2024 (10) TMI 701 - AT - Income Tax

Disallowance of bad debts - assessee had claimed deduction for bad debts business loss as disallowed by observing that that these debts were not offered to tax in the earlier year, and that they were capital nature, thus made the disallowance u/s. 36(2) - HELD THAT - On perusal of the assessment order, it is very clear that all the details necessary to verify the relevant fact in respect of this expenditure claimed by the assessee was available before the AO. AO proceeded to verify the requirement as per section 36(1)(vii) and 36(2) of the Act, for the reason that the assessee nomenclated these expenditure to be bad debt. Before the CIT(A), the assessee raised the contention of considering this expenditure to be business expenditure which has not been verified by the CIT(A). We note that, there is no allegation on behalf of the authorities below regarding these expenditure to be not genuine. CIT(A) has not disposed of Ground no.1 in toto, which has caused prejudice to the assessee. We therefore remand this issue to CIT(A) to verify these expenditure and to consider the claim of assessee in accordance with law. Adhoc disallowance under the head staff welfare expenses, marketing development expenses, conveyance expenses, travelling and conveyance expenses and miscellaneous expenses - HELD THAT - It is not denied that there is no personal expenditure embedded in the form of marketing development expenses, conveyance expenses, travelling and conveyance expenses and miscellaneous expenses claimed by the assessee that is incurred in cash. It is also submitted that except for self made vouchers, there are no other evidence to support the claim of the assessee. However, the rate of disallowance adopted by the Ld.AO does not have any basis and is on a higher side. We therefore restrict the disallowance to the extent of 10% and direct the Ld.AO to compute the disallowance accordingly.

Summary

Issues:
1. Disallowance of bad debts as business expenditure.
2. Adhoc disallowance of various expenses.
3. Levying of interest under Sections 234B and 234C of the Income Tax Act.

Analysis:
1. The first issue pertains to the disallowance of bad debts as business expenditure. The assessee claimed INR 15,79,234 as bad debts written off in the books of account, contending it was a loss incidental to regular business activity. The AO disallowed this amount under section 36(2) of the Act. The ITAT admitted an additional ground raised by the assessee and remanded the issue to the CIT(A) for verification, emphasizing that if the expenditure was for business purposes, it should be allowed under the relevant provision of the Act.

2. The second issue involves the adhoc disallowance of various expenses. The AO disallowed 20% of expenses totaling INR 3,95,526 without proper basis. The ITAT found no personal expenditure in the claimed expenses and reduced the disallowance to 10%, instructing the AO to compute the disallowance accordingly.

3. The third issue concerns the levying of interest under Sections 234B and 234C of the Income Tax Act. However, the judgment does not provide detailed analysis or outcome related to this issue.

In conclusion, the ITAT partially allowed the appeal filed by the assessee, remanding one issue to the CIT(A) for verification and reducing the adhoc disallowance of various expenses. The judgment emphasizes the importance of verifying business expenditures and ensuring proper computation under the Income Tax Act.