2010 (5) TMI 718 - AT - Income Tax

Summary

Issues Involved:
1. Deduction under section 80HHB of the Income-tax Act.
2. Deduction under section 80-O of the Income-tax Act.
3. Disallowance of bad debts.

Issue-wise Detailed Analysis:

1. Deduction under section 80HHB of the Income-tax Act:
The primary issue was whether the assessee's claim for deduction under section 80HHB was valid. The assessee, engaged in executing power projects, claimed deductions for a project in Abu Dhabi. The Assessing Officer (AO) disallowed the claim, arguing that the project was for consultancy and manpower supply, not for installation of machinery as required by section 80HHB. The Commissioner of Income-tax (Appeals) (CIT(A)) allowed the claim, asserting that the work performed was part of a foreign project. The Tribunal directed the AO to reassess the details, particularly disallowing amounts related to manpower supply for refinery shutdowns, and to allow deductions for assembling and installation works.

2. Deduction under section 80-O of the Income-tax Act:
The second issue was the disallowance of deduction under section 80-O for services rendered to Tarong Power Plant and Jurong Engineering Ltd. The AO disallowed the claim, stating that section 80-O, amended from April 1, 1998, did not cover consideration received for technical and professional services. The CIT(A) allowed the claim, noting that the assessee received consideration for preparing drawings and documents specific to a contract, which qualified for deduction under section 80-O. The Tribunal upheld the CIT(A)'s decision, rejecting the Revenue's appeal.

3. Disallowance of bad debts:
The third issue concerned the restriction of disallowance of bad debts from Rs. 20,10,862 to Rs. 3,47,419. The AO disallowed the bad debts claimed, as the assessee failed to provide evidence that the debts had become bad. The CIT(A) allowed the claim in part, referencing the Gujarat High Court's decision in Kamla Cotton Co. v. CIT, which stated that the justification for bad debt was beyond the scope of section 36(2). The CIT(A) restricted the bad debt claim to the actual closing debit balance in the books. The Tribunal upheld the CIT(A)'s decision, referencing the Supreme Court's ruling in T.R.F. Ltd. v. CIT, which stated that post-amendment, it was sufficient for the bad debt to be written off in the accounts.

Conclusion:
- The appeal regarding section 80HHB was partly allowed for statistical purposes, directing the AO to reassess specific details.
- The appeal regarding section 80-O was dismissed, upholding the CIT(A)'s decision.
- The appeal regarding the disallowance of bad debts was dismissed, affirming the CIT(A)'s partial allowance of the claim.