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2014 (12) TMI 297 - AT - Income TaxInterest paid to bank disallowed – Applicability of section 43B - merger of non-scheduled bank with scheduled bank - Held that:- The loan from Global Trust Bank was taken sometime in 2001 and since then the assessee has been debiting its Profit & Loss Account by the amount of interest payable on the borrowings - in earlier years the liability has been considered and accepted as towards interest - For the first time the AO has changed the character of the liability from “interest” to “dividend” which is against the rule of consistency - The AO himself has observed that no fresh loans have been taken during the year under consideration - the AO cannot change the nature of liability during the year under consideration – also, the contention of assessee cannot be accepted that the liability is not towards a scheduled bank because the amount has been borrowed from Global Trust Bank - when a bank is taken over by some other bank then all the borrowers of the erstwhile bank have to enter into fresh loan agreement with the new bank - once the Global Trust Bank has been merged with Oriental Bank of Commerce the borrowings of the assessee has to be considered as borrowings from Oriental Bank of Commerce and Oriental Bank of Commerce is a scheduled bank, therefore provisions of section 43B clearly apply on the facts of the case - The disallowance of ₹ 3.25 crores made under section 43B of the Act is confirmed - in subsequent years, i.e. AY 2007-08 the bank has waived the loan and the liability of interest and the assessee has shown the same as its income in AY 2007-08 - If the AO finds that the same has been offered for taxation in AY 2007-08 then the same must be considered as per provisions of law – Decided against assessee. Transfer pricing adjustment – Computation of ALP - Application of most appropriate method – CUP method or TNMM method – Held that:- Following the decision in Dy. Commissioner of Income Tax Versus Trigyn Technologies Limited [2013 (8) TMI 701 - ITAT MUMBAI] - the assessee was having total international transactions with the AE of more than ₹ 5 crores, AO made reference to TPO u/s 92CA(1) for computation of Arm's Length Price (ALP) of the international transaction u/s 92C – assessee contended that the TPO adopted TNMM and selected certain comparables to arrive at arithmetic mean of 9.92 % as against CUP method selected by assessee for determining ALP - international transaction of assessee with its AE are at ALP and accordingly deleted the addition made on account of transfer pricing adjustment - the issue requires reconsideration by TPO and therefore the matter is remitted back to the AO for determination of ALP – Decided in favour of assessee. Allowability of provision for doubtful debts u/s 36(1)(vii) – Held that:- The facts indicates that the assessee has actually written off the debts – following the decision in M/s. Vijaya Bank Versus Commissioner of Income Tax & Anr. [2010 (4) TMI 46 - SUPREME COURT] - any bad debt written off as irrecoverable in the account of the assessee will not include any provision for bad and doubtful debt made in the accounts of the assessee - a mere provision for bad debt would not be entitled to deduction u/s 36(1)(vii) - If an assessee debits an amount of doubtful debt to the P&L a/c and credits the asset account like sundry debtor’s account, it would constitute a write off of an actual debt - the amount of loans and advances or the debtors at the year-end in the balance sheet is shown as net of the provisions for impugned debt - it is always open to the AO to call for details of individual debtor’s account if the AO has reasonable grounds to believe that assessee has claimed deduction, twice over - were a deduction has been allowed in respect of a bad debt or a part thereof u/s 36(1)(vii), then, if the amount subsequently recovered on any such debt is greater than the difference between the debt and the amount so allowed, the excess shall be deemed to be profits and gains of business and, accordingly, chargeable to income-tax as the income of the previous year in which it is recovered – Decided against revenue.
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