2013 (10) TMI 1569 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of claim of bad debt.
2. Disallowance of lease rental paid by the assessee.
3. Disallowance of claim of depreciation in relation to additional custom duty.
4. Addition of notional interest on loan to M/s Rich Crest Animation Inc. USA.

Summary:

1. Disallowance of Claim of Bad Debt:
The first dispute concerns the disallowance of a bad debt claim of Rs. 1,15,794/- related to TDS. The AO disallowed the claim, stating that TDS was not a trade debt. The CIT(A) upheld this decision. However, the Tribunal found that the amount had been shown as income in earlier years and written off in the books, satisfying the conditions for bad debt. Thus, the Tribunal allowed the assessee's claim and set aside the CIT(A)'s order.

2. Disallowance of Lease Rental Paid by the Assessee:
The second issue pertains to the disallowance of lease rental. The AO disallowed the entire claim due to the absence of lease agreements. The CIT(A) partially upheld this, allowing the claim for TATA assets but not for Birla assets. The Tribunal noted that the method of accounting for lease rent had been accepted in earlier and subsequent years. It restored the matter to the AO for verification, directing that if the claim relates to the same assets as in other years, it should be allowed.

3. Disallowance of Claim of Depreciation in Relation to Additional Custom Duty:
The third dispute involves the disallowance of depreciation on additional custom duty of Rs. 2,09,22,914/-. The AO and CIT(A) disallowed the claim, considering the duty penal in nature. The Tribunal disagreed, stating that the additional duty was not penal but a normal duty payable due to non-fulfillment of export obligations. It directed the AO to allow depreciation on the additional duty, setting aside the CIT(A)'s order.

4. Addition of Notional Interest on Loan to M/s Rich Crest Animation Inc. USA:
The fourth issue is the addition of Rs. 2,47,324/- as notional interest on a loan to a subsidiary. The AO applied the CUP method, comparing it to interest charged to other subsidiaries. The CIT(A) upheld this. The Tribunal found that the AO did not use independent uncontrolled transactions for comparison and that the CIT(A) did not apply the transfer pricing adjustment provisions correctly. It deleted the addition, noting the lack of comparable data and the age of the case.

Department's Appeal:
The department's appeal concerned the deletion of addition on account of lease rent for TATA assets. The Tribunal dismissed this ground, consistent with its decision on the assessee's appeal.

Conclusion:
The assessee's appeal is allowed, and the department's appeal is dismissed. Order pronounced in open court on 04-10-2013.