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2020 (6) TMI 533 - AT - Income TaxAddition being provision for bad debts and doubtful debts written back - computation of income on account of 'reversal of provision for bad doubtful debts of earlier years' - HELD THAT - We note ld DRP is higher authority, therefore AO ought to follow the direction of ld DRP. We note that AO had neither follow the directions of ld DRP nor he had examined the submissions, documents and details filed by the assessee in right perspective, as noted above. Therefore, we direct the AO to examine the assessee s claim in respect of provisions for bad and doubtful debts and adjudicate the issue in accordance to law. Disallowance under section 14A read with Rule 8D(2)(iii) - HELD THAT - Assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld DRP/AO and other materials brought on record. We note that issue raised by the assessee is no linger res integra. The Coordinate Bench of Kolkata ITAT in the case of REI Agro Ltd. vs. DCIT 2013 (9) TMI 156 - ITAT KOLKATA has held that only dividend bearing securities should be considered for the purpose of disallowance under rule 8D(2) (iii) of the Income Tax Rules. Only dividend bearing securities should be considered for disallowance under rule 8D(2)(iii) of the I.T. Rules. Therefore, we direct the assessing officer to compute the disallowance under Rule 8D(2)(iii) of the Rules by taking into account dividend bearing securities only. For statistical purposes, the grounds raised by the assessee are allowed. Ad hoc additions on account of entertainment expenses and on account of Seminars/conferences made by ld DRP/AO are directed to be deleted - HELD THAT - There is no material on record to show that any part of these expenses were incurred for non-business purposes.We note that assessee s books of accounts are audited by Chartered Accountant. The reports of the auditors could be said to be material on which reliance could be placed by the IT authorities. The IT authorities not only to accept the auditors' report, but also to draw the proper inference from the same. Here in assessee s case, the DRP/ AO has not passed any order u/s 144 of the Act. The DRP/ AO thus without rejecting the books of account of the assessee has gone for estimation on suspicion and conjectures that the assessee may be inflating its expenses. It may be pertinent to mention here that there was no material on record to show that any part of the these expenditures were not for the purpose of business. Therefore, the ad hoc additions on account of entertainment expenses and on account of Seminars/conferences made by ld DRP/AO are directed to be deleted. Disallowance incurred towards purchase of software by wrongfully holding that the said expense related to preceding assessment year - HELD THAT - We direct the AO to examine the submission of the assessee and documents /invoices involved in these submissions, as noted above, and adjudicate the issue in accordance to law. For statistical purposes, the ground raised by the assessee is allowed. Foreign tax credit (FTC) - foreign tax credit for the taxes paid in United states of America (USA) on the doubly taxed income in accordance with the provisions of section 90/91 - said claim could not be made at the time of filing of the Return of income as the payment of taxes in USA was not made till that time - HELD THAT - Revenue also fairly agreed that foreign tax credit (FTC) may be allowed to the assessee in accordance to law. Therefore, we direct the assessing officer to examine the correctness of the assessee s claim for foreign tax credit (FTC), as per India USA-Treaty, and allow the claim of the assessee in accordance to law. For statistical purposes, the ground raised by the assessee is allowed. Credit of TDS - HELD THAT - We direct the assessing officer to give TDS credit as claimed in the revised return of income filed by the assessee on 31st March 2016 in accordance to law.
Issues Involved:
1. Disallowance of provision for bad debts and doubtful debts. 2. Disallowance under section 14A read with Rule 8D(2)(iii). 3. Ad hoc disallowance of entertainment expenses. 4. Ad hoc disallowance of seminar and conference expenses. 5. Disallowance of software purchase expenses. 6. Rejection of foreign tax credit claim. 7. Short grant of tax deducted at source (TDS) credit. Issue-wise Detailed Analysis: 1. Disallowance of Provision for Bad Debts and Doubtful Debts: The assessee claimed a reversal of provision for bad and doubtful debts amounting to ?1,17,57,533/-. The Assessing Officer (AO) disallowed this claim, alleging insufficient documentary evidence. The Dispute Resolution Panel (DRP) directed the AO to verify the claim, but the AO failed to do so and made the addition. The Tribunal noted that judicial discipline demands adherence to higher authorities' directions and directed the AO to examine the claim and adjudicate accordingly. 2. Disallowance under Section 14A read with Rule 8D(2)(iii): The AO disallowed ?8,20,500/- under section 14A, which was upheld by the DRP. The Tribunal referenced the REI Agro Ltd. case, stating only dividend-bearing securities should be considered for disallowance. The AO was directed to recompute the disallowance under Rule 8D(2)(iii) by considering only dividend-bearing securities. 3. Ad Hoc Disallowance of Entertainment Expenses: The AO proposed a 50% ad hoc disallowance of entertainment expenses, which the DRP reduced to 15%. The Tribunal found no basis for ad hoc disallowance without rejecting the books of accounts. It referenced the National Industrial Corp. Ltd. case, emphasizing that disallowance should be specific and not arbitrary. The Tribunal directed the deletion of the ad hoc disallowance. 4. Ad Hoc Disallowance of Seminar and Conference Expenses: The AO proposed a 25% ad hoc disallowance of seminar and conference expenses, which the DRP reduced to 10%. The Tribunal reiterated that ad hoc disallowances without rejecting the books of accounts are arbitrary. It referenced the Jay Engineering Works Ltd. case, emphasizing that disallowance should be based on specific instances. The Tribunal directed the deletion of the ad hoc disallowance. 5. Disallowance of Software Purchase Expenses: The AO disallowed ?13,90,869/- for software purchases, claiming the expense did not pertain to the year under consideration. The DRP directed the AO to verify the claim. The Tribunal upheld the DRP's direction, instructing the AO to verify the invoices and allow the claim if it pertains to the relevant year. 6. Rejection of Foreign Tax Credit Claim: The assessee claimed foreign tax credit (FTC) for taxes paid in the USA, which was rejected by the AO for not being claimed at the time of filing the return. The Tribunal referenced Rule 128 of the Income Tax Rules and the TCG Lifesciences Pvt. Ltd. case, directing the AO to verify the FTC claim and allow it as per the law. 7. Short Grant of TDS Credit: The assessee claimed a TDS credit of ?73,17,90,335/- but was granted only ?23,48,66,831/-. The Tribunal directed the AO to grant the TDS credit as claimed in the revised return of income. Conclusion: The appeal was partly allowed for statistical purposes, with directions to the AO to re-examine several claims and adhere to the legal precedents and directions provided by higher authorities. The Tribunal emphasized the importance of judicial discipline and specific disallowances over arbitrary ad hoc methods.
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