1993 (4) TMI 104 - AT - Income Tax

Summary

Issues Involved:

1. Disallowance of bad debt claim as business loss.
2. Addition of Rs. 75,000 to unexplained investments/outgoings.
3. Deletion of Rs. 1,32,731 interest income on accrual basis.

Issue-wise Detailed Analysis:

1. Disallowance of Bad Debt Claim as Business Loss:

The primary issue was whether the sum of Rs. 2,60,000 advanced by the assessee to Smrithi Extractions Ltd. should be allowed as a bad debt or as a business loss under Section 28 of the IT Act. The Income Tax Officer (ITO) disallowed the claim, treating the amount as an investment and not fulfilling the conditions for a bad debt deduction. The assessee argued that the amount was a trading loss incurred in the course of the money-lending business. The Tribunal found that the ITO's inference of the amount being an investment was based on no material and that the assessee's claim should be considered as a business loss under Section 28. The Tribunal held that the sum of Rs. 2,60,000 is a valid deduction as a business loss.

2. Addition of Rs. 75,000 to Unexplained Investments/Outgoings:

The assessee appealed against the addition of Rs. 75,000, which was related to the reduction of addition under other sources from Rs. 6,07,611 to Rs. 75,000. The CIT(A) accepted the assessee's computation of peak credit at Rs. 8,93,965 and allowed deductions for known sources, resulting in an unaccounted income of Rs. 4,82,000. However, the CIT(A) sustained an additional Rs. 75,000 on the grounds of possible undisclosed items. The Tribunal found this addition to be presumptive and reduced it to Rs. 15,000, considering the totality of circumstances and the possibility of the assessee having personal cash balances.

3. Deletion of Rs. 1,32,731 Interest Income on Accrual Basis:

The Revenue was aggrieved by the deletion of Rs. 1,32,731, which was computed as interest on accrual basis on certain advances. The CIT(A) excluded Rs. 3,11,380 from the interest calculation, considering it a deposit received rather than an advance made by the assessee. This view was upheld by the Tribunal for the assessment year 1983-84. Further, the CIT(A) noted that the interest on advances to K.K. Basheer and A. Moosa was accounted for on a receipt basis in subsequent years. The Tribunal found no infirmity in the CIT(A)'s direction to verify this contention and upheld the deletion of the addition, leaving the issue open for verification by the ITO.

Conclusion:

The Tribunal dismissed the Revenue's appeal and partly allowed the assessee's appeal. The sum of Rs. 2,60,000 was allowed as a business loss, the addition of Rs. 75,000 was reduced to Rs. 15,000, and the deletion of Rs. 1,32,731 was upheld with directions for verification.