Appeals partly allowed, additions deleted for interest income & depreciation. Disallowance of travel expenses upheld.

The Tribunal partly allowed the appeals, deleting additions for interest income disallowance on advances to M/s. S.S Industries Ltd and depreciation. However, the disallowance of travelling & conveyance expenses related to new business activity was upheld. The judgment was pronounced on 6.5.2015.

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Issues: Appeals against Ld. CIT(A) orders for assessment years 1997-98 and 1998-99; Disallowances on interest income, depreciation, and travelling & conveyance expenses.

Interest Income Disallowance - M/s. S.S Industries Ltd:
The AO made additions to the assessee's income for interest income on advances made to M/s. S.S Industries Ltd. The AO's decision was based on an inspector's report stating the company existed until 2003-04 and the assessee recognized the loans in its books. However, the Tribunal found that the interest income was not taxable as the debtor's financial condition deteriorated, making recovery improbable. Citing the State Bank of Travancore case, the Tribunal ruled the interest income was hypothetical, not real income, and deleted the additions for both assessment years.

Interest Income Disallowance - M/s. Khaitan Hostombe Spinels Ltd:
The AO disallowed interest income accrued on advances to M/s. Khaitan Hostombe Spinels Ltd, as the company stopped interest payments and faced legal action. The Tribunal held that as of the assessment year 1997-98, recovery of the principal amount was not doubtful, and the interest income should have been recognized. The Tribunal rejected the assessee's challenge to the addition for both years, upholding the Ld. CIT(A)'s decision.

Depreciation Disallowance:
The AO disallowed depreciation claiming no manufacturing activity took place in the factory premises during the years under consideration. The Tribunal found no evidence of business closure and allowed the depreciation claim, stating that temporary suspension of manufacturing activity does not warrant disallowance of depreciation on the factory building. The additions of depreciation for both years were deleted.

Travelling & Conveyance Expenses Disallowance:
The AO disallowed a portion of travelling & conveyance expenses related to exploring new business activity at Muradabad Plant. The Tribunal upheld the disallowance as the assessee failed to prove the expenses were solely for business purposes, and the new business activity's connection to the existing business was not established. The assessee's appeal on this ground was dismissed.

In conclusion, the Tribunal partly allowed the appeals, deleting the additions for interest income disallowance on advances to M/s. S.S Industries Ltd and depreciation, but upholding the disallowance of travelling & conveyance expenses related to the new business activity. The judgment was pronounced on 6.5.2015.

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