2013 (12) TMI 631 - AT - Income Tax

Disallowance of writing off of deposits with debtors The deposits relate to the business which has been closed down and sold off - These are generally deposits with statutory authorities - Others are in relation to other than Government authorities also - Held that - Following G.R.Pandya Share Broking Ltd. vs. ITO 2008 (9) TMI 612 - ITAT MUMBAI If the amounts receivable from the Government authorities are taxable as income then such amounts not receivable shall be allowed as deduction The matter set aside for fresh decision. Sundry interest receivable from Directors of the assessee company The loan as well as interest on such loan has been written off by the company - Held that - Since the loan and interest was receivable from the Directors of the assessee-company itself, therefore, in my considered view written-off the same as bad debt was not justified at the end of the assessee-company. The Director or the Person who manages the affairs of the assessee-company, how the Directors can take a view that the loan paid by them along with interest has become bad? - The amount written-off by the Directors of the assessee-company was just to avoid the taxability which has arisen on account of interest and rental income Decided against assessee.

Summary

Issues:
1. Disallowance of sundry balance written off as capital expenditure.
2. Disallowance of claim of bad debts on account of interest receivable.

Issue 1: Disallowance of sundry balance written off as capital expenditure

The appeal by the assessee was against the disallowance of sundry balance written off at Rs. 20,72,038/- on the ground that the company had written off certain deposits which were considered capital in nature. The company, engaged in manufacturing activities, had given various deposits to government authorities and had receivables from customers. The Assessing Officer found that the company had closed down and sold its business, leading to outstanding deposits written off during the assessment year. The CIT(A) rejected the claim, stating that the deposits were not related to assets or business that had been sold. The CIT(A) noted the lack of clarity in the company's explanations and held that the Assessing Officer was justified in rejecting the claim. The matter was ordered for re-verification as the company explained that the written-off amounts were not receivable, and no deduction was claimed in earlier or later years. The issue was restored to the Assessing Officer for a fresh order.

Issue 2: Disallowance of claim of bad debts on account of interest receivable

The second issue involved the disallowance of the claim of bad debts amounting to Rs. 43,88,119/- on account of interest receivable. The Assessing Officer noted sundry interest receivable from various parties that were written off by the company without proper efforts to collect them. The claim was rejected due to lack of evidence on collection efforts. The CIT(A) also rejected the claim, stating that the interest was receivable from the directors of the company, raising doubts on the company's intent to recover the amounts. The ITAT found that the CIT(A)'s order was not flawed, as the loan and interest were receivable from the company's directors, making the bad debt write-off unjustified. The ITAT upheld the CIT(A)'s decision to deny the claim of bad debt written off, confirming the order. The appeal of the assessee was allowed in part for statistical purposes.

This detailed analysis of the legal judgment highlights the issues raised, the arguments presented, and the decisions made regarding the disallowance of sundry balance written off and the claim of bad debts on account of interest receivable.