2002 (10) TMI 46 - HC - Income Tax

Claim for deduction of the payment of advertisement charges made by the appellant due to the default committed by its customers - The appellant had not included the advertisement charge received from the customers in the books of account maintained by it. It only disclosed the commission received on such advertisements. There is also no material or evidence to show that the customers from whom the advertisements are received have not paid any portion of the advertisement charges or that the appellant had paid advertisement charges in respect of such advertisements to the newspapers. There is also material to show that the payments if any had been made during the accounting period relevant to the assessment year in question. In the above circumstances so far as the claim is concerned it is not possible for us to say that the authorities and the Tribunal had erred in disallowing the claim for Deduction of the payment of advertisement charges made by the appellant due to the default committed by its customers.

Issues:
- Deduction of bad debts under section 37 of the Income-tax Act, 1961 for the assessment year 1992-93.

Analysis:
The appellant, a private limited company engaged in advertising business, claimed a deduction of Rs. 13,28,380 under section 37 of the Income-tax Act, 1961, representing bad debts for the assessment year 1992-93. The appellant maintained accounts only for the commission received from the business, not for the advertisement charges. The appellant contended that since customers had not paid the advertisement charges in certain cases, resulting in irrecoverable bad debts, the deduction should be allowed. The senior counsel for the appellant argued that the authorities did not dispute the fact that the appellant made such payments, but the claim was rejected on the grounds of non-disclosure of advertisement charges in the books of account. The appellant also argued that turnover of advertisement charges was not considered for special audit under section 44AB of the Act. On the other hand, the senior counsel for the respondents argued that without evidence of non-payment by customers or proof of payment by the appellant, the rejection of the claim by the authorities and the Tribunal was justified.

The High Court observed that the appellant had not included the advertisement charges received from customers in its maintained accounts, recording only the commission received. There was no evidence to show that customers had not paid the advertisement charges or that the appellant had paid the charges to the newspapers. Additionally, there was no proof that any payments, if made, were during the relevant accounting period. Consequently, the Court found that the authorities and the Tribunal were justified in disallowing the claim for deduction of payment of advertisement charges due to customer default. The Court concluded that no substantial question of law arose in this situation, leading to the dismissal of the appeal.

In summary, the High Court upheld the decision to disallow the deduction claimed by the appellant for bad debts under section 37 of the Income-tax Act, 1961 for the assessment year 1992-93. The appellant's failure to record advertisement charges in their accounts and lack of evidence regarding non-payment by customers or payment by the appellant led to the rejection of the claim. The Court found no error in the decision of the authorities and the Tribunal, ultimately dismissing the appeal due to the lack of merit in the appellant's arguments.

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