2011 (7) TMI 1294 - AT - Income Tax

Summary

Issues Involved:
1. Bad debts claim
2. Disallowance of expenses on account of venue management, venue expenses, professional fees, and stage decoration expenses
3. Disallowance of consultancy fees (technical)
4. Disallowance of Rs. 19,00,000/- paid to M/s Adulex Display Service in violation of Rule 46A

Summary:

1. Bad Debts Claim:
The Assessing Officer (AO) disallowed the claim of bad debts amounting to Rs. 12,39,357/- on the grounds that the assessee failed to satisfy the conditions laid down u/s 36(1)(vii) r.w.s 36(2) of the IT Act. The CIT(A) allowed the claim, but the revenue contested it, particularly pointing out that the amount related to Times Foundation was a refundable deposit and not a trade debt. The Tribunal, referencing the Supreme Court decision in TRF Ltd vs CIT, upheld the CIT(A)'s decision for items 1, 2, 4, and 5 but disallowed the claim for Times Foundation as it was not considered a debt.

2. Disallowance of Expenses:
The AO disallowed 10% of the venue management expenses, venue expenses, professional fees, and stage decoration expenses due to insufficient documentary evidence. The CIT(A) reduced this disallowance to 3%, considering that only 1% of similar expenses were disallowed in the subsequent assessment year. The Tribunal found no reason to interfere with the CIT(A)'s decision and dismissed the revenue's ground.

3. Disallowance of Consultancy Fees (Technical):
The AO disallowed Rs. 8,64,377/- out of the total Rs. 60,11,504/- debited under 'legal expenses', deeming it capital in nature. The CIT(A) allowed the claim, stating these were consultancy services for measuring market responses to advertisements and did not result in any new asset or enduring benefit. The Tribunal upheld the CIT(A)'s decision, finding no error or illegality.

4. Disallowance of Rs. 19,00,000/- Paid to M/s Adulex Display Service:
The AO disallowed Rs. 19,00,000/- paid to M/s Adulex Display Service due to the assessee's failure to furnish confirmation or supporting evidence. The CIT(A) allowed the claim based on confirmation produced during the appellate proceedings, which the revenue contested as a violation of Rule 46A. The Tribunal found that the CIT(A) admitted fresh evidence without recording reasons and without giving the AO an opportunity to examine it. Consequently, the Tribunal set aside the CIT(A)'s order on this issue and remanded it back to the AO for fresh examination.

Conclusion:
The appeal by the revenue was partly allowed, with the Tribunal upholding the CIT(A)'s decisions on bad debts (partially), expenses disallowance, and consultancy fees, but remanding the issue of Rs. 19,00,000/- paid to M/s Adulex Display Service back to the AO for reconsideration.