2020 (5) TMI 140 - AT - Income Tax

Disallowance of advances written off - dues from parent company - According to the assessee, the amount so paid was recoverable from its parent company and hence it has treated the same as Advances recoverable in AY 2008-09 - HELD THAT -Though the Ld. A.R. contends that the parent company has refused to reimburse the payments made to the employees, yet no document was produced before tax authorities or before us in support of the said claim. Hence, in our view, the assessee has failed to substantiate as to why the advances amount was written off, particularly under the fact that the same is recoverable from its parent company. We also notice from the assessment order that the parent company has not reimbursed the amount only on account of change of policy of the parent company. The internal decision taken by two related concerns cannot be a ground in allowing the claim of write off. Accordingly, we are of the view that the Ld. CIT(A) has rightly confirmed the disallowance. Addition made of on the basis of Annual Information Report (AIR) - difference between the amount paid by the assessee towards credit card bills and that reported by American Express Bank in the AIR information - A.R. submitted that the assessee has now collated details of payments made to American Express Bank on account of the credit card transactions AND the aggregate amount of payment made by the assessee company along with another sister concern named M/s. Tektronix Engineering Development India Private Limited was ₹ 2.90 crores. - HELD THAT - All these details require verification at the end of the assessing officer. Accordingly we restore this issue to the file of the AO for examining it afresh by duly considering the submissions and explanations of the assessee. Appeal of the assessee is treated as partly allowed for statistical purposes.

Summary

Issues:
1. Disallowance of advances written off.
2. Addition made on the basis of Annual Information Report (AIR).

Analysis:
1. The first issue pertains to the disallowance of advances written off by the assessee. The assessee claimed a deduction of &8377; 86.65 lakhs under "Advances written off." The amount represented payments made to employees in lieu of an Employees Stock Option Plan (ESOP) by the parent company, which was later abandoned. The Assessing Officer (AO) disallowed the claim, stating that the advances were recoverable from the parent company and became irrecoverable due to a change in policy. The Tribunal upheld the disallowance, noting that the parent company's decision not to reimburse was due to an internal policy change, which does not justify the write-off as a business expense.

2. The second issue concerns an addition made by the AO based on a discrepancy between the amount paid by the assessee towards credit card bills and the information reported by American Express Bank in the AIR. Initially, a difference of &8377; 2.52 crores was added to the assessee's income. Subsequently, a rectification order reduced the disallowance to &8377; 12.47 lakhs. The assessee contended that the total payments made, along with another sister concern, amounted to &8377; 2.90 crores. The Tribunal found merit in the submissions but directed the AO to verify the details provided by the assessee before making a final determination. The appeal was treated as partly allowed for statistical purposes.

In conclusion, the Tribunal upheld the disallowance of advances written off due to lack of substantiation and directed further verification of credit card payment details before final assessment.