2012 (7) TMI 614 - AT - Income Tax

Disallowance was made under section 40(a)(ia) of the Act - payments made to field agents for conducting market research surveys Held that - TDS was deducted at 2.24% under section 194C and whereas it is the Assessing Officer s case that deduction should have been made @ 5.61% under section 194J and, hence, a proportionate disallowance was made - disallowance cannot be made when there has been deduction of tax at source on the allegation that there is a short deduction of tax Matter remanded to AO - ground is allowed for statistical purpose. Reopening of assessment - reopening was made within a period of four years assessee submitted that no notice was given under section 143(2) Held that - Appellant has treated letter as the notice u/s. 143(2) of the Act - assessee has appeared during reassessment proceedings in response to the notice/letter dated 16-11-10 and cooperated in the assessment proceedings. Therefore, it would be deemed that the notice under the provisions of l.T. Act has been duly served upon the assessee in time - appellant cannot take any objection in any proceedings or enquiry under this Act as the appellant has not raised such objection before the completion of said reassessment proceedings - ground of appellant dismissed

Issues Involved:
1. Bad debts write-off.
2. Disallowance under section 40(a)(ia) for short deduction of TDS.
3. Reopening of assessment under section 147/148.
4. Non-grant of credit of TDS.
5. Disallowance under section 14A.
6. Treatment of software expenditure as capital.

Detailed Analysis:

1. Bad Debts Write-off:
The assessee, engaged in advertising and market research, wrote off certain debts as bad debts. The main contention was that the write-off was based on commercial considerations and business prudence. The assessee argued that the write-off was a negotiated settlement of bills to maintain customer relationships, citing examples where minimal amounts were written off compared to the total billing. The Revenue authorities, however, viewed the write-off as arbitrary, irrational, and lacking commercial prudence, particularly because the assessee received advances from the same clients. They relied on various court decisions to argue that only bona fide bad debts should be allowed under Section 36(1)(vii). The Tribunal found the write-off to be commercially prudent and allowed the assessee's claim, applying the Supreme Court judgment in TRF Ltd. (2010) 35 DTR 156 (SC).

2. Disallowance under Section 40(a)(ia) for Short Deduction of TDS:
The assessee deducted TDS under section 194C, while the Assessing Officer contended that TDS should have been deducted under section 194J, leading to a proportionate disallowance. The Tribunal held that no disallowance can be made under section 40(a)(ia) for short deduction of TDS, following the Tribunal's decisions in similar cases. The Tribunal deleted the disallowance of Rs. 3,93,14,264.

3. Reopening of Assessment under Section 147/148:
The assessee challenged the reopening of the assessment, arguing that it was based on a change of opinion and that no notice under section 143(2) was served within the statutory period. The Tribunal upheld the reopening, stating that the issue had not been examined in the original assessment, and thus, the question of change of opinion did not arise. The Tribunal also agreed with the Commissioner (Appeals) that the letter dated 16th November 2010 served as a notice under section 143(2) and that the assessee's cooperation in the assessment proceedings precluded them from raising this objection later, as per section 292BB.

4. Non-grant of Credit of TDS:
The issue of non-grant of credit of TDS was restored to the file of the Assessing Officer for fresh adjudication in accordance with the law.

5. Disallowance under Section 14A:
The assessee argued for the application of Rule 8D for disallowance under section 14A. The Tribunal directed the Assessing Officer to quantify the disallowance by applying Rule 8D and restored the issue for fresh adjudication.

6. Treatment of Software Expenditure as Capital:
The issue of treating software expenditure as capital in nature was dismissed as not pressed by the assessee.

Conclusion:
The Tribunal allowed the assessee's appeal partly, dismissing the Revenue's appeals. The Tribunal's decisions were based on commercial considerations, adherence to legal precedents, and procedural compliance. The issues of short deduction of TDS and non-grant of credit of TDS were restored for fresh adjudication, while the reopening of assessment and disallowance under section 14A were upheld and directed for reconsideration respectively.

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