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2013 (3) TMI 119 - AT - Income TaxClaim of bad debt - provisions of Section 36(1)(vii) r.w.s. 36(2) - The Assessing Officer was of the opinion that these amounts did not pertain to revenue a/c and was more than 5 years old and hence not allowable as business expenses - held that - matter remanded back for verification of submissions made by the assessee. Advances written off - Bad debts - held that - Since Perfect Engineering Associates is a sister concern, the need for claiming it as a loss has not been properly explained. Even though it was stated that the loss was crystallized during the year as it was written off during the year, the assessee could not justify how the loss was allowable for the purpose of business. Unless loss arose in the course of business, the same cannot be allowed under section 28. Prima facie it is clear to us that the amount is not allowable as loss. - however matter remanded back for verification.
Issues Involved:
1. Disallowance of bad debts and advances written off. 2. Taxation of unsecured loans credited to the Profit & Loss Account. Detailed Analysis: 1. Disallowance of Bad Debts and Advances Written Off: A) Remission of Rs.4,77,936/-: The assessee claimed a remission of Rs.4,77,936/- as a deduction after writing off the amounts in the books of account. The Assessing Officer (AO) disallowed the claim, stating that the assessee did not justify the amounts as covered by the provisions of Section 36(1)(vii) read with Section 36(2). The CIT (A) confirmed the additions, citing insufficient details to support the claims. The Tribunal noted that the assessee provided detailed information and account copies, indicating that the amounts were accounted for in earlier years and arose in the course of business. However, since the AO did not examine the issue correctly, the Tribunal remitted the issue back to the AO for factual examination to determine if the amounts were taken into account in earlier years and if they were receivables from business operations. B) Bad Debts of Rs.51,33,489/-: The amounts written off pertained to contract receipts due from Maharashtra Jeevan Pradhikaran (Rs.39,27,208/-) and the Municipal Corporation of Greater Mumbai (Rs.12,06,281/-) for more than 10 years. The Tribunal observed that these amounts were taken into account in earlier years and written off during the year, satisfying conditions laid down by the Hon'ble Bombay High Court and the Hon'ble Supreme Court. However, due to confusion regarding contracts undertaken 10 years back and current contracts, the Tribunal remitted the issue back to the AO for factual examination to verify if the conditions under Section 36(2) were satisfied. C) Advances Written Off of Rs.4,02,200/-: The assessee wrote off an advance from a sister concern, Perfect Engineering Associates, Aurangabad, claiming it as a business loss. The Tribunal noted that the assessee could not justify how the loss was allowable for business purposes. The Tribunal remitted the issue back to the AO for fresh examination to determine if the advance was given in the course of business and if the loss arose during the year. 2. Taxation of Unsecured Loans Credited to the Profit & Loss Account: The assessee included an amount of Rs.36,61,174/- in the Profit & Loss Account and offered it to tax. The CIT (A) did not allow the claim to exclude this amount, stating that there was no basis for the claim and no material on record to support it. The Tribunal noted that the issue was raised before the CIT (A) and rejected due to lack of relevant facts. The Tribunal emphasized the need to examine whether the amounts were to be treated as income or not, considering the assessee's treatment of the amounts as income. The Tribunal remitted the issue back to the AO to examine the nature of the amounts taken to the Profit & Loss Account and determine if they arose in the course of business, applying relevant case law. Conclusion: The Tribunal restored the issues contested by the assessee to the file of the AO for de novo assessment, directing the AO to examine the details and claims properly and give clear findings. The assessee's appeal was partly allowed.
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