2012 (6) TMI 849 - AT - Income Tax

Summary

Issues involved: Revenue appeal against CIT (A) order regarding allowance of business expenses, treatment of income from bad debts and miscellaneous income, and addition on account of gratuity write back.

Business Expenses:
The Revenue contended that business expenses of `.28,33,628/- should not be allowed as there was no business in existence during the year due to SEBI's debarment order. The AO disallowed the expenditure claimed toward business expenses. However, the CIT (A) allowed the expenditure, stating that there was only a temporary suspension of business and no actual closure or discontinuation. The Tribunal upheld the CIT (A) decision, noting that the business was ultimately closed after SEBI orders were upheld by judicial authorities. The suspension of business was considered temporary for the assessment year in question.

Income from Bad Debts and Miscellaneous Income:
The Revenue argued that income from bad debts written back and miscellaneous income should be treated as "income from other sources" instead of business income, as there was no business in existence during the year. The AO had taxed these amounts under "income from other sources" without providing a reason. The CIT (A) analyzed the nature of the income and concluded that they should be taxed as business income under section 41(1) of the Income Tax Act. The Tribunal agreed with the CIT (A) decision, stating that just because these amounts were shown as "other income" in the company's account, they could not be categorized as "income from other sources."

Gratuity Write Back:
The Revenue challenged the deletion of the addition on account of gratuity write back at `.2,29,929/- as "income from other sources" by the CIT (A). The CIT (A) observed that the gratuity amount was not allowed as expenditure in earlier years, so the write back of the same should not be considered as income. The Tribunal upheld the CIT (A) decision, stating that the provisions of section 41(1) were not applicable to the facts of the case regarding the gratuity amount.

Conclusion:
The Tribunal dismissed the Revenue's appeal, upholding the CIT (A) order regarding the allowance of business expenses, treatment of income from bad debts and miscellaneous income, and addition on account of gratuity write back. The Tribunal found no reason to interfere with the CIT (A) decisions, as there was only a temporary suspension of business and the income in question should be taxed as business income under section 41(1) of the Income Tax Act.