2015 (2) TMI 1033 - AT - Income Tax

Write off of bad debts in respect of export sales disallowed - CIT(A) giving relief of ₹ 24,57,522/- on account of bad debts - Held that - Disallowance of bad debts is to be allowed in the present year because it is not in dispute that debits were written off in the present year. Regarding the objection of the Assessing Officer that these bad debts are in respect of export sales, we are of the considered opinion that in consequence to the claim of the assessee regarding write off of bad debts in respect of export sales, it has to be seen as to whether such sale was considered for the purpose of allowing deduction u/s 80HHC in the year of sale. Normally export sales are reduced by the amount of sale, which was not realized within the prescribed period. Still we feel that in the interest of justice, the Assessing Officer should look into this aspect and examine the details of the year of sale for which debts were created and now written off. The assessee should furnish these details before the Assessing Officer and Assessing Officer should thereafter allow deduction to the assessee in the present year in respect of write off of bad debts but consequently, he should examine the assessment of the concerned year in which the sale took place and for that year, the assessee should establish that these unrealized sales were not included in the export sales for the purpose of computing deduction u/s 80HH- Decided in favour of revenue for statistical purposes. Disallowance u/s 14A - CIT(A) deleted the addition - Held that - Disallowance of interest expenditure of ₹ 7,57,380/- does not survive and in respect of disallowance out of administrative expenses, we feel that the disallowance was worked out by the Assessing Officer under Rule 8D to the extent of 0.5% of the average investments. As per the judgment of Hon'ble Bombay High Court rendered in the case of Godrej & Boyce Mfg. Co. Ltd. (2010 (8) TMI 77 - BOMBAY HIGH COURT), reasonable disallowance can be made before insertion of Rule 8D and in our considered opinion, disallowance of ₹ 50,000/- is reasonable in the facts of the present case. We, therefore, uphold the disallowance u/s 14A to the extent of ₹ 50,000/- and balance disallowance is deleted. - Decided partly in favour of revenue. Non serving of notice u/s 143(2)on the assessee within the prescribed time - Held that - We find that prior to 01/04/2008, the time available for serving notice u/s 143(2) was 12 months from the end of the month in which return is furnished. In the present case, return was filed on 31/10/2005 and therefore, time was available upto 30th September, 2006 for serving notice u/s 143(2). As per the assessment order, such notice u/s 143(2) was issued on 13/09/2006 and the same was duly served on the assessee. - Decided against assessee. Disallowance of vehicle running expenses - Held that - As relying on Sayaji Iron and Engg. Co. vs. CIT 2001 (7) TMI 70 - GUJARAT High Court no disallowance is called for in the case of a company on the basis that there was personal user of vehicles. Even if there is personal use of vehicles by the Directors of the company then the value thereof can be added in the perquisites of the concerned director but no disallowance can be made in the hands of the company. - Decided in favour of assessee. Exclusion of Duty Draw Back from the computation of eligible profit for the purposes of relief under section 80IB - Held that - This issue is now squarely covered against the assessee by the judgment of Hon'ble Apex Court rendered in the case of Liberty India vs. CIT 2009 (8) TMI 63 - SUPREME COURT wherein held Duty drawback receipt/DEPB benefits do not form part of the net profits of eligible industrial undertaking for the purposes of Sections 80I/80-IA/80-IB of the 1961 Act - Decided against assessee. Short deduction allowed by the Assessing Officer u/s 80G - Held that - As per the assessment order, we find that it is noted by the Assessing Officer that regarding the claim of ₹ 15 lac related to Shyam Behari Mishra Memorial Charitable Trust, no details have been filed by the assessee and therefore, the Assessing Officer has not allowed the claim of the assessee for deduction u/s 80G in respect of this amount of ₹ 15 lac. Neither before CIT(A) nor before us, any detail has been furnished by the assessee and therefore, on this issue, we do not find any merit in the grounds raised by the assessee - Decided against assessee.

Summary

Issues Involved:
1. Disallowance of bad debts.
2. Addition under Section 14A.
3. Validity of assessment proceedings.
4. Disallowance of vehicle running expenses.
5. Exclusion of Duty Draw Back from computation of eligible profit for deduction under Section 80IB.
6. Short allowance of deduction under Section 80G.

Issue-wise Detailed Analysis:

1. Disallowance of Bad Debts:
The Revenue's appeal for the assessment year 2005-06 challenged the relief of Rs. 24,57,522/- granted by CIT(A) on account of bad debts. The Assessing Officer (AO) had disallowed the write-off of bad debts, arguing that the assessee failed to provide sufficient evidence that the debts had become irrecoverable. The CIT(A) allowed the deduction based on Section 36(1)(vii) of the Income Tax Act, which permits bad debt claims in the year of write-off. The Tribunal agreed with CIT(A) but remanded the case back to the AO to verify if the unrealized export sales were excluded from the computation of deduction under Section 80HHC in the year of sale. The Tribunal allowed the Revenue's ground for statistical purposes.

2. Addition under Section 14A:
The Revenue's appeal for the assessment year 2005-06 contested the deletion of Rs. 9,38,132/- made under Section 14A by CIT(A). The AO had made the disallowance as per Rule 8D, which was not applicable for that assessment year. The Tribunal upheld CIT(A)'s decision, noting that Rule 8D was applicable from the assessment year 2008-09. The Tribunal reduced the disallowance to Rs. 50,000/- for administrative expenses, considering it reasonable before the insertion of Rule 8D. The Revenue's appeal was partly allowed.

3. Validity of Assessment Proceedings:
The assessee's Cross Objection for the assessment year 2005-06 argued that the AO lost jurisdiction to make the assessment under Section 143(3) as the notice under Section 143(2) was not served within the prescribed time. The Tribunal found no merit in this ground, as the notice was issued and served within the stipulated period. The assessee's ground was rejected.

4. Disallowance of Vehicle Running Expenses:
The assessee's Cross Objection for the assessment year 2005-06 contested the disallowance of Rs. 5,12,925/- for vehicle running expenses on the grounds of personal use. The Tribunal, relying on the Gujarat High Court judgment in Sayaji Iron and Engg. Co. vs. CIT, held that no disallowance is justified for personal use by directors in the case of a company. The assessee's ground was allowed.

5. Exclusion of Duty Draw Back from Computation of Eligible Profit for Deduction under Section 80IB:
The assessee's Cross Objection for the assessment year 2005-06 and appeals for the assessment years 2006-07 and 2007-08 challenged the exclusion of Duty Draw Back from the computation of eligible profit for deduction under Section 80IB. The Tribunal, following the Supreme Court judgment in Liberty India vs. CIT, held that Duty Draw Back is not derived from business and thus not eligible for deduction under Section 80IB. The assessee's grounds were rejected.

6. Short Allowance of Deduction under Section 80G:
The assessee's appeal for the assessment year 2006-07 raised the issue of short allowance of deduction under Section 80G. The AO had disallowed the claim due to the lack of details provided by the assessee. As no details were furnished before CIT(A) or the Tribunal, the Tribunal found no merit in the assessee's ground and rejected it.

Combined Result:
The appeals of the Revenue for both years and the Cross Objection of the assessee for the assessment year 2005-06 were partly allowed. The remaining appeals of the assessee were dismissed.