2003 (8) TMI 209 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of bad debt claims.
2. Restriction of deduction under Section 80M.
3. Levy of interest under Section 234B.
4. Provision for laying and jointing expenses.

Detailed Analysis:

1. Disallowance of Bad Debt Claims:

*Assessment Year 1991-92:*
The assessee's appeal against the disallowance of bad debts amounting to Rs. 26,36,854 was considered. The AO and CIT(A) disallowed the claims for various reasons, including the lack of evidence that the debts had become bad and the relationships between the debtor and the directors of the assessee. The Tribunal noted that the debts were written off in the books of accounts, fulfilling the conditions under Section 36(1)(vii) post the amendment effective from 1st April 1989. It was held that the mere writing off of the debt as bad was sufficient, and the assessee need not prove that the debt had become bad. The Tribunal directed the deletion of the disallowance for amounts due from:
- M/s New Sahyadri Industries (Rs. 12,36,412).
- Vignahar Sahakari Pani Puravatha Sanstha (Rs. 75,000).
- Jalvahini Krishi Udyog (Rs. 85,488).

*Assessment Year 1992-93:*
The Tribunal considered a similar issue for the bad debt claim of Rs. 9,73,064 due from M/s New Sahyadri Industries. The facts and circumstances were identical to the previous year, and the Tribunal directed the AO to delete the addition following the same rationale.

2. Restriction of Deduction under Section 80M:
The assessee's claim for a deduction under Section 80M was restricted by the CIT(A) to Rs. 1,74,217 against the claimed Rs. 2,45,898. The Tribunal upheld the CIT(A)'s decision, citing the Bombay High Court's ruling in CIT vs. Maganlal Chhaganlal (P) Ltd., which mandates that the deduction under Section 80M should be calculated after deducting interest on monies borrowed for earning such income.

3. Levy of Interest under Section 234B:
The assessee contested the levy of interest under Section 234B on disputed additions. The Tribunal referred to its previous decision in Deshmukh Consultants vs. Dy. CIT and the Supreme Court's ruling in CIT vs. Anjum M.H. Ghaswala, which held that charging of interest under Section 234B is mandatory and consequential. Thus, the Tribunal dismissed this ground of appeal for both assessment years.

4. Provision for Laying and Jointing Expenses:
For the assessment year 1992-93, the assessee claimed a provision of Rs. 91,577 for laying and jointing expenses, which was disallowed by the AO and CIT(A) on the grounds that the liability was not ascertained. The Tribunal remanded the matter back to the AO for fresh consideration, allowing the assessee to present evidence to prove that the liability was ascertained and incurred in the normal course of business.

Conclusion:
The Tribunal partly allowed the appeals for both assessment years, directing the deletion of disallowances for bad debts while upholding the restrictions on Section 80M deductions and the levy of interest under Section 234B. The issue regarding the provision for laying and jointing expenses was remanded for fresh consideration.