Tribunal partially allows Assessee's appeal, dismisses Revenue's appeal, remits wage revision issue for verification. Upholds disallowance.

M/s. Manali Petrochemicals Ltd. Versus The Deputy Commissioner of Income Tax, Chennai

M/s. Manali Petrochemicals Ltd. Versus The Deputy Commissioner of Income Tax, Chennai - [2015] 42 ITR (Trib) 1 (ITAT [Chen]) Issues Involved:
1. Addition towards wage revision for computing book profits under Section 115JB and total income as per normal provisions.
2. Disallowance of provision for doubtful debts.
3. Disallowance of expenses under Section 14A for earning exempt dividend income.

Detailed Analysis:

1. Addition towards Wage Revision:
The Assessee had debited Rs. 81 lakhs in the Profit & Loss Account as provisions for wage arrears, explaining it was based on estimates due to ongoing negotiations with the labor union. The Assessing Officer disallowed this provision while computing book profit under Section 115JB and total income under normal provisions, citing it as an unascertained liability. The CIT (A) upheld this decision, referencing a similar case where the liability was not considered crystallized during the year. The Tribunal noted that if the assessee committed in the draft wage settlement before the Joint Commissioner of Labour, it would be an ascertained liability. However, the draft wage settlement agreement was not available for verification. Therefore, the issue was remitted back to the Assessing Officer for further examination.

2. Disallowance of Provision for Doubtful Debts:
The Assessing Officer added back the provision for doubtful debts of Rs. 1,42,321/- to the income, as it was not written off in the books of accounts. The CIT (A) confirmed this disallowance. The Assessee argued that the provision should be allowed based on the Supreme Court decision in Vijaya Bank. However, the Tribunal distinguished this case as it involved a bank governed by RBI guidelines, whereas the current case did not. The Tribunal upheld the disallowance, stating that the bad debts must be written off in the books of accounts to be allowed as a deduction.

3. Disallowance of Expenses under Section 14A:
The Assessee contested the CIT (A)'s decision to sustain a 5% disallowance of dividend income as expenses for earning exempt income, while the Revenue contested the rejection of Rule 8D computation. The Tribunal found the CIT (A)'s ruling appropriate, noting Rule 8D was applicable from the assessment year 2008-09 onwards. For the relevant assessment year 2007-08, the Tribunal consistently held that 3% of exempt income should be treated as the expenditure incurred for earning such income. Therefore, the Tribunal ordered that 3% of the dividend income be disallowed as an allowable deduction.

Conclusion:
The appeal of the Assessee was partly allowed for statistical purposes, and the appeal of the Revenue was dismissed. The Tribunal remitted the issue of wage revision back to the Assessing Officer for further verification and upheld the disallowance of provision for doubtful debts and adjusted the disallowance under Section 14A to 3% of the exempt income.