The DCIT, Circle-1(1)(1), Ahmedabad V. Arrow Digital Pvt. Ltd., Ahmedabad

ITA 606/AHD/2018

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 7098 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 5 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-09-2020
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2014-2015
• Appeal Filed On: 09-03-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S N DIVETIA
• Keywords: Earning of tax free income; Bad and doubtful debts; Rule 8D
• Section: 14A; 143(2); 72

Judgement Text

- , - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH A [CONDUCTED THROUGH VIRTUAL COURT] BEFORE SHRI RAJPAL YADAV, VICE-PRESIDENT AND SHRI WASEEM AHMED, ACCOUNTANT MEMBER ITA NO.606/AHD/2018 / ASSTT.YEAR : 2014-15 DCIT, CIR.1(1)(1) AHMEDABAD. VS. ARROW DIGITAL PVT. LTD. 1005-06, ADITYA, 10 TH FLOOR NR.SARDAR PATEL SEWA SAMAJ MITHAKHALI, NAVANGPURA AHMEDABAD 380 009. PAN : AAECA 2215 J ( APPLICANT ) ( RESPONENT ) REVENUE BY : SHRI DILEEP KUMAR, SR.DR ASSESSEE BY : SHRI S.N. DIVETIA, AR / DATE OF HEARING : 27/08/2020 ! / DATE OF PRONOUNCEMENT: 08/09/2020 / O R D E R PER RAJPAL YADAV, VICE-PRESIDENT REVENUE IS IN APPEAL BEFORE THE TRIBUNAL AGAINST OR DER OF THE LD.CIT(A)-1, AHMEDABAD DATED 22.12.2017 PASSED FOR THE ASSTT.YEAR 2014- 15. 2. IN THIS APPEAL, THE REVENUE HAS RAISED FOLLOWING TWO GROUNDS. THEY READ AS UNDER: ITA NO.606/AHD/2018 2 I) THAT THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN RESTRICTING THE DISALLOWANCE FROM RS.1,71,035/- TO RS.53,373/- MADE U/S.14A R.W RULE 8D OF THE ACT, 19 61. II) THAT HE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF CLAIM OF BAD DEBT RS.1,73,37,30 1/-. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN TRADING OF PRINTING MACHINES, CONSUMERS AND SERVICING. IT HAS FILED ITS RETURN OF INCOME ON 30.11.2014 DECLARING TOTAL INCOME AT RS.3 ,78,60,550/-. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY ASSE SSMENT AND NOTICE UNDER SECTION 143(2) WAS ISSUED AND SERVED UPON THE ASSESSEE ON 16.09.2015. DURING THE SCRUTINY ASSESSMENT, IT WAS NOTICED BY THE AO THAT THE ASSESSEE HAS EARNED DIVIDEND INCOME TO THE TUNE OF RS.9,79,373/- WHICH WAS EXEMPT FROM TAX. THE AO SOUGHT FOR INFOR MATION AS TO DETAILS OF INVESTMENTS, FROM WHICH THE ASSESSEE HAS EARNED EXEMPT INCOME. ASSESSEE FURNISHED DETAILS OF INVESTMENT FO R THE LAST TWO YEARS AND SUBMITTED THAT THE ASSESSEE HAD MADE SIMILAR CL AIM IN THE EARLIER YEAR I.E. 2012-13 AND THE ITAT ALLOWED SUCH CLAIM O F THE ASSESSEE. HOWEVER, THE LD.AO DID NOT ACCEPT THE CONTENTIONS O F THE ASSESSEE AND PROCEEDED TO CALCULATE DISALLOWANCE UNDER SECTION 1 4A OF THE ACT R.W. RULE 1962 AND ADDED A SUM OF RS.1,71,035-TO THE TOT AL INCOME OF THE ASSESSEE. 4. WITH REGARD TO GROUND NO.2 IN RESPECT OF DISALLO WANCE OF BAD DEBT CLAIM OF RS.1,73,37,301/-, IT WAS NOTICED BY THE AO DURING THE ASSESSMENT PROCEEDINGS THAT THE ASSESSEE COMPANY HA D CLAIMED TOTAL BAD DEBTS OF RS.1,87,89,529/- QUA 14 PARTIES. IT WAS ALSO NOTICED BY THE AO THAT OUT OF THESE PARTIES, LEDGER ACCOUNTS OF NINE PARTIES ARE RUNNING ITA NO.606/AHD/2018 3 ACCOUNT IN THE ASSESSEES BOOKS AND THE TRANSACTION S HAVE BEEN TAKEN PLACE IN THE SUBSEQUENT PERIOD. HE NOTICED DETAILS OF SUCH