1980 (7) TMI 148 - AT - Income Tax

Summary

Issues Involved:

1. Disallowance of bad debt of Rs. 52,105.
2. Disallowance of Rs. 2,000 out of oil expenses and Rs. 2,050 out of shop expenses.
3. Disallowance of car expenses to the extent of Rs. 1,172 and depreciation to the extent of Rs. 1,331 in respect of motor car.
4. Inclusion of Rs. 6,257 received from customers on account of cess as a trading receipt.
5. Disallowance of Rs. 17,316 on the ground that it is speculation loss.

Detailed Analysis:

1. Disallowance of Bad Debt of Rs. 52,105:

The assessee claimed a bad debt of Rs. 52,105 in the account of M/s. Radheyshyam Ramkishan of Nidwai. The assessee had regular transactions with this party, and due to doubts about the creditworthiness, no further advances were made in the relevant year. Despite efforts, only Rs. 55,731 was recovered, and the remaining Rs. 52,105 was written off after local inquiries revealed the debtor had no assets. The ITO and AAC rejected the claim, stating that the debtor could still pay a substantial amount and the assessee did not pursue legal action. The Tribunal, however, found that the write-off was justified as a prudent business decision and directed the claim to be allowed.

2. Disallowance of Rs. 2,000 out of Oil Expenses and Rs. 2,050 out of Shop Expenses:

The disallowance of Rs. 2,000 was comprised of Rs. 1,500 paid to M/s. Baijnath Prasad Basudeo Prasad as settlement and Rs. 500 written off in the drum account. The Tribunal found that the payment to settle the dispute over oil delivery was a business loss and allowed it. For the drum account, the Tribunal agreed with the assessee that the drums were fully damaged and deleted the disallowance of Rs. 500. Regarding the shop expenses, Rs. 825 was disallowed as it pertained to earlier years, and Rs. 1,500 spent on entertainment and charity was also disallowed, which the Tribunal upheld.

3. Disallowance of Car Expenses and Depreciation:

The ITO disallowed 1/3rd of the car expenses and depreciation on the ground of personal use by the partners. The Tribunal found this excessive and directed that the disallowance be restricted to 1/4th.

4. Inclusion of Rs. 6,257 as Trading Receipt:

The assessee collected cess on oil sales amounting to Rs. 6,257, which was credited to an "Amanat account" due to an ongoing dispute regarding its levy. The ITO included this amount as a trading receipt. The Tribunal, referencing Supreme Court and High Court decisions, held that the amount was held in trust for either the Government or the customers and could not be treated as the assessee's trading receipt. The Tribunal directed the deletion of this addition.

5. Disallowance of Rs. 17,316 as Speculation Loss:

The ITO treated Rs. 17,316 debited to the oil and khal account as speculation loss since no delivery of goods had taken place. The Tribunal found that these payments were damages for breach of contract due to circumstances like the non-availability of wagons, which did not fall under speculative transactions as defined by s. 43(5). The Tribunal directed that the claim be allowed as a business loss.

Conclusion:

The appeal was partially successful. The Tribunal allowed the claims for bad debt, oil expenses, and damages for breach of contract while upholding some disallowances in shop expenses and reducing the disallowance for car expenses. The inclusion of the cess amount as a trading receipt was also deleted.