2009 (2) TMI 505 - AT - Income Tax

Summary

Issues Involved:

1. Disallowance of bad debt written off.
2. Disallowance of depreciation claimed on the membership card of BSE.
3. Disallowance of expenditure u/s 14A.
4. Disallowance of loss on 'dividend stripping' u/s 94(7).
5. Disallowance of salary paid to an expatriate employee u/s 40(a).
6. Disallowance of perquisites provided to an expatriate employee.
7. Interest levied u/s 234D.

Summary:

1. Disallowance of bad debt written off:
The first issue pertains to the disallowance of bad debt written off amounting to Rs. 5,50,03,219. The assessee argued that the debts were written off as irrecoverable, citing continuous losses by the debtors. The Tribunal held that the debts written off in the books of account fulfill the conditions laid down u/s 36(2) and are allowable. The Assessing Officer's denial was not justified, and the order of the CIT(A) was set aside, allowing the assessee's claim.

2. Disallowance of depreciation claimed on the membership card of BSE:
The second issue involves the disallowance of depreciation on the BSE membership card. The Tribunal noted that this issue was already decided in favor of the assessee in the preceding assessment year and followed the decision in Techno Shares & Stocks Ltd. v. ITO. The Tribunal directed the Assessing Officer to grant depreciation on the WDV of the membership card.

3. Disallowance of expenditure u/s 14A:
The third issue relates to the disallowance of expenditure incurred in relation to tax-free income u/s 14A. The assessee did not press this ground, and it was dismissed as not pressed.

4. Disallowance of loss on 'dividend stripping' u/s 94(7):
The fourth issue concerns the disallowance of loss amounting to Rs. 12,45,342 u/s 94(7). The Tribunal upheld the disallowance, noting that the amended provision of section 94(7) applies, and the loss should be disallowed to the extent of the dividend received. The alternate plea raised by the assessee was not accepted, and the ground was dismissed.

5. Disallowance of salary paid to an expatriate employee u/s 40(a):
The fifth issue involves the disallowance of salary paid to Mr. Brian Brown, an expatriate employee, u/s 40(a). The Tribunal held that the assessee's statutory obligation was to deduct tax at the time of payment, which was done, and thus the claim of the expenditure towards the salary payment was not hit by section 40(a)(iii). The Tribunal upheld the CIT(A)'s order and dismissed the revenue's ground.

6. Disallowance of perquisites provided to an expatriate employee:
The sixth issue pertains to the disallowance of perquisites valued at Rs. 90,40,880 provided to Mr. Brian Brown. The Tribunal held that the valuation of perquisites forms part of salary and no separate treatment is given for TDS purposes. The disallowance was not justified, and the ground taken by the assessee was allowed.

7. Interest levied u/s 234D:
The seventh issue is regarding the interest levied u/s 234D. The Tribunal noted that this issue is covered by the decision of the Special Bench of the ITAT in the case of ITO v. Ekta Promoters (P.) Ltd. and held that the Assessing Officer was not justified in charging interest on the refund granted prior to 1-6-2003. The ground taken by the assessee was allowed, and the interest charged u/s 234D was directed to be deleted.

Conclusion:
The appeals for assessment years 2002-03 and 2003-04 were partly allowed in favor of the assessee, while the revenue's appeal for the assessment year 2002-03 was dismissed.