1989 (1) TMI 153 - AT - Income Tax

Summary

Issues:
1. Treatment of outstanding loan as bad debt or capital loss.
2. Disallowance of telephone expenses.
3. Determination of the cost of office premises.

Analysis:
1. The appeal involved the treatment of an outstanding loan as bad debt or capital loss for the assessment year 1980-81. The assessee, a practicing advocate, had advanced a sum of Rs. 30,000 to a borrower against a second mortgage of a property. The borrower passed away, leaving a balance due. The assessee, facing non-repayment, decided to write off the balance as a bad debt. The Income Tax Officer (ITO) rejected the claim, considering the interest due as income and disallowing the balance. The Appellate Assistant Commissioner (AAC) upheld the rejection, stating that since the assessee was not in the money lending business, the amount could not be treated as a bad debt or capital loss. The ITAT Bombay-D affirmed the decision, emphasizing that as the right to receive the amount was not lost, the claim for bad debt or capital loss was not applicable, distinguishing it from a previous Gujarat High Court decision involving novation of contract.

2. Another issue in the appeal was the disallowance of telephone expenses. The ITO disallowed a portion of the total expenses, which the AAC upheld at 1/4th of the total amount. Upon further appeal, the ITAT Bombay-D modified the disallowance, directing that 1/5th of the total telephone expenses should be disallowed, considering that the telephone was used for both personal and professional purposes.

3. The final issue addressed was the determination of the cost of office premises. The assessee argued that the cost should be higher than what was considered by the ITO and upheld by the AAC. The ITAT Bombay-D reviewed the working provided by the assessee, which included necessary expenses incurred to acquire the premises. The ITAT directed the ITO to adopt the higher figure presented by the assessee as the cost of acquisition, setting aside the lower amount determined by the AAC.

In conclusion, the ITAT Bombay-D partly allowed the appeal, rejecting the claim for bad debt or capital loss, modifying the disallowance of telephone expenses, and adjusting the cost of office premises to a higher figure as per the assessee's working.