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2017 (2) TMI 785 - AT - Income TaxDisallowance of bad debts written off under the normal provisions of Income Tax Act - MAT applicability - Held that - AO has disallowed the provisions for bad & doubtful debts while working out the book profit for the computation of Tax under the provisions of section 115JB of the Act. The ld. CIT(A) has confirmed the same in terms of clause (i) to explanation 1 of section 115 JB of the Act which was brought to tax by the Finance Act 2009. From the perusal of the records we find that the AO has never disallowed the provision for bad and doubtful debts under the normal provisions Act. As the disallowance of bad & doubtful debts is not arising from the order of AO and the same has not been dealt by the learned CIT(A) in his appellate order. Accordingly we hold the issue raised by the assessee as infructuous. Thus the ground raised by assessee is dismissed. Disallowance u/s 14A r.w.s Rule 8D(ii)&(iii) - Held that - From the perusal of the records, admittedly, the investment was made by the assessee in the earlier years but the learned AR has not brought anything on record before us whether the investment in the earlier years was made out of the own funds of the assessee. In our considered view it is the duty of the assessee to justify on the basis of evidences that the investment was made out of own funds. - Matter refereed back for reconsideration. Whether the disallowance to be made u/s 14A r.w.s rule 8D shall also be added in the computation of book profit in terms of clause (f) of explanation 1 to section 115JB - Held that - From the provision of section it is clear that the expenses incurred on the earning of exempted income are liable to be added in the working of the book profit. Therefore we hold that the expenses to be disallowed by the AO in terms of rule 8D(ii) and (iii) of Income Tax Rules 1962 would be added to the book profit as specified under section 115JB of the Act. As the issue of disallowance in terms of rule 8D(ii) and (iii) of Income Tax Rules 1962 has been restored to the AO for fresh adjudication, therefore we are inclined to restore this issue as well to the AO for fresh adjudication. Addition on account of excess book depreciation - Held that - As from the perusal of assessment order we find that the AO has added the amount of the depreciation for ₹ 31,86,80,0254.00 for working out the profit as per the provisions of section 115 JB of the Act. The learned DR raised no objection if the matter is restored to the learned CIT(A) for fresh adjudication as per law & after verification of the depreciation amount. Addition on account of bad debt which were actually written off in the books of account while working out the book profit u/s. 115JB - Held that - AR has not brought anything on record to demonstrate that the provisions for the bad and doubtful debts have actually been written off in the books of accounts and in the ledgers of respective parties. As per the provisions of section 115 JB of the Act the amount of book profit will not be increased by the amount of bad debts actually written off in the books of accounts. Accordingly we in the interest of justice & fair play we are inclined to restore this issue to the file of learned CIT(A) for fresh adjudication as per law Addition while computing the book profit u/s. 10(34) - Held that - The assessee is entitled for the reduction of dividend income while computing the book profit in terms clause (ii) of explanation 1 to section 115JB of the Act if such amount is credited to the profit and loss account. Hence this ground of appeal of the assessee is allowed. Disallowance on account of Fringe Benefit Tax - Held that - The assessee is entitled for the reduction of FBT while computing the book profit in terms of circular no. 8/2005 issued on 29/8/2005 if such a amount is debited to the profit and loss account. Hence this ground of appeal of the assessee is allowed.
Issues Involved:
1. Disallowance of bad debts written off. 2. Disallowance under section 14A of the Income Tax Act read with Rule 8D. 3. Addition on account of excess book depreciation. 4. Addition of bad debts while computing book profit under section 115JB. 5. Non-reduction of dividend income while computing book profit under section 115JB. 6. Non-reduction of Fringe Benefit Tax (FBT) while computing book profit under section 115JB. 7. Non-adjudication of an additional ground of appeal by the CIT(A). Detailed Analysis: 1. Disallowance of Bad Debts Written Off: The assessee argued that the CIT(A) erred in disallowing bad debts written off amounting to ?49,21,899 under the normal provisions of the Income Tax Act. However, the Tribunal found that the Assessing Officer (AO) had disallowed the provision for bad and doubtful debts while computing book profit under section 115JB of the Act, not under the normal provisions. The CIT(A) confirmed this disallowance. Since the disallowance under normal provisions was not part of the AO's order and not dealt with by the CIT(A), the Tribunal held the issue as infructuous and dismissed the ground. 2. Disallowance under Section 14A read with Rule 8D: The assessee contested the disallowance of ?28,11,410 under section 14A read with Rule 8D for expenses incurred in earning exempt income. The AO calculated the disallowance as ?25,27,310 under Rule 8D(ii) and ?2,84,100 under Rule 8D(iii). The CIT(A) upheld the AO's calculation, stating that it was mandatory for the AO to determine the expenditure incurred in relation to exempt income. The Tribunal noted that the assessee did not provide evidence that investments were made from own funds. The Tribunal relied on the Calcutta High Court judgment in Dhunaka & Sons and restored the issue to the AO for fresh adjudication. The Tribunal also directed the AO to add the disallowed expenses to the book profit under section 115JB. 3. Addition on Account of Excess Book Depreciation: The assessee argued that the AO added an excess amount of ?10 lakhs in depreciation while computing book profit under section 115JB. The Tribunal found that the AO added ?31,86,80,025.40 instead of the actual ?31,76,80,025.00. The Tribunal restored the issue to the CIT(A) for fresh adjudication and verification of the actual depreciation amount. 4. Addition of Bad Debts while Computing Book Profit under Section 115JB: The assessee contended that the CIT(A) erred in confirming the addition of ?49,21,899 on account of bad debts written off while computing book profit under section 115JB. The Tribunal noted that the assessee did not provide evidence that the bad debts were actually written off in the books. The Tribunal restored the issue to the CIT(A) for fresh adjudication with directions for the assessee to produce necessary documents. 5. Non-Reduction of Dividend Income while Computing Book Profit under Section 115JB: The assessee argued that the AO did not reduce dividend income of ?14,34,965 while computing book profit under section 115JB. The Tribunal found that the assessee was entitled to this reduction if the amount was credited to the profit and loss account. Therefore, the Tribunal allowed this ground of appeal. 6. Non-Reduction of Fringe Benefit Tax (FBT) while Computing Book Profit under Section 115JB: The assessee contended that the AO did not reduce FBT of ?27.50 lakhs while computing book profit under section 115JB. The Tribunal noted that the assessee was entitled to this reduction as per Circular No. 8/2005 if the amount was debited to the profit and loss account. Hence, the Tribunal allowed this ground of appeal. 7. Non-Adjudication of an Additional Ground of Appeal by the CIT(A): The assessee argued that the CIT(A) did not adjudicate an additional ground of appeal filed on 07.11.2012. The Tribunal restored the issue to the CIT(A) for fresh adjudication after providing a reasonable opportunity of being heard to the assessee. Conclusion: The appeal by the assessee was partly allowed for statistical purposes, with several issues restored to the AO and CIT(A) for fresh adjudication. The Tribunal emphasized the need for proper verification and adherence to legal provisions in the computation of income and book profit.
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