Tribunal overturns disallowances, directs AO to delete them, citing practical difficulties and reasonable explanations. The tribunal allowed the appeal, directing the AO to delete the disallowances made on all three issues: disallowance u/s 14A of the Act, disallowance out ...
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Tribunal overturns disallowances, directs AO to delete them, citing practical difficulties and reasonable explanations.
The tribunal allowed the appeal, directing the AO to delete the disallowances made on all three issues: disallowance u/s 14A of the Act, disallowance out of bad debts written off, and adhoc disallowance out of manufacturing and other expenses. The tribunal corrected errors in the computation and noted practical difficulties faced by the assessee in producing evidence, ultimately finding the explanations reasonable and overturning the disallowances.
Issues: 1. Disallowance u/s 14A of the Act. 2. Disallowance out of bad debts written off. 3. Adhoc disallowance out of manufacturing and other expenses.
Issue 1: Disallowance u/s 14A of the Act The appeal concerned the disallowance made u/s 14A of the Act. The AO computed the disallowance at &8377; 2,67,781 based on Rule 8D, but the Ld CIT(A) held that Rule 8D was not applicable and restricted the disallowance to 5% of the dividend income, directing the AO to limit it to &8377; 50,000. The tribunal modified the order, directing the AO to restrict the disallowance to 5% of the dividend income, correcting an error in the computation.
Issue 2: Disallowance out of bad debts written off The AO disallowed a claim of &8377; 55,000 as bad debts due to continued business transactions with the debtor. The Ld CIT(A) upheld the disallowance. The tribunal, noting an error in the invoice date, set aside the disallowance based on the Circular No.12 of 2016 issued by CBDT, allowing deduction u/s 36(1)(vii) for written-off debts.
Issue 3: Adhoc disallowance out of manufacturing and other expenses The AO made an adhoc disallowance of &8377; 2.00 crores due to lack of evidence supporting the expenses. The Ld CIT(A) upheld the disallowance despite the assessee providing detailed justifications and furnishing ledger account copies and sample bills. The tribunal found the explanations reasonable, noting the practical difficulty in producing all evidence at once, and set aside the disallowance, emphasizing that the AO did not find faults in the explanations or the samples provided.
In conclusion, the tribunal allowed the appeal, directing the AO to delete the disallowances made on all three issues.
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