2012 (9) TMI 33 - AT - Income Tax

Bad debts - dis-allowance on ground of inability of assessee to justify claim of bad debt - AY 04-05 - assessee company being registered as a sick industrial company in the year 2004 - Held that - Though after the amendment in S36(1)(vii) w.e.f. 01-04-1989, it is not obligatory on the part of the assessee to prove that the debt written off is indeed a bad debt for purposes of allowance u/s. 36(1)(vii). However, it is also a fact that the assessee has to establish that it fulfils the conditions laid down u/s. 36(2). Since assessee stated that the requisite documents could not be filed as the assessee company at the relevant time was a BIFR company and its proposal to revive was pending before BIFR. In the interest of justice, we restore this matter to the file of AO to decided same afresh Rebate and claims - dis-allowance on ground that same was allowed to one party - business expediency - Held that - There is no document placed on record to justify that rebate of the substantial amount was granted to M/s. SMT on account of defect/damage in the goods. Also, no details are filed in respect of - when the supply was made to the above party and how much amount was due from it, why shares pledged by SMT were not invoked in event of non-payment. Hence, CIT(A) was justified in holding that assessee has failed to discharge the onus that the said rebate was due to business expediency - Decided against assessee Dis-allowance u/s 43B of Rs 8.71 crores - interest to financial institution - assessee contending mistake in clubbing and contending dis-allowance of Rs 6.11 crores - Held that - During course of hearing, assessee was unable to file any document to substantiate that interest due to financial institution was Rs.6.11 crores. dis-aloowance confirmed - Decided against assessee Dis-allowance u/s 14A - computed in accordance with Rule 8D - AY 05-06 - Held that - CIT(A) was not justified in computing dis-allowance by applying Rule 8D as the said Rule is not applicable to the AY 2005-06. See Godrej & Boyce (2010 (8) TMI 77 - BOMBAY HIGH COURT). Matter restored to file of AO

Summary

Issues Involved:
1. Disallowance of bad debt.
2. Disallowance of share issue expenses.
3. Disallowance of rebates claimed.
4. Disallowance of interest to financial institutions under section 43B.
5. Disallowance under section 14A read with Rule 8D.

Issue-wise Detailed Analysis:

1. Disallowance of Bad Debt:
The assessee claimed bad debts of Rs.6,32,41,821/- for the assessment year 2004-05, which the AO disallowed, stating that the write-off was premature and not justified. The CIT(A) upheld this disallowance, noting that the assessee failed to provide sufficient evidence. The Tribunal observed that post-amendment to section 36(1)(vii), it is not necessary to prove the debt is bad, but the assessee must meet the conditions of section 36(2). The matter was restored to the AO for fresh consideration with directions to allow the assessee to submit additional evidence.

For assessment years 2005-06 and 2006-07, similar issues regarding bad debts of Rs.23,99,64,072/- and Rs.7,68,10,695/- respectively were raised. The Tribunal, following its reasoning for the assessment year 2004-05, restored these issues to the AO for fresh consideration.

2. Disallowance of Share Issue Expenses:
For the assessment year 2004-05, the assessee did not press the ground related to the disallowance of share issue expenses amounting to Rs.2,49,477/-, leading to its dismissal. Similarly, for the assessment year 2005-06, the ground concerning the disallowance of Rs.2,35,698/- was not pressed and was dismissed.

3. Disallowance of Rebates Claimed:
The assessee claimed rebates of Rs.1,36,86,720/- for the assessment year 2004-05, which the AO disallowed due to lack of justification. The CIT(A) upheld this disallowance, noting the absence of evidence demonstrating business urgency or commercial expediency. The Tribunal agreed with the CIT(A), emphasizing the lack of documentation supporting the rebate and upheld the disallowance.

4. Disallowance of Interest to Financial Institutions Under Section 43B:
For the assessment year 2005-06, the AO disallowed Rs.8,71,97,435/- under section 43B, which was partially rectified from an initial disallowance of Rs.11,83,26,280/-. The assessee contended that the correct disallowance should be Rs.6,11,02,968/-. However, the CIT(A) confirmed the AO's figure due to lack of supporting evidence from the assessee. The Tribunal upheld the CIT(A)'s decision, noting the absence of documentary evidence to support the assessee's claim.

5. Disallowance Under Section 14A Read with Rule 8D:
For the assessment year 2005-06, the AO disallowed Rs.25,72,976/- under section 14A, applying Rule 8D. The CIT(A) directed the AO to recompute the disallowance as per Rule 8D. The Tribunal noted that Rule 8D applies from the assessment year 2008-09 onwards, as per the jurisdictional High Court's decision in Godrej & Boyce Mfg. Ltd. vs. DCIT. The matter was restored to the AO for fresh consideration without applying Rule 8D.

For the assessment year 2006-07, a similar issue arose with a disallowance of Rs.10,48,482/-. The Tribunal, following the same reasoning, restored the matter to the AO for fresh consideration, excluding the application of Rule 8D.

Conclusion:
The Tribunal allowed the appeals in part, restoring several issues to the AO for fresh consideration, particularly concerning the disallowance of bad debts and section 14A disallowances, while upholding other disallowances due to lack of evidence from the assessee.