2011 (3) TMI 1652 - AT - Income Tax

Summary

Issues Involved:
1. Deduction of irrecoverable amounts in respect of running and terminated chits.
2. Taxability of foreman dividend.
3. Disallowance of finance charges.
4. Levy of interest u/s 234D & 234B.
5. Addition towards commission on removed chits.
6. Addition towards bad debts.
7. Addition of royalty payments.

Summary:

1. Deduction of Irrecoverable Amounts in Respect of Running and Terminated Chits:
The assessee's appeal concerns the disallowance of Rs. 38,52,87,420/- under 'bad debt', alternatively claimed u/s 28(1)/37(1) of the Act. The Assessing Officer (AO) argued that chit fund transactions do not create a debtor-creditor relationship, citing various court decisions. The AO restricted the bad debt claim to 5% of amounts due from prized subscribers, disallowing the remaining 95%. The CIT(A) allowed bad debts for terminated chits but set aside the matter of running chits to the AO for recomputation. The Tribunal upheld the CIT(A)'s order, directing the AO to re-compute bad debts for running chits as per earlier Tribunal directions.

2. Taxability of Foreman Dividend:
The CIT(A) upheld the taxability of foreman dividend at Rs. 10,59,45,915/-. The Tribunal dismissed the assessee's grounds, following its earlier decision in the assessee's own case reported in 83 ITD 792.

3. Disallowance of Finance Charges:
The assessee did not press these issues before the Tribunal, and thus, the grounds were dismissed as not pressed.

4. Levy of Interest u/s 234D & 234B:
These grounds were dismissed as they are mandatory and consequential in nature.

5. Addition Towards Commission on Removed Chits:
The CIT(A) did not appreciate the AO's addition towards commission on removed chits. The Tribunal, following its earlier decision, dismissed this ground taken by the Revenue.

6. Addition Towards Bad Debts:
The Tribunal found the Revenue's ground infructuous as it had already considered the CIT(A)'s order on this issue while deciding the assessee's appeal.

7. Addition of Royalty Payments:
The CIT(A) did not uphold the AO's addition of royalty payments. The Tribunal, following its earlier decision, dismissed the Revenue's ground and directed the AO to allow the assessee's claim.

Conclusion:
The assessee's appeal in ITA No.490/H/2010 is partly allowed, and the Revenue's appeal in ITA No.720/H/2010 is dismissed.