2011 (1) TMI 1554 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of bad debts amounting to Rs. 7,75,000/-
2. Disallowance of depreciation on let out and residential property and addition of notional rent
3. Addition of expenditure incurred on repairs of building amounting to Rs. 15,18,344/-
4. Treating revenue expenditure as capital expenditure amounting to Rs. 68,859/-

Summary:

1. Disallowance of Bad Debts:
The assessee claimed a deduction for bad debts amounting to Rs. 7,75,000/- written off as an inter-corporate deposit (ICD) with M/s Pittie Cement Ltd. The AO disallowed the claim stating that the assessee is not in the business of money lending, hence the deduction u/s 36(1)(vii) is not allowable. The alternative claim u/s 37(1) was also rejected as the loan was not expended wholly and exclusively for business purposes. The CIT(A) upheld the AO's decision, noting that the assessee's primary business activities do not include money lending, and the ICDs were isolated transactions. The Tribunal confirmed the orders of the AO and CIT(A), deciding the issue against the assessee.

2. Disallowance of Depreciation and Addition of Notional Rent:
The AO disallowed depreciation of Rs. 3,46,528/- on let out and residential property and added notional rent of Rs. 1,54,688/-. The CIT(A) confirmed the disallowance and addition, stating that the assessee had shown rental income as income from house property and availed deductions u/s 24, making depreciation non-allowable. The Tribunal upheld the CIT(A)'s decision, noting that the issue of notional rent had been decided against the assessee in the previous assessment year and was not contested further.

3. Addition of Expenditure on Repairs of Building:
The assessee claimed an expenditure of Rs. 15,18,344/- for building repairs. The AO did not disallow this, but the CIT(A) proposed an enhancement, disallowing the expenditure as it was not clear whether it pertained to the office building or let out property. The Tribunal set aside the CIT(A)'s order and remanded the issue back to the AO for fresh verification and examination, directing the AO to provide a fair hearing to the assessee.

4. Treating Revenue Expenditure as Capital Expenditure:
The AO treated an expenditure of Rs. 68,859/- as capital expenditure, which included items like fire extinguishers, carpets, ceiling fans, and fabricator grills. The CIT(A) confirmed this disallowance. The Tribunal upheld the decision, agreeing that the expenditure was for acquiring capital assets and thus could not be allowed as revenue expenditure.

Conclusion:
The appeal was partly allowed, with the Tribunal confirming the disallowance of bad debts, depreciation, and capital expenditure treatment, while remanding the issue of building repairs back to the AO for further examination.