2023 (9) TMI 670 - AT - Income Tax

Addition of bad debts - assessee has shown it as a provision for bad and doubtful debts - HELD THAT - On perusal of the financial statements as well as the statement filed by the assessee find merit in the contention of the ld. Counsel for the assessee that it was an inadvertent mistake resulting into showing the bad debts claim as provision for bad and doubtful debts. Both the lower authorities ought to have considered this argument and considering the facts should have come to a conclusion that it was a bad debts claim and not provision for bad and doubtful debts. It has been rightly submitted by assessee that, nomenclature is of no consequences rather the substance of the matter should be looked into while deciding the liability of the expenditure. Whether the assessee has rightly claimed the bad debts? - Now going through the Section 36(2)(i) of the Act, one of the condition that no such deduction shall be allowed unless such debt or part thereof has been taken into account in computing the income of the assessee of the previous year in which the amount of such debt or part thereof is written off. The said condition is duly fulfilled in the case of the assessee as the amount of bad debts claimed has already been taken into account while computing the income by way of showing it as gross receipts and the outstanding amount was standing as sundry debtors. It clearly shows that the assessee has made justified claim under section 36(1)(vii) of the Act and the same should have been allowed as an expenditure during the year. Respectfully following the ratio laid down in the case of TRF Ltd. 2010 (2) TMI 211 - SUPREME COURT finding of the ld. CIT(A) is set aside and bad debt claim is allowed. Ground No. 2 raised by the assessee stands allowed. Addition u/s 41(1) r.w.s. 28(iv) - HELD THAT - As undoubtedly, as on 31/03/2012, there was an outstanding liability of sundry creditors in the name of SAMPL towards the services rendered by it to the assessee. The assessee has nowhere stated that the said liability is not payable. All documentary evidence have been placed before us to prove that the liability is active and the action is from both the sides i.e., the sundry creditor is trying hard to recover its amount and the assessee is trying hard to collect the sum from sundry debtors and repay the sundry creditors. No justification at the end of both the lower authorities of having invoked the provisions of Section 41(1) pertaining to cessation of liability and treating it as income in the hands of the assessee. Accordingly, the finding of the ld. CIT(A) is set aside, addition is deleted and Ground No. 3 raised by the assessee is allowed. Disallowance of pandal decoration expenses - not a allowable business expense - HELD THAT - The assessee has not been able to place any documentary evidence to prove that the said sum has been repaid subsequently. Confirmation of account of Amit Agencies has also not been filed. It thus adds to the suspicion created in the instant case that the said expenditure was bogus in nature and even the Inspector deputed to verify the address of the sundry creditor was not able to trace any whereabouts of the entity. Under these circumstances, as the assessee has miserably failed to prove the genuineness of the transactions incurred towards pandal decoration expenses, we fail to find any infirmity in the finding of the ld. CIT(A) in confirming the said disallowance. Thus, the addition confirmed. Ground No. 4 is dismissed. Disallowance regarding repair and maintenance expenses - interior decoration of office premises - HELD THAT - The assessee is into the entertainment business and thus, interior decoration of the office is very important and with its help the assessee can impress its clients and can make better efforts to increase its business. Assessee also incurred office rent expenses. There is no immovable property in the form of an office under the head fixed asset . It prima facie indicates that in the rental premises assessee has incurred some interior decoration work and same is subject to change as and when needed. Therefore, considering the total turnover of the assessee and the alleged sum being hardly 1% of the gross turnover and the assessee not having any self-owned office premises, we are inclined to hold that it is a revenue expenditure and the same should have been allowed by the ld. CIT(A). We accordingly reverse the finding of the ld. CIT(A) and allow Ground No. 5

Summary

Issues Involved:
1. Addition towards provision for bad and doubtful debts.
2. Addition under Section 41(1) read with Section 28(iv) of the Income Tax Act, 1961.
3. Disallowance of expenses under the head Pandel decoration.
4. Disallowance of expenses under the head Repairs & Maintenance.
5. Levy of interest under Sections 234B and 234D of the Income Tax Act, 1961.

Summary of Judgment:

Issue 1: Addition towards provision for bad and doubtful debts
The Tribunal observed that the assessee, an event management company, had raised a total bill of Rs. 10,22,52,783 to Mahuaa Media Pvt. Ltd., out of which Rs. 6,85,53,691 was not recoverable and was claimed as bad debts. The Tribunal noted that the nomenclature of "provision for bad and doubtful debts" was an inadvertent mistake and the substance of the matter should be considered. The Tribunal allowed the claim of bad debts under Section 36(1)(vii) of the Act, following the Supreme Court judgment in TRF Limited vs. CIT.

Issue 2: Addition under Section 41(1) read with Section 28(iv) of the Income Tax Act, 1961
The Tribunal found that the liability of Rs. 3,12,27,393 payable to Sampark Advertisement and Media Pvt. Ltd. (SAMPL) was still active, as evidenced by the High Court's order directing the assessee to make monthly payments. The Tribunal held that the provisions of Section 41(1) were not applicable as the liability had not ceased to exist, and therefore, the addition was deleted.

Issue 3: Disallowance of expenses under the head Pandel decoration
The Tribunal upheld the disallowance of Rs. 3,13,010 incurred towards pandel decoration, as the assessee failed to provide documentary evidence or confirmation of repayment. The Tribunal agreed with the lower authorities that the expenditure appeared to be bogus.

Issue 4: Disallowance of expenses under the head Repairs & Maintenance
The Tribunal allowed the claim of Rs. 9,99,856 incurred towards interior decoration of office premises, treating it as revenue expenditure. The Tribunal noted the importance of interior decoration for the assessee's business and the absence of self-owned office premises, thus reversing the CIT(A)'s finding.

Issue 5: Levy of interest under Sections 234B and 234D of the Income Tax Act, 1961
This issue was consequential in nature and was not separately addressed in detail.

Conclusion:
The appeal of the assessee was partly allowed, with the Tribunal providing relief on the issues of bad debts and repairs & maintenance expenses, while upholding the disallowance of pandel decoration expenses.