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2014 (9) TMI 349 - AT - Income TaxBad debts written off u/s 36(1)(vii) Details not provided by assessee Held that - The assessee has not provided addresses of the persons on whom loans have been advanced - But the assessee has filed copy of account since loan had been advanced - Mr. Ashwani Kumar is assessed to tax and PAN has been provided - Audit report and copy of Award is also on record - address of the person has not been provided and the genuineness of the transaction could not be verified unless the persons to whom loan has been advanced and examined or their records are examined by the AO - Therefore, it is not possible for the AO or the CIT(A) to decide the matter thus, the matter is to be remitted back to the CIT(A) for fresh adjudication Decided in favuor of assessee. Various expenses disallowed Vehicle expenses, depreciation on car travelling expenses Held that - These are expenses which have been disallowed by the AO and confirmed by the CIT(A) being personal element involved for which no supporting vouchers have been placed on record before any of the authorities - personal element cannot be denied there was no infirmity in the order of the CIT(A) who has rightly confirmed disallowances on account of vehicle expenses, depreciation on car and traveling allowance Decided against assessee.
Issues Involved:
1. Disallowance of bad debts under Section 36(1)(vii) of the Income Tax Act. 2. Disallowance of interest not charged on bad debts. 3. Disallowance of vehicle expenses, depreciation on car, and traveling expenses. Detailed Analysis: Issue 1: Disallowance of Bad Debts under Section 36(1)(vii) - The assessee argued that the CIT(A) did not appreciate the law relating to Section 36(1)(vii) after its amendment effective from 1.4.89, which allows bad debt write-off in the year of assessment. The assessee also cited Circular No. 551 dated 23rd January 1990, which supports the write-off of bad debts to reduce litigation. - The CIT(A) observed that the assessee failed to provide a loan agreement or basic details such as the address and PAN of the borrower, Sh. Ashwani Kumar. The CIT(A) emphasized the necessity of proving that the money was lent in the ordinary course of business, as stipulated under Section 36(2) of the Act. - The CIT(A) upheld the AO's disallowance of Rs. 43,52,761/- as bad debts, citing the lack of evidence and efforts of recovery. - The Tribunal noted that the assessee provided some documents like the audit report and PAN of Sh. Ashwani Kumar but failed to provide the borrower's address. The Tribunal set aside the issue to the CIT(A) for a denovo examination to verify if the money was lent in the ordinary course of business. Issue 2: Disallowance of Interest Not Charged on Bad Debts - The AO disallowed interest of Rs. 21,43,884/- out of the total interest paid, as the assessee did not charge interest on certain loans considered doubtful for recovery. - The CIT(A) confirmed the disallowance, rejecting the assessee's argument that interest should not be charged on doubtful debts, which were written off in subsequent years. - The Tribunal directed the CIT(A) to re-examine the issue of interest disallowance in conjunction with the bad debts issue, considering the audited balance sheet of the assessee. Issue 3: Disallowance of Vehicle Expenses, Depreciation on Car, and Traveling Expenses - The AO disallowed Rs. 2,568/- as 1/10th of vehicle expenses, Rs. 5,579/- as depreciation on the car, and Rs. 2,000/- out of traveling expenses by the staff, citing the personal element involved and lack of supporting evidence. - The CIT(A) confirmed these disallowances, noting the personal element and absence of supporting vouchers. - The Tribunal upheld the CIT(A)'s decision, finding no infirmity in the disallowances due to the personal element involved. Conclusion: - The appeal was partly allowed for statistical purposes. The Tribunal set aside the bad debts and related interest issues to the CIT(A) for a denovo examination, while the disallowances of vehicle expenses, depreciation on the car, and traveling expenses were confirmed. (Order pronounced in the open court on 15.4.2014.)
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