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2012 (8) TMI 41 - AT - Income TaxDisallowance of bad debts claimed - CIT(A) deleted the disallowance - Held that - Considering settled law by the decision rendered in the case of T. R. F. Ltd. Vs CIT 2010 (2) TMI 211 - SUPREME COURT that it is not necessary for the assessee to establish that debt to have become irrecoverable. Bad debts can be charged to the profit & loss account of the assessee if they are written off in the books of accounts of the assessee as irrecoverable - in favour of assessee. Addition on account of interest invoking section 14A - CIT(A) deleted the addition - Held that - From the chart imbedded in the assessment order & the balance sheet duly certified by the Chartered Accountants it is evident that the assessee s capital as on 01-04-2005 was Rs.96,58,043/- and as on 31-03-2005 was Rs.1,14,64,439 clearly established that the investment made by the assessee earning exempt income u/s 10(34) being either Rs.60,78,419/- or Rs.80,56,190/- flows from the own funds of the assessee being Rs.1,14,64,439/- as on the date of such investment - In such circumstances, disallowance u/s 14A made by the AO is not warranted because the assessee had made the investments from his own funds viz. Own Capital and not from the interest bearing funds - in favour of assessee. Addition on account of agricultural income - CIT(A) deleted the addition - Held that - CIT(A) has deliberated the issue in detail and after perusing the evidences produced before him has observed that the learned AO had made such addition of Rs.2,56,000/- merely on the basis of conjecture and surmises as AO had failed to make any inquiry on the submission of the assessee and disallowance was made on ad hoc basis - in favour of assessee.
Issues:
1. Disallowance of bad debts claimed by the assessee. 2. Addition of interest under section 14A of the Act. 3. Addition on account of agricultural income. Issue 1: Disallowance of bad debts claimed by the assessee: The assessee claimed bad debts amounting to Rs.7,46,308, which the AO disallowed as not established to be bad and irrecoverable. The CIT(A) deleted the addition, stating that the assessee had a long-standing business relationship with the debtor and had complied with the provisions of section 36(1)(vii). The Tribunal upheld the CIT(A)'s decision, citing the Supreme Court's ruling that bad debts can be written off if deemed irrecoverable in the books of accounts, regardless of the need to establish irrecoverability. The decision was based on legal principles and supported by relevant case law. Issue 2: Addition of interest under section 14A of the Act: The AO disallowed Rs.10,67,445 as interest under section 14A, considering the assessee's investments and borrowings. However, the CIT(A) overturned this decision, stating that the interest expenditure was mainly to earn interest income, and the nature of the business justified the interest payments. The Tribunal agreed with the CIT(A)'s analysis, noting that the investments were made from the assessee's own funds, not from interest-bearing funds. The decision was supported by detailed calculations and legal principles, leading to the dismissal of the revenue's appeal. Issue 3: Addition on account of agricultural income: The AO added Rs.2,56,000 as agricultural income due to lack of proper evidence for expenses. The CIT(A) reversed this decision, noting that the AO failed to inquire properly and made the addition on an ad hoc basis. The Tribunal upheld the CIT(A)'s decision, emphasizing that the addition was based on conjecture and surmises. The decision was supported by a thorough review of the evidence and the lack of proper inquiry by the AO, leading to the dismissal of the revenue's appeal. In conclusion, the Appellate Tribunal ITAT, Ahmedabad, delivered a comprehensive judgment addressing the issues of bad debt disallowance, interest addition under section 14A, and agricultural income addition. The Tribunal upheld the CIT(A)'s decisions on all counts, applying legal principles, case law, and detailed analysis to support its conclusions and dismiss the revenue's appeal in its entirety.
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