2011 (1) TMI 1531 - AT - Income Tax

Summary

Issues Involved:
1. Admission of additional ground regarding addition of Rs. 93,500/-.
2. Addition of Rs. 6,66,643/- as deemed dividend u/s 2(22)(e).
3. Disallowance of bad debts amounting to Rs. 29,28,311/-.
4. Levy of penalty u/s 271(1)(c) for A.Y 1999-2000 and A.Y 2000-01.

Summary:

1. Admission of Additional Ground:
The assessee raised an additional ground regarding the addition of Rs. 93,500/- related to sales to Great Eastern Shipping Company Ltd. The Tribunal declined to admit this additional ground, noting the lack of evidence regarding the change of Chartered Accountant or non-availability of papers. It was presumed that the assessee had accepted the addition since it was not raised earlier.

2. Addition of Rs. 6,66,643/- as Deemed Dividend u/s 2(22)(e):
The AO treated Rs. 6,66,643/- as deemed dividend u/s 2(22)(e) due to loans taken from M/s. Mech Marine Engineers (P) Ltd., where the assessee held substantial shares. The Tribunal found that the transactions were trading in nature and not loans. It was noted that the opening balance of the loan was reduced through trading transactions, and thus, section 2(22)(e) was not applicable. The addition was deleted.

3. Disallowance of Bad Debts:
The AO disallowed the claim of bad debts amounting to Rs. 29,28,311/- on the grounds of discrepancies and the cessation of the proprietary business. The Tribunal found that the proprietary business was still operational, and the discrepancies were due to disputes with customers. Citing the Supreme Court decision in CIT vs. TRF Ltd., it was held that writing off the debt in the accounts was sufficient. The claim of bad debts was allowed.

4. Levy of Penalty u/s 271(1)(c):
- A.Y 1999-2000: Penalty was levied on an addition of Rs. 2,15,470/- as deemed dividend. The Tribunal took a lenient view, noting the assessee's lack of understanding of tax implications and the use of funds for business purposes. The penalty was deleted.
- A.Y 2000-01: Penalty was levied on additions related to bad debts, deemed dividend, cessation of liability, and undisclosed sales to GESCO. Since the additions for bad debts and deemed dividend were deleted, the penalty on these items did not survive. For the cessation of liability and undisclosed sales, the Tribunal found that the additions were made due to incorrect advice and lack of proper documentation. The penalty was deleted.

Conclusion:
The appeals were partly allowed, with the Tribunal providing relief on the issues of deemed dividend, bad debts, and penalties, while dismissing the additional ground related to the addition of Rs. 93,500/-.