2011 (12) TMI 748 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance u/s 40(a)(i)
2. Computation of deduction u/s 80-IA
3. Addition towards suppression of sales
4. Addition towards understatement of closing stock
5. Disallowance of bad debts

Summary:

1. Disallowance u/s 40(a)(i):
The first issue pertains to the disallowance of Rs. 87,72,280/- u/s 40(a)(i) for non-deduction of TDS on export commission paid to overseas agents. The assessee argued that the payments were made for services rendered outside India and thus not chargeable to tax in India. The CIT(A) deleted the disallowance, citing that the overseas agents had no PE in India and the services were rendered entirely outside India. The Tribunal upheld this decision, referencing its own prior ruling in the assessee's case for AY 2006-07 and the Supreme Court decision in GE India Technology Centre Pvt Ltd Vs. CIT (327 ITR 456).

2. Computation of deduction u/s 80-IA:
The second issue involves whether losses and unabsorbed depreciation from earlier years should be notionally brought forward and set off while computing deduction u/s 80-IA. The CIT(A) directed the AO to rework the deduction without setting off losses on a notional basis, following the jurisdictional High Court decision in Velayudhaswamy Spinning Mills Ltd. vs. ACIT (231 CTR 368). The Tribunal confirmed this, emphasizing that once losses are set off in earlier years, they cannot be notionally brought forward.

3. Addition towards suppression of sales:
The third issue concerns the addition of Rs. 17,94,93,705/- towards alleged suppression of sales. The AO added this amount due to discrepancies between the sales ledger and invoices. The CIT(A) deleted the addition, noting that the assessee's accounts were audited by the CAG and no suppression was found. The Tribunal upheld this deletion, agreeing with the CIT(A)'s findings.

4. Addition towards understatement of closing stock:
The fourth issue relates to the addition of Rs. 4,45,67,775/- for understatement of closing stock. The AO made this addition on a presumptive basis, arguing that continuous production indicated the presence of finished goods stock. The CIT(A) deleted the addition, explaining that the production on the last days of the accounting year was accounted for as "work in progress." The Tribunal confirmed this deletion, noting that the accounts were audited and no discrepancies were found.

5. Disallowance of bad debts:
The final issue involves the disallowance of Rs. 87,36,000/- claimed as bad debts. The AO disallowed the claim, but the CIT(A) deleted the disallowance, stating that post-01.04.1989, there is no requirement to prove that the debt has actually become bad, as long as it is written off in the books. The Tribunal upheld this deletion, referencing the Supreme Court decision in T.R.F. Ltd. vs. CIT (323 ITR 397).

Conclusion:
The Tribunal dismissed the Revenue's appeal, confirming the CIT(A)'s deletions and directions on all issues. The order was pronounced in the open Court on 02.12.2011.