2010 (8) TMI 968 - AT - Income Tax

Summary

Issues involved: Appeal against order relating to A.Y. 2003-04 - Addition of interest free loans and advances - Addition on account of traveling expenses - Addition on account of bad debts.

Issue 1: Addition of interest free loans and advances

The Assessing Officer disallowed the interest payment deduction on interest free loans given to sister concerns/ex-partners, stating that borrowed funds were diverted as interest free loans and hence proportionate interest expenses should be disallowed. The Assessing Officer added back the sum of &8377; 86,80,915/- to the total income of the assessee. On appeal, the learned CIT(A) confirmed the order. However, the Tribunal set aside the order of the learned CIT(A) and remanded the issue to the Assessing Officer for fresh consideration to verify if the interest free loans were given out of commercial expediency and if there were enough interest free surplus funds available.

Issue 2: Addition on account of traveling expenses

The assessee claimed traveling expenses of &8377; 11,17,061/-, out of which &8377; 8,73,192/- represented foreign traveling expenses. The Assessing Officer disallowed this claim as the assessee failed to provide evidence that these expenses were incurred in connection with the business. The learned CIT(A) upheld the decision. The Tribunal confirmed the order of the learned CIT(A) as the assessee could not substantiate that the foreign traveling expenses were wholly and exclusively incurred for the business.

Issue 3: Addition on account of bad debts

The assessee had written off &8377; 16,44,563/- as bad debts. The Assessing Officer disallowed this deduction, stating that the assessee failed to prove that the debts had become bad and irrecoverable. The learned CIT(A) confirmed this decision. The Tribunal, referring to a Supreme Court judgment, held that it is not necessary for the assessee to establish the irrecoverability of bad debts, but the debts must be written off as irrecoverable in the accounts. The issue was remanded to the Assessing Officer to verify if the debts were shown as income in any previous assessment year.

In conclusion, the Tribunal partly allowed the appeal for statistical purposes, remanding certain issues back to the Assessing Officer for fresh consideration.