2011 (1) TMI 1182 - AT - Income Tax

ITAT allows bad debts claim, modifies expenses, sets aside depreciation issue.

Mrs. Sushila Mallick Versus Income-tax Officer

Mrs. Sushila Mallick Versus Income-tax Officer - TMI 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.