2023 (3) TMI 664 - AT - Income Tax

Disallowance of bad debt u/s 36(1)(vi) - assessee did not produce any documentary evidences in support of the claim - HELD THAT - We also notice that the claim of the assessee that the amount to Mr. Ranjan is paid towards property advance is not supported by any documents which the AO called for during the assessment proceedings and the assessee also failed to provide details with respect to the identity of the person, his address, etc. As further noticed that the amount written off against the salary advance was also not substantiated and that the assessee could not even submit the basic details to support whether Mr. Girish was actually in employment with the assessee. Given the facts of the case, in our considered view, the claim of bad debts is rightly denied by the lower authorities on the ground that the assessee has not substantiated the claim with proper documentary evidence to prove that it is incurred in the regular course of business and that the amount could not be recovered. Accordingly, we see no reason to interfere with the decision of the CIT(Appeals). Professional and consultancy charges - disallowance is that whether the expenditure was incurred wholly and exclusively for the purpose of business? - HELD THAT - On perusal of return of income filed by Mr.Sheetal, we notice that the said income of Rs.2 crore has been offered as Compensation received under the head Income from Other Sources and not as professional fees. As already stated the main ground on which the expenditure is disallowed by the AO and CIT(A) is that the assessee could not substantiate the claim in terms of commercial expediency to incur the expenditure and the nexus between the expenditure and the business. We therefore in the interest of justice remit the issue back to the CIT(A) to examine the issue afresh based on evidences that the assessee may submit in this regard. The assessee is directed to furnish the necessary documents to substantiate the claim and cooperate with the proceedings. Capital gains - AO during the course of assessment noticed that the assessee had entered into a joint development agreement (JDA) - Based on the various terms of the joint development agreement, the AO held that capital gain arises in the hands of the assessee and computed the short term capital gain by considering the sale consideration - HELD THAT - Relevant clause of JDA agreement it becomes clear that the assessee has given only the permissible possession of the land to the developer at the time of executing the JDA and the ownership is not transferred. We also see merit in the submission of the ld. AR that the assessee has offered the capital gains to tax as and when the developer handed over the flat as per cl. 6.1 of the JDA. In our view, no taxable event happened during the year under consideration and the basis on which the capital gain is computed by the AO is not tenable. We therefore hold that the capital gain computed by the AO is to be deleted. This ground is allowed in favour of assessee.

Summary

Issues Involved:
1. Bad Debts
2. Professional and Consultancy Charges
3. Capital Gains
4. Disallowance under Section 14A

Bad Debts - Ground No: 2 & 3:

The assessee claimed Rs.24,20,000 as bad debts, which included advances paid to Mr. Anbuvel Ranjan and Mr. Girish Ramakrishnan. The AO disallowed the claim due to lack of documentary evidence and failure to prove the transactions were incurred in the regular course of business. The CIT(A) upheld this disallowance. The Tribunal agreed with the lower authorities, stating that the assessee did not substantiate the claim with proper documentary evidence, thus denying the bad debts claim.

Professional and Consultancy Charges - Ground 4:

The assessee claimed Rs.2,06,86,652 towards professional and consultancy charges, with Rs.2 crores paid to Mr. Sheetal V. Ranka. The AO disallowed this amount, citing various discrepancies and lack of evidence proving the expenditure was incurred wholly and exclusively for business purposes. The CIT(A) upheld this disallowance, noting the absence of evidence regarding Mr. Sheetal's professional competence. The Tribunal remitted the issue back to the CIT(A) for fresh examination, instructing the assessee to provide necessary documents to substantiate the claim.

Capital Gains - Ground No: 5:

The AO computed a short-term capital gain of Rs.5,65,24,370 based on a joint development agreement (JDA) with Kolte Patil Developers Ltd. The CIT(A) upheld this computation. The Tribunal found that the JDA did not result in a taxable event during the year under consideration as the ownership was not transferred, and the capital gains were to be taxed when the developer handed over the flats. Thus, the Tribunal deleted the capital gain computed by the AO.

Disallowance under Section 14A - Ground No: 6:

The assessee did not press this ground during the hearing, and it was dismissed as not pressed.

Conclusion:

The appeal was partly allowed, with the Tribunal remitting the issue of professional and consultancy charges back to the CIT(A) and deleting the capital gain computed by the AO. Other grounds were either dismissed or not pressed.