2018 (6) TMI 360 - AT - Income Tax

Tribunal rules for assessee on tax issues incl. Rule 8D disallowance. Leave encashment remanded. Bad debts deduction allowed.

The Tribunal ruled in favor of the assessee on multiple tax-related issues. The disallowance under Rule 8D for expenses related to tax-exempt dividend ... Disallowance u/s 14A r.w.r 8D - assessee contends that the satisfaction was not recorded by the AO giving cogent reasons for rejecting the suo-moto computation of disallowance u/s 14A - Held that:- AO cogent reason as to why he is not satisfied with the suo moto disallowance made by the assessee. The Assessing Officer’s comment that the assessee did not to maintain separate books of accounts, for the expenses incurred in relation to earning of income not includible in the ‘total income’ would tantamount to AO being of the opinion that the assessee should maintain separate books for this purpose. This is not required as per law. AO has committed an error in assuming so. - Decided in favour of assessee. Provision for leave encashment - Held that:- We set aside this issue to the file of the AO to fresh adjudication in accordance with law. The assessing officer may either wait for the judgment of Hon'ble Supreme Court in the case of Exide Industries Ltd. after HC decision [2007 (6) TMI 175 - CALCUTTA HIGH COURT] or may consider the alternative plea of the assessee that the claim be allowed on actual payment basis and if it is so done, the assessee would withdraw all the pending litigation, for all the years, wherein he sought deduction of the provision made for the leave encashment. Hence, this ground is allowed for statistical purposes. Disallowance of bad debts written off - Held that:- The term ‘Full and Final Settlement’ shown that the balance amount is not recoverable. From the above letter dated 14.02.2011 it is clear that the assessee had written off bad debts in its accounts based on cogent material. Once the bad debt is written off, it should be allowed as a deduction as held in the case of TRF Ltd.[2010 (2) TMI 211 - SUPREME COURT]. The assessee has made a provision for doubtful debts in the profit and loss account of the assessee in the earlier assessment years and hence it is clear that these amounts were taken into account by the assessee in the earlier assessment years hence the conditions specified u/s 36(1)(vii) of the Act are satisfied.- Decided in favour of assessee. Issues:1. Disallowance u/s 14A of the Act read with Rule 8D of the I.T. Rules.2. Provision for leave encashment.3. Disallowance of bad debts written off.4. Levy of interest u/s 234B and 234C of the Act.Analysis:Issue 1: Disallowance u/s 14A of the Act read with Rule 8D of the I.T. Rules- The dispute centered on the disallowance of expenses related to tax-exempt dividend income. The AO invoked Rule 8D of the ITAT rules without recording satisfaction for rejecting the assessee's suo-moto disallowance under Section 14A. The Tribunal referred to judgments emphasizing the need for the AO to provide cogent reasons for such rejection. As the AO failed to do so, the disallowance under Rule 8D was deleted.Issue 2: Provision for leave encashment- The Tribunal remanded this issue back to the AO for fresh adjudication in accordance with the law. The AO was directed to await the judgment of the Hon'ble Supreme Court or consider the alternative plea of allowing the claim on an actual payment basis.Issue 3: Disallowance of bad debts written off- The assessee's claim for bad debts written off was supported by a letter from the receiver indicating unrecoverability. The Tribunal held that once bad debts are written off based on cogent material, they should be allowed as a deduction. The Tribunal found that the conditions specified under the Act were satisfied, and hence, the ground of the assessee was allowed.Issue 4: Levy of interest u/s 234B and 234C of the Act- The revenue's appeal on the disallowance of expenditure u/s 14A was dismissed in view of the decision on the assessee's appeal. Consequently, the appeal of the revenue was dismissed, while the appeal of the assessee was allowed in part.In conclusion, the Tribunal's judgment addressed various tax-related issues, including disallowances, provision for leave encashment, bad debts, and interest levies, providing detailed reasoning and legal references to support its decisions.