2010 (9) TMI 1202 - AT - Income Tax

Summary

Issues Involved:
1. Deletion of addition on account of bad debts claimed.
2. Deletion of addition by holding waived loan as capital receipt.
3. Deletion of addition on account of gross profit difference.

Summary:

1. Bad Debts Claim:
The Revenue contended that the CIT(A) erred in deleting the addition of Rs. 6,76,780/- made on account of bad debts claimed in respect of M/s Packwell without considering that there was no amount outstanding as on 1.4.04. The AO observed that the amount was transferred to M/s Punch & Pack, making them responsible for collection. However, the CIT(A) allowed the claim, holding it as a bad debt u/s 36. The Tribunal upheld the CIT(A)'s decision, referencing the Supreme Court's ruling in T.R.F. Ltd. Vs CIT 323 ITR 397, stating that it is sufficient if the bad debt is written off in the accounts of the assessee.

2. Waived Loan as Capital Receipt:
The Revenue argued that the CIT(A) erred in deleting the addition of Rs. 29,12,304/- by holding it as a capital receipt, not liable to tax, despite the AO's stance that the waived loan by GSFC should be treated as a revenue receipt u/s 41(1). The CIT(A) held the receipt as capital in nature. The Tribunal supported the CIT(A)'s decision, citing various precedents, including Chief CIT Vs. Kesaria Tea Co. Ltd. 254 ITR 434 (SC) and CIT v. Chetan Chemicals Pvt. Ltd. [2004] 267 ITR 0770 (Guj), which clarified that for u/s 41(1) to apply, the liability must have been allowed as a deduction in earlier years, which was not the case here.

3. Gross Profit Difference:
The Revenue contended that the CIT(A) erred in deleting the addition of Rs. 29,81,671/- on account of gross profit difference, arguing that the assessee inflated certain expenditures post-survey to nullify additional income disclosure. The AO found discrepancies in the primary records and rejected the books, applying the pre-survey GP rate to post-survey sales. The CIT(A) deleted the addition, noting the variations were less than 1%. However, the Tribunal upheld the AO's decision, confirming the application of the same profit rates to post-survey period sales due to the lack of satisfactory explanation for lower profits in the post-survey period.

Conclusion:
The appeal of the Revenue was partly allowed, with the Tribunal upholding the AO's decision on the gross profit difference while rejecting the Revenue's grounds on bad debts and waived loan as capital receipt. The order was pronounced in open Court on 30/9/10.