2011 (1) TMI 1182 - AT - Income Tax

Bad debt disallowance of deduction - Held that - assessee made the deposit with the banking company, so there was relationship of debtor and creditor and as the amount deposited by the assessee with the bank could not be recovered so, there was loss to the assessee, which was claimed as bad debts. The assessee had written off the amount in the books of account, therefore, the claim of the assessee that it is allowable as bad debts. - Decided in favor of assessee. Non deduction of TDS u/s 194H - Expenditure of brokerage against the transactions of buying and selling properties - Held that - assessee is an individual and therefore, the provisions of s. 194H are not applicable; however, in the present case, the provisions contained in the second proviso to s. 194H are also not applicable to the facts of the assessee s case because her total sales/gross receipts did not exceed the monetary limit specified in s. 44AB of the IT Act - learned CIT(A) was not justified in confirming the addition made by the AO. - Decided in favor of assessee. Depreciation and administrative expenses - Ownership - Held that - issue relating to depreciation on building set aside to the file of the AO for fresh adjudication - Regarding disallowance of adminstrative expenditure - disallowance of entire expenses was not justified, to meet the ends of justice deem it appropriate to restrict the disallowance to the extent of 50 per cent out of the disallowances made by the AO on account of the expenses. Addition in capital account - Held that - assessee furnished a handwritten receipt issued by one Shri Bhupinder Singh s/o S. Ajmer Singh where the said person had shown that he had paid Rs. 1,50,000 through account payee cheque to the assessee towards purchase of old school furniture from her, it appears that all the information was in his possession and if he was having any doubt regarding the receipt by the assessee on account of sale of old furniture, AO made the addition only on the basis of doubt and the learned CIT(A) had also not given any cogent reason while confirming the action of the AO, addition sustained by the learned CIT(A) deleted. Interest - Addition on presumption and surmises - Held that - assessee has not been rebutted at any stage that the loan was given to close relatives i.e., son-in-law and sons and that no interest has been charged from them since friendly loans were given out of surplus money. In the present case, the AO had not brought any material on record to substantiate that the assessee in her money lending business has raised interest-bearing loan which had been utilised for giving interest-free loans, addition made by the AO on the basis of presumption was not justified, addition made and sustained on the basis of presumption deserves to be deleted, the appeal is partly allowed for statistical purposes

Issues Involved:
1. Addition of Rs. 39,00,000 claimed as bad debt.
2. Addition of Rs. 8,74,160.
3. Disallowance of depreciation of Rs. 2,88,262 and administrative expenses of Rs. 1,54,182.
4. Addition of Rs. 1,50,000.
5. Addition of Rs. 31,56,983.

Detailed Analysis:

1. Addition of Rs. 39,00,000 claimed as bad debt:
The assessee claimed Rs. 39 lacs as bad debts, which included Rs. 34 lacs in fixed deposits with City Co-operative Bank Ltd. and Rs. 5 lacs with Century Consultants Ltd. The AO disallowed the claim, stating that the deposits were capital investments and not part of the moneylending business. The CIT(A) upheld the AO's decision. However, the ITAT found that the assessee had written off the amounts in the books of account and that the relationship between the banker and the customer was that of debtor and creditor. Citing the Supreme Court's decision in Shanti Prasad Jain v. Director of Enforcement, the ITAT allowed the claim as bad debts.

2. Addition of Rs. 8,74,160:
The assessee claimed brokerage expenses but did not deduct TDS. The AO disallowed the claim under section 194H, which was confirmed by the CIT(A). The ITAT found that the provisions of section 194H were not applicable to individuals unless their turnover exceeded the limits specified under section 44AB. Since the assessee's gross receipts did not exceed the specified limit, the ITAT directed the deletion of the addition.

3. Disallowance of depreciation of Rs. 2,88,262 and administrative expenses of Rs. 1,54,182:
The AO disallowed depreciation on the building and other assets, stating that the building was used for residential purposes. The CIT(A) confirmed the disallowance. The ITAT set aside the issue of depreciation on the building for fresh adjudication, noting a contradiction in the AO's findings and the assessee's claims. For administrative expenses, the ITAT restricted the disallowance to 50% due to the possibility of personal usage.

4. Addition of Rs. 1,50,000:
The AO added Rs. 1,50,000 as unexplained receipt, doubting the genuineness of the transaction. The CIT(A) upheld the addition. The ITAT found that the AO had all the information and could have verified the transaction but did not. Therefore, the ITAT deleted the addition, stating it was based on doubt.

5. Addition of Rs. 31,56,983:
The AO added Rs. 31,56,983, presuming that the assessee should have charged 15% interest on loans given. The CIT(A) confirmed the addition. The ITAT found that the AO's presumption was not justified, as the assessee had given loans to close relatives without charging interest and had surplus funds. The ITAT deleted the addition, noting that the AO had not substantiated that the assessee had raised interest-bearing loans for giving interest-free loans.

Conclusion:
The ITAT allowed the appeal partly, directing the AO to allow the claim of bad debts, delete the addition of brokerage expenses, and restrict the disallowance of administrative expenses to 50%. The ITAT also set aside the issue of depreciation on the building for fresh adjudication and deleted the additions of Rs. 1,50,000 and Rs. 31,56,983.

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