1992 (8) TMI 127 - AT - Income Tax

Summary

Issues Involved:
1. Restriction of disallowance to 1/5th of the rent for house property at 77, Sundar Nagar, New Delhi.
2. Direction for disallowance of bad debts of Rs. 34,510.

Issue 1: Restriction of disallowance to 1/5th of the rent for house property at 77, Sundar Nagar, New Delhi

The revenue appealed against the CIT(Appeals) decision to restrict the disallowance to 1/5th of the rent for the property at 77, Sundar Nagar, New Delhi. The property was rented jointly by the assessee and Raj Mahal Palace Hotel at Rs. 5,000 per month since January 27, 1976, primarily for residential purposes as per the lease-deed. The ITO found that the property was used for residential purposes by Shri Bhawani Singh and other family members, and only two out of 39 Board of Directors meetings were held there, with the rest at Raj Mahal Palace, Jaipur. The CIT(Appeals) reduced the disallowance to Rs. 5,500 from Rs. 27,500, but the Tribunal found no justification for this reduction. The Tribunal concluded that the property was not used for official purposes, and the rent paid was not justifiable as a deduction against the taxable income of the company. Therefore, the order of the CIT(Appeals) was reversed, and the ITO's original disallowance was restored.

Issue 2: Direction for disallowance of bad debts of Rs. 34,510

The ITO disallowed the bad debt claim of Rs. 35,510 related to Smt. Sashi Prabha Devi, noting no serious recovery efforts and the debtor's sound financial position. The CIT(Appeals) examined the debtor's account and statement, noting that the debtor had not paid anything over ten years and the interest had been subjected to tax in preceding years. The CIT(Appeals) allowed the claim for Rs. 34,410 (interest component) and disallowed Rs. 1,000 (principal amount). The Tribunal upheld the CIT(Appeals) decision, noting the debtor's consistent stance against paying interest and the futility of legal action. Thus, the second ground in the revenue's appeal was rejected.

Conclusion:

The appeal was partly allowed, with the Tribunal reversing the CIT(Appeals) decision on the rent disallowance and upholding the CIT(Appeals) decision on the bad debt claim.