2021 (9) TMI 1022 - AT - Income Tax

Cessation of liability - contention of CIT(A) is that the assessee has not furnished any evidence to show that the amount was not transferred from appropriation account nor explained whether the appropriation account is created - HELD THAT - The evidence regarding the appropriation account and the Resolution of Board of Directors were not before the AO and CIT(A) - we find force in the arguments of the ld. AR and in view of the same, we deem it proper to remand the matter to the file of AO for its fresh verification. The assessee is liberty to file all evidences, if any, in support of its claim. AO shall afford reasonable opportunity of hearing to the assessee and pass order, in accordance with law. Demand drafts not paid more than three years - We note that from the record that pay orders and demand drafts were not claimed by the parties within relevant time as explained by the AO and in our opinion, it becomes the income of the assessee. There is no evidence to show that the amounts were paid or adjusted by the assessee which clearly shows the assessee recognized the said amounts as income of the assessee. Therefore, since, the said amount has been accepted by the assessee as income in its accounts again remanding the issue to the AO does not arise at all. We find no infirmity in the order of CIT(A). Accordingly, it is justified. Cessation of liability on account of Gratuity - AR requested to remand this matter to the file of AO for its fresh adjudication. The ld. DR did not report any objection for remanding this issue to the file of AO. Accordingly, we direct the AO to examine the issue in detail and the assessee is liberty to file evidences, if any in support of its claim. Thus, ground Nos. 1 and 4 raised by the assessee are allowed for statistical purpose. Disallowance u/s 14A r.w.r. 8D - HELD THAT - It should be presumed that the investments were made from interest free funds i.e. capital funds held by the assessee. Thus, the interest expenditure as computed by the AO under Rule 8D(2)(ii) to an extent of ₹ 17,90,540/- is not permissible. Thereupon, the only disallowance remains for our consideration is the disallowance made under Rule 8D(2)(iii) to an extent of ₹ 2,25,000/-, in our opinion, is justified. Accordingly, we confirm the addition to that effect made under Rule 8D(2)(iii) of Rules and the order of CIT(A) is set aside. Thus, ground No. 2 raised by the assessee is partly allowed. Addition u/s 36(1)(vii)(a) - AO and CIT(A) held when there was no provision made for bad and doubtful debts in the account of assessee the claim made therein is not allowable - HELD THAT - There is no dispute with regard to provision made under standard assets, to claim a deduction u/s. 36(1)(vii a) of the Act requires creation of provision as a mandatory pre-condition for claiming deduction under statute. Therefore, when the assessee has not claimed separate deduction on standard assets, in our opinion, the assessee is entitled to claim deduction u/s. 36(1)(vii a) of the Act to the extent as the provision made under standard assets. Thus, the AO is directed to give deduction to the extent of ₹ 10 lakhs as against the deduction claimed ₹ 42,26,631/-. Ground raised by the assessee is allowed for statistical purpose.

Summary

Issues Involved:
- Cessation of liability on account of Emergency fund
- Cessation of liability on account of demand drafts not paid for more than three years
- Cessation of liability on account of Gratuity
- Addition made on account of section 14A r.w. Rule 8D of the Rules
- Confirmation of the order of AO on account of section 36(1)(viia) of the Act

Cessation of Liability on Account of Emergency Fund:
The AO found that the assessee increased reserves and surplus by transferring funds, considering it a cessation of liability. The CIT(A) partially relieved the assessee from the additions. The Tribunal noted that the Board of Directors resolved to transfer an amount to the emergency fund, which was not debited to the profit and loss account, indicating it was out of taxable profit. As the evidence regarding the appropriation account was not before the lower authorities, the matter was remanded to the AO for fresh verification, allowing the assessee to submit supporting evidence.

Cessation of Liability on Account of Demand Drafts Not Paid for More Than Three Years:
Regarding the demand drafts not paid for over three years, the AO treated the amount as income since there was no evidence provided. The Tribunal observed that the amounts were not claimed by the parties within the relevant time, indicating the income of the assessee. As the assessee recognized the amounts as income in its accounts, remanding the issue was deemed unnecessary, and the order of the CIT(A) was upheld.

Cessation of Liability on Account of Gratuity:
Concerning the cessation of liability on account of Gratuity, the Tribunal directed the AO to examine the issue thoroughly as there was no documentary evidence supporting the assessee's claim. The matter was remanded to the AO for fresh adjudication, allowing the assessee to present additional evidence.

Addition Made on Account of Section 14A r.w. Rule 8D of the Rules:
The AO disallowed an amount under Rule 8D(2) related to exempt income from mutual funds. The CIT(A) restricted the disallowance to the extent of exempt income. The Tribunal held that investments were made from interest-free funds, and only a partial disallowance under Rule 8D(2)(iii) was justified, confirming the addition made under this rule.

Confirmation of the Order of AO on Account of Section 36(1)(viia) of the Act:
Both the AO and CIT(A) disallowed the claim made under section 36(1)(viia) as no provision was made for bad and doubtful debts. The Tribunal allowed the deduction to the extent of the provision made under standard assets, directing the AO to grant a deduction of the specified amount. The ground raised by the assessee was allowed for statistical purposes.

Conclusion:
The appeal of the assessee was partly allowed for statistical purposes, with various issues addressed and decisions made on each specific matter. The Tribunal provided detailed reasoning for each issue, ensuring a comprehensive analysis and resolution based on the facts and legal provisions presented during the proceedings.