2015 (12) TMI 615 - AT - Income Tax

Disallowance of claim of bad debt - Held that - While loss on account of writing off the trade advances is, in principle, admissible as deduction under section 28 of the Act, in the light of the law laid down by Hon ble jurisdictional High Court in the case of CIT vs. Abdul Razak & Co. (1981 (2) TMI 27 - GUJARAT High Court), the factual elements embedded in stand of the assessee remain unsubstantiated. It is for the assessee to demonstrate at least by way of corroborative evidences, that the amounts were advanced in the course of, and for the purposes of business and have become unrecoverable. No such exercise has been carried out on the facts of this case. We, therefore, approve the conclusions arrived at by the CIT(A) and decline to interfere in the matter. - Decided against assessee. Disallowance of expenditure on club membership etc. - Held that - We find that the expenses in question are in respect of renewal/annual fee for credit card issued to Shri M.T. Tahakkar and Shri N.J. Thakkar. These are not as such, club expenses. It is also not in dispute that these cards were used for the purposes of business of the assessee. In view of these discussions, as also bearing in mind entirety of the case, we uphold the grievance of the assessee and direct the Assessing Officer to delete the impugned disallowance. - Decided in favour of assessee. Disallowance of notional interest on interest free advances - Held that - As the assessee had sufficient interest free funds, and, therefore, no disallowance could be made in respect of notional interest on interest free advances given by the assessee. She, however, fairly admits that this aspect of the matter has not been examined by any of the authorities below, and, therefore the matter can be remitted to the file of the Assessing Officer for this purpose. Learned Departmental Representative does not seriously oppose this prayer but submits that the matter should be left open, without any observations on the merits. In view of thee discussions, and with the consent of the parties, the matter stands restored to the file of the Assessing Officer for adjudication de novo. Addition u/s 41(1) - Held that - As far as this addition is concerned, it was added as income of the assessee on the ground that it represented ceased liability but then, as pointed out to us by the learned Counsel for the assessee, it has been subsequently reopened by the assessee. This fact was not before the Assessing Officer. In view of this development, and with the consent of the parties, this issue is also restored to the file of the assessing Officer for adjudication de novo.

Issues:
1. Disallowance of bad debt claim
2. Disallowance of club membership fees as personal expense
3. Disallowance of staff welfare, traveling, vehicle, and sales promotion expenses on adhoc basis
4. Disallowance of interest expenses on interest-free loans
5. Addition under section 41(1) of the Act

Analysis:

1. Disallowance of Bad Debt Claim:
The appellant challenged the disallowance of a bad debt claim of Rs. 8,00,000 made by the Assessing Officer. The claim was related to amounts written off in the books of accounts for liaison work. The Assessing Officer disallowed the claim due to lack of substantiation on the purpose of the advances. The CIT(A) upheld the disallowance, and the ITAT concurred, citing the need for the assessee to provide evidence that the amounts were advanced for business purposes and had become unrecoverable. The ITAT declined to interfere with the lower authorities' decision.

2. Disallowance of Club Membership Fees as Personal Expense:
The Assessing Officer disallowed Rs. 14,455 as personal expenses for club membership, which the appellant contended were business expenditures. The ITAT found that these expenses were for credit card membership fees used for business purposes and directed the Assessing Officer to delete the disallowance.

3. Disallowance of Various Expenses on Adhoc Basis:
The appellant contested adhoc disallowances of staff welfare, traveling, vehicle, and sales promotion expenses. The disallowances were made at 10% without substantial basis. The ITAT ruled in favor of the appellant, noting that as a corporate entity, personal expenses were not applicable, and there was no valid justification for the disallowances.

4. Disallowance of Interest Expenses on Interest-Free Loans:
The Assessing Officer disallowed Rs. 8,05,892 as interest expenses on interest-free advances. The ITAT remitted the matter to the Assessing Officer for further examination as the issue of sufficient interest-free funds had not been adequately addressed by the authorities.

5. Addition under Section 41(1) of the Act:
An addition of Rs. 37,104 was made under section 41(1) of the Act, alleging a ceased liability. However, the matter was subsequently reopened by the appellant. The ITAT restored this issue to the Assessing Officer for fresh adjudication.

In conclusion, the ITAT partially allowed the appeal, directing the Assessing Officer to revisit the issues related to interest expenses on interest-free loans and the addition under section 41(1) while ruling in favor of the appellant on other disallowances.

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