PARTIES IN THE IMPUGNED ORDER AT PAGE NO.7 AND 8. THE LD.AO SOUGH T EXPLANATION FROM THE ASSESSEE AS TO WHY AN AMOUNT OF RS.1,73,37,301/ - INVOLVED IN THESE NINE PARTIES COULD NOT BE DISALLOWED AND ADDED BACK TO THE INCOME OF THE ASSESSEE. THE ASSESSEE IN RESPONSE TO THE QUERY OF THE AO FURNISHED PARTY WISE DETAILS AND REASONS FOR WRITTEN OFF SUCH BAD DEBTS IN THE BOOKS OF ACCOUNTS. THE ASSESSEE ALSO RELIED UPON THE DEC ISION OF HONBLE SUPREME COURT IN THE CASE OF TRF LTD. VS. CIT, 323 ITR 397 (SC). IT WAS SUBMITTED BY THE ASSESSEE THAT THE CONDITIONS P ROVIDED IN SECTION 36(2)(I)(A) OF THE ACT WERE SATISFIED AS THE AMOUNT HAS BEEN WRITTEN IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE. THE LD.AO DID NOT SATISFY WITH THE DETAILS AND EXPLANATION FILED BY THE ASSESSEE. HE WAS OF THE VIEW THAT SINCE LEDGER ACCOUNTS OF THE NINE PARTIES WERE RUNNING AND THE ASSESSEE COMPANY HAD NOT PRODUCED ANY MATERIAL ON R ECORD TO SUBSTANTIATE ITS CLAIM THAT THE SAID AMOUNTS OF THE DEBTS HAVE BECOME BAD AND IRRECOVERABLE, THE CLAIM OF THE ASSESSEE WAS NO T JUSTIFIABLE, AND THEREFORE, HE DISALLOWED CLAIM OF THE ASSESSEE AND AN AMOUNT OF RS.1,73,37,301/- ADDED TO THE TOTAL INCOME OF THE A SSESSEE. 5. AGGRIEVED BY THE ORDER OF THE LD.AO ASSESSEE WEN T IN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY ON BOTH THE IS SUES. BEFORE THE LD.CIT(A) IT WAS ARGUED BY THE ASSESSEE THAT THE AS SESSEE HAS GOT NET SURPLUS INTEREST OF RS.45,38,011/- AND THEREFORE IF THE ASSESSEE HAD NET POSITIVE INTEREST INCOME, NO DISALLOWANCE OF INTERE ST UNDER SECTION 14A/RWR 8D SHOULD BE MADE. IT WAS ALSO SUBMITTED T HAT NO BORROWED FUNDS WERE UTILIZED FOR EARNING THE EXEMPT INCOME B Y THE ASSESSEE AND ITA NO.606/AHD/2018 4 THAT DIVIDEND INCOME WAS DIRECTLY CREDITED IN THE B ANK ACCOUNT OF THE ASSESSEE, AND NO EXPENDITURE WAS CLAIMED IN RESPECT OF EARNING EXEMPT INCOME. AFTER ANALYSING THE DETAILS FURNISHED BY T HE ASSESSEE, THE LD.CIT(A) OBSERVED THAT THE LD.AO ERRED IN CALCULAT ING THE AVERAGE VALUE OF THE INVESTMENT INCOME BY THE ASSESSEE. INVESTME NT IN INCOME AS ON 31.3.2014 WAS RS.41,89,019 AND THAT OF 31.3.2013 WA S RS.41,89,019/- AND THEREFORE, AVERAGE VALUE OF INVESTMENT INCOME C AME TO RS.41,89,019/- INSTEAD OF RS.1,07,72,757/- TAKEN BY THE AO. IT WAS ALSO NOTICED BY THE LD.CIT(A) THAT THE LD.AO HAS WRONGLY TAKEN INTEREST EXPENSES OF RS.28,37,342/- INSTEAD OF RS.20,19,410/ - WHILE WORKING OF DISALLOWANCE. ACCORDINGLY, AFTER CONSIDERING ALL T HESE FACTS, THE LD.CIT(A) WORKED OUT DISALLOWANCE UNDER SECTION 14A R.W.S 8D AT RS.53,373/- AND THE BALANCE DELETED. AGGRIEVED REV ENUE IS NOW BEFORE THE TRIBUNAL ON BOTH THE ISSUES. 6. BEFORE US, THE LD.DR SUPPORTED THE ORDERS OF THE AO ON BOTH THE ISSUES, AND SUBMITTED THAT THE REASONS GIVEN BY THE AO WHILE DISALLOWING THE CLAIM OF THE ASSESSEE ARE BASED ON FACTUAL POSI TION OF THE CASE, AND THEREFORE, HIS ORDER ON THESE ISSUES IS NOT TO BE D ISTURBED. 