2015 (1) TMI 1009 - AT - Income Tax

Disallowance on account of Bad debts - CIT(A) deleted the addition - Held that - No material could be brought before us to show that the Ahmedabad Stock Exchange has given any assurance to meet the entire debt to the assessee which was receivable by the assessee from Shri Nagindas Chandulal Shah who was declared as defaulter by the stock exchange. Thus, in our considered view, as the broker from whom the debt was receivable has in fact become bad during the year under consideration and the assessee had not acquired any legal right to receive the same debt from Ahmedabad Stock Exchange. In our view, merely lodging of a claim does not give rise to a legal right in favour of the assessee. Further, in our considered view, after assessing badla interest as business income of the assessee, it was not open to the Assessing Officer to allege on the same breath that the transactions of giving shares in the badla transaction was not a business of the assessee. Further, in such a transaction, as per the system of accounting, simply because net badla interest was credited in the profit and loss account, it cannot be held that the entire sale value of the shares was not taken into consideration for computing the income of the assessee. Moreover, we find that it is an admitted fact that the amount in question when received in the subsequent year by the assessee, the same was assessed to tax by the Revenue in the hands of the assessee in the year of receipt. In the above facts, we do not find any good reason to interfere with the order of the CIT(A) which is hereby confirmed. - Decided against revenue. Disallowance on account of foreign travelling expenses - assessee had not furnished details of expenses of wife and children - CIT(A) deleted the addition - Held that - It is not in dispute that the wife of the assessee is also a Director of the assessee-company and assessee claimed before the Assessing Officer that the expenditure of wife of the Director who is also a Director and looks after the business of the assessee-company was for the purpose of business. We find that no material was brought on record by the Revenue to controvert the above submissions of the assessee. Further, it is observed that the CIT(A) deleted the entire disallowance by observing increase in export turnover of the assessee-company without bring on record any material to show how the expenditure of children of the Directors were for business purposes of the company. No material was brought on record to show that the children were engaged in the business of the assessee-company or there was any agreement between the company and the children. In these circumstances, AO was justified in disallowing proportionate expenses of children relating to other expenses when the ticket expense of children was considered by the assessee itself as not relating to business and therefore, the CIT(A) was not justified in deleting the same. We, therefore, modify the order of the CIT(A) to the above extent and direct the Assessing Officer to disallow ₹ 1,50,000/- out of Foreign Travelling Expenses claimed by the assessee. - Decided partly in favour of assessee. Deduction claimed u/s 80I - CIT(A) directed AO to restrict the deduction claimed u/s 80I by excluding the amount of duty draw back received for computation of the deduction - Held that - In the instant case, the Assessing Officer disallowed the claim made by the Assessing u/s 80I on the ground that the conditions specified in section 80I(i)(iv) were not fulfilled. The CIT(A) deleted the disallowance without recording any specific finding on the above issue. We, therefore, set aside the order of the CIT(A) on this issue and restore this issue back to the file of the CIT(A) for adjudicating the issue afresh by passing a speaking order on this issue after allowing both the parties reasonable opportunity of hearing. - Decided in favour of Revenue for statistical purposes.

Issues Involved:
1. Deletion of disallowance on account of bad debts.
2. Deletion of disallowance on account of foreign traveling expenses.
3. Direction to restrict the deduction claimed under section 80I by excluding the amount of duty drawback received.

Issue-wise Detailed Analysis:

1. Deletion of Disallowance on Account of Bad Debts:
The Revenue appealed against the deletion of a disallowance of Rs. 13,17,300 on account of bad debts by the Commissioner of Income Tax (Appeals) [CIT(A)]. The Assessing Officer (AO) observed that the assessee claimed bad debts for an amount receivable from a share broker who was declared a defaulter by the Ahmedabad Stock Exchange. The AO noted that the assessee lodged a claim with the Stock Exchange and received partial payments in subsequent years, which were declared as income in those years. The AO contended that the entire amount could not be considered a bad debt as the assessee had not exhausted the possibility of recovery from the Stock Exchange. Moreover, the AO argued that the transactions were in the nature of Badla Finance, not share dealing, and thus did not fulfill the conditions of section 36(2) for bad debt deduction.

The CIT(A) allowed the assessee's claim, referencing the Supreme Court decision in T.R.F. Ltd., which stated that it suffices if the debt is written off as bad in the books. The Tribunal upheld the CIT(A)'s decision, noting that no evidence was presented to show an assurance from the Stock Exchange to meet the entire debt and that merely lodging a claim did not establish a legal right to the debt. The Tribunal also emphasized that the badla interest was assessed as business income, and the subsequent recovery was taxed, thus supporting the CIT(A)'s decision.

2. Deletion of Disallowance on Account of Foreign Traveling Expenses:
The AO disallowed Rs. 3,32,034 out of the total foreign traveling expenses of Rs. 5,42,694, arguing that the expenses related to the Director's wife and children were personal and not for business purposes. The assessee had already disallowed the fare for the children but not other related expenses. The AO inferred that the family accompanied the Director for non-business reasons and disallowed a proportionate amount.

The CIT(A) allowed the deduction, noting a significant increase in export turnover, suggesting the expenses were for business purposes. The Tribunal partially upheld the CIT(A)'s decision but modified it by disallowing Rs. 1,50,000 for the children's expenses due to lack of evidence showing their involvement in business activities. The Tribunal found the wife's expenses allowable as she was also a Director involved in the business.

3. Direction to Restrict Deduction under Section 80I by Excluding Duty Drawback:
The AO disallowed the deduction under section 80I for the pigment division, arguing that the division did not meet the employment condition specified in section 80I(2)(iv). The AO also excluded duty drawback from the deduction computation, considering it not derived from business.

The CIT(A) directed to exclude the duty drawback amount from the deduction but did not address the employment condition issue. The Tribunal set aside the CIT(A)'s order on this issue, remanding it back for a detailed adjudication with specific findings on the employment condition, thus allowing the Revenue's appeal for statistical purposes.

Conclusion:
The Tribunal upheld the CIT(A)'s deletion of disallowance on bad debts and partially upheld the deletion of foreign traveling expenses, modifying the disallowance to Rs. 1,50,000. The Tribunal remanded the issue of deduction under section 80I back to the CIT(A) for a detailed adjudication, thereby partly allowing the Revenue's appeal for statistical purposes.

← Previous Next →