2014 (11) TMI 677 - AT - Income Tax

Claim of deduction u/s 36(a)(viia) - Provision for Bad & doubtful Debts - Held that - There is debit on account of bad debts written of and there is no other debit on account of provision for bad debt - The computation of income (original), there is no deduction claimed by the assessee on account of any provision for bad debts - As per the revised computation also, there is no such claim regarding provision for bad debts u/s 36(1)(viia) of the Act - it is not clear if it were rural or urban bad loans and further as reserve had been created, the write off has to be limited to the amount of reserve created - He is alleging that the assessee is taking double deduction u/s 36(1)(vii) and 36(1)(viia) of the Act - the assessee is claiming only one deduction u/s 36(1)(vii) that too in respect of actual write off of bad debt and not for any provision for bad debt also in TRF. LTD. Versus COMMISSIONER OF INCOME-TAX 2010 (2) TMI 211 - SUPREME COURT the same has been decided - But even then it has to be seen that the assessee is satisfying the requirement of section 36(2) of Income Tax Act thus, the matter is remitted back to the AO Decided in favour of assessee. Membership fees disallowed u/s 37(1) - Held that - In CIT vs. Samtel Color Ltd. 2009 (1) TMI 26 - DELHI HIGH COURT it was held that the expenditure being admission fee paid towards corporate membership was an expenditure incurred wholly and exclusively for the purpose of business and not towards capital account - divergent views are there on the issue and therefore, as held in Commissioner of Income-tax Vs Vegetable Products Ltd. 1973 (1) TMI 1 - SUPREME Court , the view favourable to the assessee should be followed Decided in favour of assessee. Medical expenses disallowed Held that - There is date mentioned and amount mentioned and the amounts have been debited to account head medical expenses of Managing Director but in addition to this ledger account copy, there is no other evidence brought on record as to whether these expenses were incurred for medical expenditure of the Managing Director and whether the same is as per his terms of appointment - the assessee was asked to produce information regarding nature of illness, amount incurred on various tests, investigations surgery, travelling etc. regarding the above illness but no such details were produced before him and it was merely stated that it is for the treatment of Managing Director hence allowable Decided against assessee.

Summary

Issues Involved:
1. Disallowance of bad debts claim for the assessment year 2006-07.
2. Disallowance of bad debts claim for the assessment year 2007-08.
3. Disallowance of membership fees for the assessment year 2007-08.
4. Disallowance of medical allowance for the assessment year 2007-08.

Issue-wise Detailed Analysis:

1. Disallowance of Bad Debts Claim for Assessment Year 2006-07:
The assessee contested the disallowance of Rs. 2,29,89,602/- on account of bad debts written off. The assessee argued that the claim was allowable under section 36(1)(vii) of the Income Tax Act, 1961, as the bad debts were actually written off in the books of account. The CIT(A) disallowed the claim, alleging double deduction under sections 36(1)(vii) and 36(1)(viia) and questioning the details of the bad debts. The Tribunal found that the assessee did not claim any deduction under section 36(1)(viia) and that the bad debts were indeed written off. The Tribunal cited the Supreme Court's judgment in T.R.F. LTD. Vs Commissioner of Income-tax [2010] 323 ITR 397 (SC), ruling in favor of the assessee. However, the matter was remanded to the Assessing Officer to verify compliance with section 36(2) of the Act.

2. Disallowance of Bad Debts Claim for Assessment Year 2007-08:
The assessee's claim of Rs. 1,62,40,448/- for bad debts written off was similarly disallowed by the authorities. The facts and arguments were identical to those for the assessment year 2006-07. The Tribunal followed the same reasoning and judgment as in the previous year, ruling in favor of the assessee subject to verification of compliance with section 36(2). The matter was remanded to the Assessing Officer for this purpose.

3. Disallowance of Membership Fees for Assessment Year 2007-08:
The assessee claimed Rs. 1,30,000/- as membership fees under miscellaneous expenses and other expenses, which was disallowed by the Assessing Officer and upheld by the CIT(A) due to lack of evidence showing business benefit. The Tribunal noted divergent views from various High Courts on the nature of such expenses. Citing the Supreme Court's principle in Commissioner of Income-tax Vs Vegetable Products Ltd. [1973] 88 ITR 192 (SC), the Tribunal favored the assessee, allowing the claim as revenue expenditure.

4. Disallowance of Medical Allowance for Assessment Year 2007-08:
The assessee's claim of Rs. 4,97,872/- for medical expenses of the Managing Director was disallowed due to lack of supporting evidence regarding the nature of illness, treatment details, and compliance with the terms of appointment. The CIT(A)'s decision was based on the absence of detailed evidence, and the Tribunal upheld this view, rejecting the assessee's claim.

Conclusion:
The appeal for the assessment year 2006-07 was allowed for statistical purposes, remanding the matter to the Assessing Officer for verification under section 36(2). For the assessment year 2007-08, the appeal was partly allowed, with the bad debts claim remanded for verification, the membership fees allowed, and the medical allowance disallowed due to insufficient evidence.