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2012 (12) TMI 61 - AT - Income TaxSetting off of closing provision determined by the AO u/s. 36(1)(viia) against the bad debts written off - Held that - Credit balance for the purpose of considering provisions for bad and doubtful debt u/s. 36(1)(viia) will be opening credit balance i.e. balance brought forward as on 1st April to the relevant accounting year In favor of assessee Disallowance made by the AO with regard to payment to Master Card International and Visa Card International Held that - Even if no TDS was deducted on the payments made to Visa International and Master Card International, it could not be disallowed in view of Article 26(3) of Indo-US DTAA because no disallowance could be made in respect of payments made to residents on ground of non-deduction of tax at source In favor of assessee Addition on account of Unmatured forward exchange contracts Held that - Anticipated losses on account of existing obligation as on 31st March, determinable with reasonable currency, being in the nature of expenditure/accrued liability, have to be taken into account while preparing financial statement - matter should be restored to AO to consider liability which has accrued as per Accounting Policy consistently followed by assessee as on 31.3.1998 and accordingly to allow said claim to that extent - appeal is allowed for statistical purposes
Issues Involved:
1. Bad debts claim disallowance. 2. Setting off closing provision against bad debts. 3. Disallowance of payments to Master Card International and Visa Card International. 4. Taxation of net profit on unmatured forward exchange contracts. 5. Disallowance under Section 37(4) for guest house expenses. 6. Disallowance under Section 44C. 7. Nature of expenditure on VRS payments. Detailed Analysis: 1. Bad Debts Claim Disallowance: The assessee's appeal on the disallowance of bad debts claimed in earlier assessment years was not pressed. Hence, the ground was rejected. 2. Setting Off Closing Provision Against Bad Debts: The representatives agreed that the issue was covered in the assessee's favor based on prior ITAT orders for assessment years 2002-03 and 2004-05. The Tribunal held that the credit balance for considering provisions for bad and doubtful debts under Section 36(1)(viia) should be the opening credit balance as of 1st April of the relevant accounting year. Consequently, the Tribunal reversed the orders of the lower authorities and allowed the assessee's appeal. 3. Disallowance of Payments to Master Card International and Visa Card International: The Tribunal noted that similar issues had been previously decided in favor of the assessee for assessment years 1998-99 and 1999-2000. The payments made to VISA and Master Card without deducting TDS were considered. The Tribunal, following its earlier decision and the decision in the case of Central Bank of India vs. DCIT, held that even if no TDS was deducted, the payments could not be disallowed under Article 26(3) of the Indo-US DTAA. The Tribunal deleted the disallowance and reversed the orders of the lower authorities. 4. Taxation of Net Profit on Unmatured Forward Exchange Contracts: The Tribunal restored the matter to the AO to decide afresh in light of the Special Bench decision in DCIT vs. Bank of Bahrain & Kuwait. The Special Bench had held that anticipated losses on account of existing obligations as of 31st March, determinable with reasonable certainty, should be recognized as crystallized liabilities. The Tribunal directed the AO to allow the claim to the extent the liability had accrued as per the assessee's consistent accounting policy. 5. Disallowance Under Section 37(4) for Guest House Expenses: The Tribunal upheld the CIT(A)'s order allowing the assessee's claim, noting that Section 37(4) had been deleted w.e.f. 1.4.1998 by the Finance Act 1997. The Tribunal followed its earlier decision for assessment year 1998-99 in the assessee's own case and rejected the department's appeal. 6. Disallowance Under Section 44C: The Tribunal observed that the issue had been favorably decided for the assessee in earlier years, including assessment year 1998-99. The Tribunal upheld the CIT(A)'s order and rejected the department's appeal, noting that the issue was covered by earlier Tribunal orders. 7. Nature of Expenditure on VRS Payments: The Tribunal upheld the CIT(A)'s order, noting that the issue was covered in favor of the assessee by the decision of the Hon'ble Jurisdictional High Court in Commissioner of Income-tax vs. Bhor Industries Ltd. The Tribunal rejected the department's appeal. Conclusion: The appeal filed by the assessee was allowed in part, and the appeal filed by the department was dismissed.
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