2017 (1) TMI 764 - AT - Income Tax

Disallowance of advances and bad debts written off - Held that - We find that the assessee had written off certain amounts in its P&L account,that the AO had called for details in that regard, in its reply the assessee had filed details about the bad debts/advances written off and nature of the expenditure in dispute,that the AO did not make any enquiry and did not consider the reply while finalising the assessment,that general comments were made by AO in the assessment order,that the FAA had simply endorsed the view of AU without considering the judgments relied upon by the assessee. In these circumstances we are of the opinion that the issue needs further verification and investigation. Therefore, in the interest of justice we are restoring back the issue to the file of AO for fresh adjudication Disallowance on non deduction of TDS u/s. 195 - assessee had argued that the payments were reimbursement,that no deduction was to be made with regard to the reimbursement payments - Held that - Considering the fact that payments in question were reimbursements, we reverse the order of the FAA and decide the issue in favour of the assessee.

Summary

Issues:
1. Disallowance of advances and bad debts written off.
2. Disallowance on account of non-deduction of TDS u/s. 195 of the Act.
3. Mistakes apparent from the record not rectified by the AO.

Issue 1: Disallowance of advances and bad debts written off:

The assessee, a company engaged in various maritime activities, filed an appeal challenging the assessment by the AO, which included disallowance of advances and bad debts written off totaling ?4.91 lakhs. The AO held that these amounts were not offered as income in earlier years and did not fulfill conditions specified under the Act. The FAA upheld the AO's decision, stating that the assessee failed to provide evidence that the losses had crystallized during the relevant year. However, the ITAT found that further verification and investigation were needed. The issue was remanded back to the AO for fresh adjudication, directing a reasonable opportunity of hearing to the assessee. The first ground of appeal was decided in favor of the assessee in part.

Issue 2: Disallowance on account of non-deduction of TDS u/s. 195 of the Act:

The AO disallowed ?69.90 lakhs for non-deduction of TDS on payments made to non-resident companies/firms, considering them as royalty payments. The FAA upheld this disallowance, stating that the assessee should have obtained a certificate for non-deduction of tax at source. The ITAT, however, reversed the FAA's decision, noting that the payments were reimbursements and not subject to TDS. Referring to relevant case law, the ITAT found that the retrospective amendment to section 40(a)(i) was not applicable in this case. The issue was decided in favor of the assessee.

Issue 3: Mistakes apparent from the record not rectified by the AO:

The AR pointed out factual mistakes in the calculations and tax credits by the AO. The ITAT directed the AO to rectify these errors after verification and hearing the assessee, allowing this ground of appeal in favor of the assessee.

In conclusion, the ITAT's judgment partially favored the assessee by remanding one issue back to the AO for further adjudication, reversing a disallowance related to TDS, and allowing rectification of mistakes in the assessment calculations. The detailed analysis of each issue highlights the complexities involved in the assessment process and the importance of providing sufficient evidence and complying with legal provisions.