7. ON THE OTHER HAND, THE LD.COUNSEL FOR THE ASSESS EE SUPPORTED THE ORDER OF THE LD.CIT(A). HE ALSO RELIED UPON DECIS IONS IN THE CASE OF KARNAVATI PETRO CHEM. P. LD. (ITA NO.2228/AHD/2012 DATED 5.7.2013 AND NIRMA CREDIT & CAPITAL LTD. VS. CIT, 85 TAXMANN .COM 72 (GUJ), TO THE PROPOSITION THAT WHERE NET INTEREST IS POSITIVE , THEN NO DISALLOWANCE UNDER SECTION 14A IS CALLED FOR. HE ALSO RELIED U PON THE ORDER OF THE ITA NO.606/AHD/2018 5 ITAT, AHMEDABAD BENCH IN THE CASE OF DCIT VS. ADANI INFRASTRUCTURE & DEVELOPERS P. LTD. IN ITA NO.1623/AHD/2013 DATED 6.9.2018. AS REGARDS DISALLOWANCE OF BAD DEBTS UNDER SECTION 36(1)(VII) IS CONCERNED, HE SUBMITTED THAT POSITION OF LAW IN THI S REGARD IS SETTLED SO THAT AFTER 1.4.1989 IT IS NOT NECESSARY FOR THE ASS ESSEE TO ESTABLISH THAT THE DEBT HAS IN FACT BECOMES IRRECOVERABLE. IT IS SUFF ICIENT IF THE ASSESSEE HAS WRITTEN OFF THE DEBTS IN ITS BOOKS OF ACCOUNTS. 8. WE HAVE DULY CONSIDERED RIVAL CONTENTIONS AND GO NE THROUGH THE RECORD CAREFULLY. AS FAR AS GROUND NO.1 REGARDING DISALLOWANCE OF RS.53,373/- MADE UNDER SECTION 14A READ WITH RULE 8 D OF THE ACT IS CONCERNED, A PERUSAL OF SECTION 14A WOULD INDICATE THAT THE EXPE NDITURE ATTRIBUTABLE TO EARNING OF EXEMPT INCOME IS TO BE D ISALLOWED. IF THE ASSESSEE HAS NOT DEBITED ANY EXPENDITURE OR HAS NOT CLAIMED ANY EXPENDITURE FOR EARNING EXEMPT INCOME, THEN ON PRESUMPTIVE BASIS EX PENDITURE CANNOT BE CALCULATED FOR DISALLOWANCE. THE LD.CIT(A) HAS APPRECIATED THE CASE OF THE ASSESSEE BASED ON THE DETAILS AND EXPLANATION G IVEN BY THE ASSESSEE, AND ALSO OBSERVED INACCURACY IN WORKING OUT AVERAGE INVESTMENT I.E. INSTEAD OF RS.41,89,019/-, THE AO HAS TAKEN THE FIG URE RS.1,07,72,757/- BECAUSE AS PER THE BALANCE SHEET, INVESTMENT INCOME WHICH ARE EXEMPTED AS ON 31.3.2014 WAS RS.41,89.019 AND AS ON 31.3.201 3 WAS OF RS.41,89,019/-. WE FIND THAT THE LD.CIT(A) HAS EXA MINED THE ISSUE CRITICALLY AND RE-WORKED OUT DISALLOWANCE IN ACCORD ANCE WITH THE PROVISIONS CONTAINED IN SECTION 14A AND THE RULE RE FERRED THERETO. WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A) O N THIS ISSUE, WHICH WE CONFIRM AND THIS GROUND OF APPEAL OF THE REVENUE IS REJECTED. ITA NO.606/AHD/2018 6 9. AS REGARDS DISALLOWANCE OF BAD DEBTS OF RS.1,73, 37,301/- IS CONCERNED, IT IS SUFFICE TO SAY THAT THIS ISSUE IS SQUARELY COVERED BY THE DECISION OF TRF LTD. (SUPRA), AND RELIANCE PETROCHE MICAL 322, ITR 158, WHEREIN IT IS HELD THAT AS PER THE AMENDED PROVISIO N, CONDITION PRECEDENT FOR CLAIMING BAD DEBTS IS THAT ASSESSEE HAS TO WRIT E OFF AMOUNT OF BAD DEBTS IN ITS BOOKS OF ACCOUNT. THEREFORE, IN ORDER TO CLAIM DEDUCTION UNDER SECTION 36(1)(VII) IT IS SUFFICIENT FOR THE A SSESSEE TO DEMONSTRATE THAT DEBT IN FACT HAS BECOME IRRECOVERABLE AND IT H AS BEEN WRITTEN AS SUCH IN THE ACCOUNTS OF THE ASSESSEE. THE ASSESSEE IN THE PRESENT CASE HAS GIVEN A DETAILED NOTE REGARDING THE REASONS FOR WRI TING OFF THE AMOUNTS IN ITS BOOKS OF ACCOUNTS BEFORE THE LD.CIT(A), AND AFT ER CONSIDERING TOTALITY OF THE FACTS AND IN VIEW OF ABOVE TWO JUDGMENTS CIT ED SUPRA, THE LD.CIT(A) HELD THAT THE AO WAS NOT JUSTIFIED IN DEN YING THE CLAIM OF THE ASSESSEE. WE DO NOT FIND ANY REASON TO INTERFERE I N THE ORDER OF THE CIT(A). IT IS UPHELD, AND THE GROUND OF APPEAL OF THE REVENUE IS REJECTED. 10. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED. ORDER PRONOUNCED IN THE COURT ON 8 TH SEPTEMBER, 2020 AT AHMEDABAD. S D / - (WASEEM AHMED) ACCOUNTANT MEMBER S D / - (RAJPAL YADAV) VICE-PRESIDENT AHMEDABAD; DATED 08/09/2020