2019 (5) TMI 545 - AT - Income Tax

Addition towards un-reconciled AIR entries - AO had observed that AIR information was received from ITD database and the assessee was given the same to reconcile it with its books of accounts - HELD THAT - As decided in assessee's own case 2018 (4) TMI 1698 - ITAT MUMBAI we do not find any valid reason for the Assessing Officer to make addition towards unreconciled income as the addition was solely based on AIR information and without making proper enquiries, without submitting the information as requested by the assessee. In the circumstances, we direct the Assessing Officer to delete the addition. Non- grant of depreciation on computer peripherals at the rate of 60% - HELD THAT - We find that the items in Serial Numbe₹ 1,2,3,4,6 8 are certainly integral part of computer thereby eligible for depreciation at 60%. The other two items in Serial Numbers 5 7 would be eligible for depreciation at 15%. Our finding is in consonance with the decision in the case of DCIT vs Datacraft India Ltd r 2010 (7) TMI 642 - ITAT, MUMBAI and CIT vs BSES Yamuna Powers Ltd 2010 (8) TMI 58 - DELHI HIGH COURT Accordingly, we direct the AO to recomputed the depreciation as per the aforesaid directions given by us specifically mentioning the serial numbers. Accordingly, the Ground No. 2 raised by the assessee is partly allowed. Disallowance of bad debts - disallowance was sustained by the ld CITA was with regard to the fact that the assessee had not proved the debt as irrecoverable in respect of these 54 parties - HELD THAT - We find that pursuant to amendment made in section 36(1)(vii) of the Act with effect from 1.4.1989, it is enough if the debt had been written off as irrecoverable by the assessee to claim the same as bad debt u/s 36(1)(vii) of the Act. There is no need to prove that the said debt had become irrecoverable after 1.4.1989. Reliance in this regard is placed on case of TRF Ltd 2010 (2) TMI 211 - SUPREME COURT . Accordingly, we direct the ld AO to delete the disallowance of bad debts Claim of deduction u/s 35AD - AO in the remand report had stated that assessee had not claimed any deduction u/s 35AD of the Act in the return of income and that the assessee had made this claim for the first time only during the course of assessment proceedings and filed revised computation HELD THAT -CIT-A had placed reliance on the decision of Hon ble Supreme Court in the case of Goetze (India) Ltd vs CIT 2006 (3) TMI 75 - SUPREME COURT for denying the claim of deduction u/s 35AD of the Act to the assessee. We find that the Hon ble Supreme Court had made it clear in its order that the claim made by the assessee otherwise than by way of a valid return is not applicable to the appellate authorities. Hence we hold that the ld CITA ought to have considered the claim of deduction u/s 35AD of the Act in the instant case. Reliance in this regard is also placed on the decision of CIT vs Pruthvi Brokers Shareholders 2012 (7) TMI 158 - BOMBAY HIGH COURT . But we find that the lower authorities had not examined the claim of the assessee on merits. Hence we deem it fit and appropriate to remand this issue to the file of ld AO for adjudication of this issue on merits

Summary

Issues Involved:
1. Addition of un-reconciled AIR entries
2. Depreciation on computer peripherals
3. Disallowance of bad debts
4. Claim of deduction u/s 35AD

Issue 1: Addition of Un-reconciled AIR Entries

The primary issue was whether the addition of ?11,90,941 towards un-reconciled AIR entries was justified. The assessee had reconciled a significant portion of the transactions from the ITD database, but a difference of ?20,99,904 remained. The Assessing Officer (AO) added this difference as unexplained credit. However, the Tribunal referred to previous judgments and held that additions solely based on AIR information without proper evidence were not valid. The Tribunal directed the AO to delete the addition, considering the substantial reconciliation efforts made by the assessee.

Issue 2: Depreciation on Computer Peripherals

The dispute centered around the depreciation rate applicable to various computer peripherals claimed by the assessee. The AO contended that certain items were not integral to the computer system and hence eligible for a lower depreciation rate. The Tribunal analyzed each item and concluded that some were indeed integral parts eligible for higher depreciation, while others were not. Relying on precedents, the Tribunal directed the AO to recompute the depreciation accordingly, partially allowing the assessee's appeal on this issue.

Issue 3: Disallowance of Bad Debts

The contention was regarding the disallowance of bad debts amounting to ?13,91,338. The AO argued that the listed companies in question were not proven to have irrecoverable debts. However, the Tribunal noted that the assessee had already offered income from these debts in previous years, satisfying the requirements under the law. Citing relevant case law, the Tribunal directed the AO to delete the disallowance of bad debts, allowing the assessee's appeal on this matter.

Issue 4: Claim of Deduction u/s 35AD

The final issue revolved around the denial of deduction under section 35AD of the Income Tax Act. The AO rejected the claim as it was made during the assessment proceedings and not in the original return. The Tribunal, citing legal precedents, held that the claim should be considered on its merits. Therefore, the Tribunal remanded the issue back to the AO for proper examination, allowing the assessee's appeal for statistical purposes.

In conclusion, the Appellate Tribunal ITAT Mumbai ruled in favor of the assessee on various issues, directing the Assessing Officer to make necessary adjustments based on the detailed analysis and legal precedents presented during the proceedings.