2010 (9) TMI 1263 - AT - Income Tax

Summary

Issues involved: Disallowance of claim of bad debts and disallowance u/s 14A of the Act.

Bad Debts Issue: The Assessing Officer disallowed a claim of bad debts amounting to Rs. 1,86,316, stating that the amount claimed was actually TDS deducted from interest income. The appellant argued that the TDS was never deposited by the deductor party into the Government Account and thus should be treated as a debt due from the deductor party. The CIT(A) rejected the appeal, stating that the TDS amount deducted becomes property of the Government and cannot be written off as bad debts. However, the Assessee contended that the amount withheld by the debtor as TDS is certainly due to the Assessee and when written off as irrecoverable, it is allowable as a deduction u/s 36(1)(vii). The appeal was allowed on this issue.

Disallowance u/s 14A Issue: The Assessing Officer computed a disallowance u/s 14A at Rs. 59,974, but the CIT(A) enhanced this amount to Rs. 4,25,860 by invoking Rule 8D for computing disallowance. The appellant argued that Rule 8D is not retrospective and cannot be invoked in the present Assessment Year. The ITAT found that the decision of a Special Bench had been set aside by the jurisdictional High Court, and thus remitted the matter back to the AO to decide the issue afresh in line with the High Court's decision. As a result, the Assessee's appeal was partly allowed.