1987 (9) TMI 74 - AT - Income Tax

Summary

Issues:
1. Disallowance under the head "adjustment of previous years."
2. Disallowance of Rs. 1,20,201 related to a disputed payment.
3. Disallowance of Rs. 68,098 related to a subsidiary's account.
4. Dispute over allowing deduction as bad debt or trading loss.
5. Disallowance of bad debt amounting to Rs. 5,46,768.
6. Disallowance of interest payment deduction of Rs. 38,352.

Issue 1: Disallowance under the head "adjustment of previous years."
The dispute arose regarding disallowance made by the ITO under the head "adjustment of previous years." The CIT(A) allowed the claim of Rs. 1,20,201 stating it was settled during the relevant year. However, the Tribunal held that the tax authorities should have examined if the amount was allowable deduction in the current assessment year. The issue was referred back to the ITO for a fresh decision.

Issue 2: Disallowance of Rs. 68,098 related to a subsidiary's account.
The disallowance of Rs. 68,098 was due to the subsidiary's account being squared off in a previous year, but the payment was required in the current year. The CIT(A) confirmed the disallowance stating it could not be treated as revenue expenditure. However, it was argued that the amount should be allowed as a trading loss since it was connected with the business and arose due to a mistaken belief.

Issue 3: Dispute over allowing deduction as bad debt or trading loss.
The contention was whether the deduction of Rs. 68,098 should be allowed as a bad debt or a trading loss. The Tribunal agreed with the departmental representative that it cannot be a bad debt but should be allowed as a trading loss due to the mistaken belief leading to a loss connected with the business. Citing legal precedents, the Tribunal directed the deduction to be made on account of trading loss.

Issue 4: Disallowance of bad debt amounting to Rs. 5,46,768.
The assessee claimed bad debt deduction for various amounts, including export benefits, that could not be recovered from customers due to objections. The claim was disallowed by the ITO and CIT(A) due to lack of supporting evidence. The Tribunal remitted the issue to the ITO for further examination based on new evidence submitted by the assessee.

Issue 5: Disallowance of interest payment deduction of Rs. 38,352.
The last objection was regarding the disallowance of interest payment deduction for late payment of tax deducted at source. The assessee did not press this ground, leading to its rejection. Ultimately, both the departmental appeal and the assessee's appeal were allowed for statistical purposes.