2012 (5) TMI 108 - AT - Income Tax

Write off of old unrecoverable earnest money deposits deductible u/s. 37(1) - appeal against disallowance of claim Held that - Assessee could not place on record any evidence showing that the amounts in question were given in earlier years on account of earnest money deposits to its business associates and the said parties refused to refund such amount to it - matter is restored to the file of AO to give one more opportunity to the assessee to lead evidence in support of its claim. Direction given to the AO to recompute the disallowance u/s. 14A Held that - Direction given to the AO by CIT(A) in conformity with the judgment of the Hon ble jurisdictional High Court in the case of Godrej & Boyce Mfg. Co. Ltd (2010 (8) TMI 77 - BOMBAY HIGH COURT) is correct as disallowance u/s 14A. Rule 8D is not retrospective. Rule 8D applicable from Assessment Year 2008-09 in favour of assessee. Disallowance made by the AO u/s.14A as per Rule 8D Held that - Disallowance u/s.14A is called for when the AO is not satisfied with the assessee s claim of having incurred no expenditure or some amount of expenditure in relation to exempt income - satisfaction of the AO as to the incorrect claim made by the assessee in this regard is sine qua non for invoking the applicability of Rule 8D - computing disallowance u/s.14A as per Rule 8D without rendering any opinion on the correctness or otherwise of the assessee s claim is incorrect way - restore the matter to the file of AO to re-compute disallowance - in favour of assessee.

Summary

Issues:
1. Disallowance of write off of old unrecoverable earnest money deposits claimed by the assessee as a business loss.
2. Disallowance u/s. 14A for assessment years 2007-08 and 2008-09 based on Rule 8D.

A.Y. 2003-04 (Assessee's appeal):
The issue pertains to the disallowance of Rs.2,15,265 claimed by the assessee as a write off of old unrecoverable earnest money deposits under section 37(1) of the Act. The assessee contended that these deposits were business-related and became irrecoverable. However, the AO disallowed the claim due to lack of evidence. The Tribunal observed that the deduction for bad debts differs from business loss. As the assessee failed to provide evidence, the Tribunal set aside the order and directed the AO to allow one more opportunity for evidence submission.

A.Y. 2007-08 (Revenue's appeal):
The Revenue challenged the direction to recompute the disallowance u/s. 14A based on the judgment in the case of Godrej & Boyce Mfg. Co. Ltd. The Tribunal upheld the direction, stating that the judgment's applicability remains until the Supreme Court decides otherwise. The AO was directed to compute the disallowance in line with the High Court judgment.

A.Y. 2008-09 (Assessee's appeal):
The issue involved the disallowance of Rs.12,81,496 made by the AO u/s. 14A as per Rule 8D. The assessee argued that no interest-bearing deposits were linked to the exempt income. The Tribunal noted that Rule 8D applies for this assessment year. However, it emphasized that the AO must verify the correctness of the claim before applying Rule 8D. As the AO didn't assess the genuineness of the claim, the Tribunal set aside the order and directed a re-computation of the disallowance after verifying the claim.

In summary, the judgments addressed issues related to disallowances under different sections of the Income Tax Act, emphasizing the importance of providing evidence to support claims and ensuring the correctness of computations based on relevant legal provisions and judgments.