1994 (12) TMI 106 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of bad debts claim of Rs. 47,58,250.
2. Disallowance of Rs. 1,94,774 written back to the Profit & Loss Account.
3. Disallowance of Rs. 5,57,584 on account of loss arising out of "Vandah transactions".
4. Allowability of sub-brokerage paid to M/s Vijaylaxmi Investments and Shri Rupesh D. Sheth.
5. Disallowance out of travelling expenses and general staff welfare expenses at Rs. 10,000 each.

Summary of Judgment:

1. Disallowance of bad debts claim of Rs. 47,58,250:
The assessee, a stock and share broker, claimed Rs. 47,58,250 as bad debts u/s 36(1)(vii) and 36(2) of the Income-tax Act. The AO disallowed the claim as the conditions precedent for availing the benefit of these sections were not met. The assessee conceded that the debt was not taken into computation of income of the previous year or earlier previous year, thus not fulfilling the conditions u/s 36(2). The Tribunal upheld the disallowance, stating that the loss on account of bad debts can only be allowed with reference to the fulfillment of conditions contained u/s 36(2).

2. Disallowance of Rs. 1,94,774 written back to the Profit & Loss Account:
The amount of Rs. 1,94,774 was written back to the Profit & Loss Account and claimed as a deduction. The AO disallowed this amount, treating it as a cessation of liability. The Tribunal upheld the disallowance, relying on the decision of the jurisdictional High Court in CIT v. Bennett Coleman & Co. Ltd., which decided the issue against the assessee.

3. Disallowance of Rs. 5,57,584 on account of loss arising out of "Vandah transactions":
The assessee claimed Rs. 5,57,584 as a loss arising out of "Vandah transactions". The AO disallowed this amount due to the lack of complete details. However, on test check, transactions up to the value of Rs. 4,36,124 were found to be genuine. The Tribunal allowed the appeal on this ground, directing the AO to delete the addition made on this count, considering the volume of trade and the nature of losses.

4. Allowability of sub-brokerage paid to M/s Vijaylaxmi Investments and Shri Rupesh D. Sheth:
The assessee claimed sub-brokerage payments to M/s Vijaylaxmi Investments and Shri Rupesh D. Sheth. The AO disallowed these payments due to lack of evidence of services rendered and the manner of payment (set off against debit balance). The Tribunal allowed the appeal on this ground, directing the AO to delete the addition, as the parties accepted the factum of payment and considering the totality of facts.

5. Disallowance out of travelling expenses and general staff welfare expenses at Rs. 10,000 each:
The AO disallowed Rs. 10,000 each out of travelling expenses and general staff welfare expenses for want of complete details. The Tribunal upheld the disallowance, noting that this ground was not pressed before the CIT(A) and agreeing with the AO's reasoning.

Conclusion:
The appeal of the assessee was partly allowed. The Tribunal upheld the disallowance of the bad debts claim and the write-back amount but allowed the claims related to "Vandah transactions" and sub-brokerage payments. The disallowance of travelling and staff welfare expenses was also upheld.