2011 (4) TMI 1483 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of warranty costs.
2. Disallowance of telephone expenses.
3. Disallowance of traveling expenses.
4. Disallowance of stamp duty paid in cash u/s 40A(3).
5. Disallowance of prior period expenses.
6. Deletion of addition on account of bad debts.

Summary:

1. Disallowance of Warranty Costs:
The assessee claimed a provision for warranty costs amounting to Rs. 10,58,327/-. The AO disallowed this amount, considering it a contingent liability, as the assessee, being a trader and not a manufacturer, did not provide evidence of incurring such expenses. The Tribunal upheld the disallowance but allowed a partial relief, reducing the disallowance to Rs. 1,38,869/-, the actual amount debited to the profit and loss account.

2. Disallowance of Telephone Expenses:
The AO disallowed Rs. 56,102/- out of telephone expenses, which the CIT(A) reduced to Rs. 30,000/-. The Tribunal upheld the CIT(A)'s decision, noting that mobile phones used by the Director or employees could be for business purposes even if registered at different addresses.

3. Disallowance of Traveling Expenses:
The AO disallowed Rs. 2,00,000/- on a lumpsum basis without specific disallowable items. The Tribunal found the disallowance unjustified, considering the nature of the assessee's business and turnover, and deleted the disallowance.

4. Disallowance of Stamp Duty Paid in Cash u/s 40A(3):
The AO disallowed Rs. 29,045/- for cash payments exceeding the limit prescribed u/s 40A(3). The Tribunal remanded the issue back to the AO for re-examination, as the assessee claimed the expenditure was for stamp duty on a loan agreement, which was not explained earlier.

5. Disallowance of Prior Period Expenses:
The AO disallowed Rs. 7,236/- as prior period expenses. The Tribunal upheld the disallowance, noting that the assessee failed to establish that the liability for such expenses accrued during the relevant accounting year.

6. Deletion of Addition on Account of Bad Debts:
The CIT(A) deleted an addition of Rs. 5,72,626/- on account of bad debts. The Tribunal upheld this deletion, citing the Supreme Court's decision in T.R.F. Ltd. vs. CIT, which states that post-1-4-1989, it is sufficient if the bad debt is written off as irrecoverable in the accounts.

Conclusion:
The assessee's appeal was partly allowed, providing relief on some disallowances, while the Revenue's appeal was dismissed. The order was pronounced in Open Court on 29th April, 2011.