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2012 (5) TMI 234 - AT - Income TaxDisallowance of bad debts - It was submitted by the Ld. A.R. that now this issue is squarely covered in favour of the assessee by the judgement of Hon ble Apex Court rendered in the case of TRF Ltd. (2010 -TMI - 76626 - SUPREME COURT). Ld. D.R. supported the order of austerities below - there is no dispute regarding the compliance of the provisions of Section 36(2) of the act and the only objection of the A.O. was that the assessee has not established that the debts had become bad - Decided in favor of the assessee Regarding disallowance of car rent U/S 40A(2)(b) - it is noted by the A.O. in para 5.1 o the assessment order that the assessee was asked to prove reasonableness of payment made on account of vehicle rent but the assessee failed to offer any satisfactory explanation or any comparison of other person in this regard - Decided in favor of the assessee by way of remand to AO
Issues Involved:
1. Disallowance of bad debts. 2. Disallowance of car rent under Section 40A(2)(b). 3. Exclusion of bank interest and duty drawback for deduction under Section 80-IB. 4. Deduction of amount allowable under Section 80-IB for computing deduction under Section 80HHC. 5. Disallowance of office expenses. Detailed Analysis: 1. Disallowance of Bad Debts: The assessee challenged the addition of Rs. 75,000 as bad debts, arguing that as per the amended Section 36(1)(vii) of the Act effective from 1-4-1989, no evidence is required to prove that the debt had become bad, only that it should be written off in the accounts as irrecoverable. The Tribunal agreed with the assessee, citing the Supreme Court judgment in TRF Ltd. (323 ITR 397), which supports the view that writing off the debt in the books is sufficient. Consequently, the addition was deleted, and Ground No. 1 was allowed. 2. Disallowance of Car Rent under Section 40A(2)(b): The assessee contested the addition of Rs. 71,000 for the assessment year 2004-05 and Rs. 96,000 for the assessment year 2005-06, claiming that the payments were not excessive or unreasonable. The Tribunal noted that the CIT(A) had followed the Bombay High Court judgment in CIT vs Satrunjay Diamonds (261 ITR 258), which places the onus on the assessee to prove the reasonableness of the payment. The Tribunal decided to restore the matter back to the A.O. for a fresh decision, allowing the assessee an opportunity to establish the reasonableness of the payment. Ground No. 2 for the assessment year 2004-05 and Ground No. 1 for the assessment year 2005-06 were allowed for statistical purposes. 3. Exclusion of Bank Interest and Duty Drawback for Deduction under Section 80-IB: The assessee argued that interest on margin money deposits with the bank and duty drawback should be included for computing deduction under Section 80-IB. The Tribunal rejected this ground, noting that the Supreme Court judgments in Liberty India Ltd. (317 ITR 218) and CIT vs Sterling Foods Ltd. (237 ITR 579) were against the assessee's position. Thus, Ground No. 3 for the assessment year 2004-05 and Ground No. 2 for the assessment year 2005-06 were rejected. 4. Deduction of Amount Allowable under Section 80-IB for Computing Deduction under Section 80HHC: The assessee contended that the deduction under Section 80-IB should not be reduced from profits for computing deduction under Section 80HHC, as both provisions are independent. The Tribunal referred to the Bombay High Court judgment in Associated Capsules Pvt. Ltd. vs DCIT (332 ITR 42), which considered various decisions on this issue. The Tribunal restored the matter to the A.O. for a fresh decision in light of this judgment. Ground No. 4 for the assessment year 2004-05 was allowed for statistical purposes. 5. Disallowance of Office Expenses: For the assessment year 2005-06, the assessee challenged the addition of Rs. 62,410 out of office expenses, arguing that all expenses were incurred for business purposes and supported by vouchers. The Tribunal noted that the A.O. had made an ad-hoc disallowance due to a significant increase in expenses and the fact that most expenses were incurred in cash without proper vouchers. The Tribunal decided to restrict the disallowance to 50% of what was confirmed by the CIT(A), partially allowing Ground No. 3 for the assessment year 2005-06. Conclusion: Both appeals were partly allowed, with specific grounds being restored to the A.O. for fresh consideration and others decided based on existing judgments. The Tribunal provided a balanced approach by giving the assessee another opportunity to present their case while adhering to legal precedents.
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