISSUE AFRESH AND FIND OUT THE AVAILABILITY OF OWN FUNDS I NCLUDING THE NET PROFIT AVAILABLE DURING THE YEAR UNDER CONSIDERATION, THE PURPOSE FOR WHICH THE LOANS WERE BORROWED AND UTILIZATION THEREOF AD THEREAFTER DECIDE THE SAME IN ACCORDANCE WITH RULE 8D OF THE INCOME-T AX RULES AFTER GIVING A REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. 16. IT IS MADE CLEAR THAT SINCE THE ASSESSEE INCURRED DIRECT AND INDIRECT EXPENDITURE, THE DISALLOWANCE HAS TO BE CO MPUTED UNDER RULE ITA NOS.1598 & 1622/12 1819/14 :- 15 -: 8D. ACCORDINGLY, THE ASSESSING OFFICER IS DIRECTE D TO COMPUTE THE DISALLOWANCE UNDER RULE 8D OF THE INCOME-TAX RULES. 17. IN THE RESULT, ALL THE APPEALS ARE ALLOWED FOR STAT ISTICAL PURPOSES. ORDER PRONOUNCED ON 29 TH OF MAY, 2015, AT CHENNAI. SD/- SD/- ( . ! ) (A. MOHAN ALANKAMONY) ' / ACCOUNTANT MEMBER ( . . . ) ) (N.R.S. GANESAN) / JUDICIAL MEMBER / CHENNAI ! / DATED: 29 TH MAY, 2015 RD !' # $% &% / COPY TO: 1 . '( / APPELLANT 4. ) / CIT 2. #*'( / RESPONDENT 5. %+, # - / DR 3. ) () / CIT(A) 6. ,/ 0 / GF