2009 (7) TMI 178 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of medical expenses reimbursed to employees.
2. Taxability of write back of provision for bad debts.
3. Adjustments in income under s. 143(1)(a) of the IT Act, 1961.

Summary:

Issue 1: Disallowance of Medical Expenses Reimbursed to Employees

In ITA No. 480/Cal/2000, the assessee challenged the disallowance of Rs. 15,04,407 on account of medical expenses reimbursed to employees. The AO disallowed these expenses due to payments to unapproved hospitals and lack of medical bills for reimbursements to clerical staff. The CIT(A) upheld the AO's decision. The assessee argued that the reimbursements were made as per a settlement with the employees' union and were necessary for maintaining industrial harmony. The Tribunal remitted the matter back to the AO to reconsider in light of CIT vs. Kasturi Mills Ltd., emphasizing that expenses incurred out of commercial expediency under a settlement contract are allowable business expenditures.

Issue 2: Taxability of Write Back of Provision for Bad Debts

In ITA No. 597A/Cal/2002, the Department contended that the write back of provision for bad debts of Rs. 1,02,49,536 should be taxable as business income since a deduction had been allowed u/s 36(1)(viia). The AO maintained the addition, but the CIT(A) directed deletion, holding that the write back could not be taxed as income in the absence of a specific provision in the Act. The Tribunal upheld the CIT(A)'s decision, stating that the write back of provisions for bad and doubtful debts is not taxable as there is no specific provision in the Act for such taxation, and the Department failed to show that the allowance or deduction was allowed in earlier years.

Issue 3: Adjustments in Income u/s 143(1)(a) of the IT Act, 1961

In ITA No. 1249/Cal/1997, the assessee appealed against adjustments of Rs. 4,45,499 made in the income returned under s. 143(1)(a), arguing that as per Article 7(3) of the DTAA between India and Japan, such expenses are allowable. The CIT(A) upheld the adjustments, but the Tribunal found the issue debatable and not amenable to adjustment under s. 143(1)(a). Therefore, the Tribunal accepted the assessee's grievance regarding the adjustments.

Conclusion:

Appeal Nos. 480/Cal/2000 and 1249/Cal/1997 filed by the assessee are partly allowed, and Appeal No. 597/Cal/2002 filed by the Department is dismissed.