1995 (1) TMI 127 - AT - Income Tax

Summary

Issues Involved:

1. Disallowance of Rs. 31,05,000 as bad debts.
2. Claim of Rs. 31,05,000 as a trading loss.
3. Disallowance of entertainment expenditure of Rs. 20,638.
4. Non-disposal of the ground of appeal regarding interest paid of Rs. 46,133.

Detailed Analysis:

1. Disallowance of Rs. 31,05,000 as Bad Debts:

The assessee claimed Rs. 31.05 lakhs as bad debts, arguing that the amount was advanced to M/s. Pragati Construction Co. (P.) Ltd., a sister concern, for acquiring commercial space in a proposed building. The amount was forfeited by DDA, and the sister concern was unable to repay due to lack of tangible assets. The Assessing Officer disallowed the claim, noting the absence of a written agreement and efforts to recover the amount. He concluded that the amount was an advance, not a trade debt, and did not meet the conditions under section 36(1)(vii) of the I.T. Act. The CIT(A) upheld this view, emphasizing the collusive nature of the transaction due to common directors and lack of business prudence. The assessee's counsel did not press this ground before the Tribunal, leading to its rejection.

2. Claim of Rs. 31,05,000 as a Trading Loss:

The assessee alternatively claimed the amount as a trading loss, arguing that the advance was for booking commercial space in the ordinary course of business. The CIT(A) rejected this, noting that the loss should have been claimed in the year of forfeiture (1985-86) and that the sister concern was still contesting the forfeiture in court. The Tribunal upheld this view, agreeing that the transaction lacked business prudence and was not in the nature of a trading advance. The Tribunal also found the case law cited by the assessee distinguishable and supported the Department's stance with relevant precedents, concluding that the loss was not allowable as a trading loss.

3. Disallowance of Entertainment Expenditure of Rs. 20,638:

The assessee's counsel did not press this ground before the Tribunal, leading to its rejection.

4. Non-disposal of the Ground of Appeal Regarding Interest Paid of Rs. 46,133:

The assessee argued that the CIT(A) did not address the ground of appeal concerning the disallowance of interest paid. The Tribunal restored this matter to the CIT(A) for reconsideration, directing that a reasonable opportunity be given to the assessee to present their case.

Conclusion:

The appeal was allowed in part for statistical purposes, with the primary issues of bad debts and trading loss being rejected and the issue of interest paid remanded for further consideration.