1998 (10) TMI 93 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of Bad Debt Claims u/s 36(1)(vii)
2. Accrual Basis of Interest on Securities/Debentures
3. Deduction u/s 32AB for Purchase of Computers
4. Disallowance of Expenses on Guest House u/s 37(4)
5. Enhancement of Income by CIT(A)
6. Consequential Interest

Summary:

1. Disallowance of Bad Debt Claims u/s 36(1)(vii):
The assessee claimed bad debts amounting to Rs. 22,96,07,906 and Rs. 23,26,40,735 for the assessment years 1991-92 and 1992-93 under section 36(1)(vii). The Assessing Officer disallowed the claims, asserting that the provisions of section 36(1)(viia) were more appropriate. The CIT(A) upheld this view, stating that the assessee did not write off the bad debts in the accounts of the debtors, violating RBI guidelines. However, the Tribunal found that sections 36(1)(vii) and 36(1)(viia) are distinct and independent, allowing the assessee to claim deductions under either provision. The Tribunal allowed the assessee's claim under section 36(1)(vii), emphasizing that the write-off in the Profit & Loss account sufficed for compliance.

2. Accrual Basis of Interest on Securities/Debentures:
The assessee accounted for interest on securities and debentures on an accrual basis but reduced the income by the amount not accrued during the year. The Assessing Officer and CIT(A) disallowed this reduction, asserting that income should be computed as per section 145. The Tribunal, however, held that the omission of sections 18 to 21 did not affect the assessee's claim, as section 5 (the charging section) remained unchanged. The Tribunal concluded that the assessee's method of accounting was consistent and legitimate, thus allowing the claim.

3. Deduction u/s 32AB for Purchase of Computers:
The assessee claimed a deduction u/s 32AB for amounts spent on computers, including site preparation and miscellaneous items. The Assessing Officer and CIT(A) disallowed the site preparation and miscellaneous expenses. The Tribunal allowed the deduction, stating that these expenses were integral to the installation of computers and should be treated as part of the cost of plant and machinery.

4. Disallowance of Expenses on Guest House u/s 37(4):
The assessee's expenses on the guest house were disallowed by the Assessing Officer and CIT(A) under section 37(4). The Tribunal, referencing various High Court decisions, held that such expenses are allowable under sections 30 and 31, which cover rent and repairs. The Tribunal restored the matter to the Assessing Officer to verify and allow the claim under the specific heads of rent, repair, and depreciation.

5. Enhancement of Income by CIT(A):
The CIT(A) enhanced the assessee's income by disallowing deductions under section 36(1)(viia) that were allowed by the Assessing Officer. Since the Tribunal allowed the assessee's claim under section 36(1)(vii), this ground became infructuous and required no further adjudication.

6. Consequential Interest:
The Tribunal noted that the issue of interest is consequential and directed that appropriate relief be granted to the assessee based on the other findings.

Conclusion:
The appeal for the assessment year 1989-90 was allowed, while the appeals for the assessment years 1990-91 and 1992-93 were partly allowed.