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2015 (3) TMI 1184 - AT - Income TaxDisallowance of bad debts written off - Held that - After the decision of TRF Ldt.(2010 (2) TMI 211 - SUPREME COURT ) the legal position is very clear and that is to obtain a deduction in relation to bad debts, it is not necessary for the assessee to establish that the debt, in fact, has become irrecoverable it is enough if the bad debt is written off as irrecoverable in the accounts of the assessee. We have gone through the paper book of the assessee and it is found that amount in question has been actually written off. We further find that issue of bad debts has been decided in favour of the assessee by the Tribunal while deciding the appeal for the AY. 2005-06 - Decided in favour of the assessee Disallowance u/s. 14A - Held that - The undisputed facts of the case are that the assessee had received tax free dividend income,that it was maintaining overdraft account, that it was not possible to link investment and availability of funds. If the assessee has sufficient funds and reserves then it has to be accepted that investment has been made out of such funds.But,the availability of funds has to be proved.We find that in the matter of mutual funds it may not be true. The assessee had made an alternate argument and we are of the opinion that considering the facts of the case,in the interest of justice, matter should be sent back to the file of the AO to determine the interest disallowance within the parameters of the alternative argument. As far as administrative disallowance is concerned,we are of the opinion that disallowance @ 1% will be sufficient to meet the end of justice.Ground of no.2 is decided in favour of the assessee,in part. Deduction on account of retention money - AO had disallowed the deduction on account of retention money because assessee had not claimed it at the time of filing of return and that it had not filed revised return - CIT(A) allowed the claim - Held that - As an appellate authority, if the FAA had admitted the new claim then in our opinion he has rightly applied the provisions of law. Upholding his order, we decide ground against the AO.
Issues Involved:
1. Disallowance of bad debts. 2. Disallowance under Section 14A of the Income Tax Act. 3. Claim for depreciation. 4. Deduction for provision for foreseeable losses. 5. Deduction of retention money. Issue-wise Detailed Analysis: 1. Disallowance of Bad Debts: - AY 2005-06: The CIT(A) confirmed the disallowance of Rs. 69.22 lakhs written off as bad debts. The CIT(A) disregarded additional submissions filed under Rule 46A and held that the appellant did not provide sufficient evidence to support the claim. The ITAT, referencing the TRF Ltd. case, ruled that it is sufficient if the bad debt is written off as irrecoverable in the accounts of the assessee. The ITAT found that the amount was indeed written off and decided in favor of the assessee. - AY 2007-08: The CIT(A) confirmed the disallowance of Rs. 34,30,813/-. Following the decision for AY 2005-06, the ITAT decided this issue in favor of the assessee as well. 2. Disallowance under Section 14A: - AY 2005-06: The AO made a disallowance of Rs. 10.08 lakhs under Section 14A, which the CIT(A) confirmed, arguing that the assessee failed to prove that investments were made out of free funds. The ITAT found that the assessee had sufficient funds and reserves, and remitted the issue back to the AO to determine the interest disallowance within the parameters of the alternative argument. For administrative expenses, the ITAT restricted the disallowance to 1% of the dividend income. - AY 2007-08: The CIT(A) confirmed the disallowance of Rs. 2.26 lakhs under Section 14A. Following the earlier year's decision, the ITAT restored the issue back to the AO for determination of interest disallowance and restricted the administrative disallowance to 1%. 3. Claim for Depreciation: - AY 2007-08: The CIT(A) rejected the claim for additional depreciation of Rs. 1.42 crores, stating it pertained to earlier years. The ITAT, referencing the jurisdictional High Court's decision in the case of Brokers & Shareholders, remitted the issue back to the CIT(A) for reconsideration, allowing the assessee to make the claim during appeal proceedings. 4. Deduction for Provision for Foreseeable Losses: - AY 2007-08: The CIT(A) allowed a deduction of Rs. 34.83 lakhs instead of Rs. 67.53 lakhs. The ITAT remitted the issue back to the AO to examine and allow the correct amount of loss after a reasonable opportunity of hearing. 5. Deduction of Retention Money: - AY 2007-08: The AO disallowed the deduction of Rs. 77.21 lakhs for retention money, stating it was not claimed in the return or revised return. The CIT(A) allowed the deduction, referencing the Balmukund Acharya case. The ITAT upheld the CIT(A)'s decision, stating that the appellate authorities can admit new claims during appeal proceedings. Conclusion: The ITAT decided in favor of the assessee for the disallowance of bad debts and partially for the disallowance under Section 14A, remitting certain issues back to the AO for fresh consideration. The claim for depreciation and the deduction for provision for foreseeable losses were also remitted back for reconsideration. The deduction of retention money was upheld in favor of the assessee. The appeal by the AO was dismissed, and the appeals of the assessee were partly allowed.
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