2016 (2) TMI 662 - AT - Income Tax

Appellate tribunal confirms disallowance of bad debts & repair expenses, emphasizes substantiation & legal compliance.

M/s Premji Vishram And Co, C/o. R.C. Reshamwala And Co. Versus Addl. Commissioner of Income Tax

M/s Premji Vishram And Co, C/o. R.C. Reshamwala And Co. Versus Addl. Commissioner of Income Tax - TMI Issues:1. Disallowance of bad debts claimed by the assessee.2. Disallowance of repair and maintenance expenditure.3. Disallowance made under section 14A of the Act.Issue 1: Disallowance of Bad Debts:The appeal concerned the disallowance of a claim of Rs. 3,50,000 made by the assessee as bad debts. The assessee, a partnership firm in the pharmaceutical products business, had given an advance to a person for a new venture, which did not materialize. The advance was written off as bad debt. The tax authorities disallowed this claim as the amount was not offered as income previously. The tribunal upheld this disallowance as the assessee failed to prove the advance was for business purposes. However, the tribunal directed the deletion of the amount offered as income in a subsequent assessment year.Issue 2: Disallowance of Repair and Maintenance Expenditure:The second issue revolved around the disallowance of repair and maintenance expenditure. The assessee claimed Rs. 4,59,666 as such expenditure, including a payment of Rs. 2,90,000 to a construction firm for renovation. The tax authorities treated this amount as capital expenditure due to extensive construction work. However, the tribunal found that the expenditure was for maintenance of existing premises, not new construction. Consequently, the tribunal directed the deletion of the disallowed amount.Issue 3: Disallowance under Section 14A of the Act:The final issue pertained to the disallowance made under section 14A of the Act. The assessee received dividend income of Rs. 8.94 lakhs and argued that the disallowance should be reasonable. The tribunal noted that Rule 8D was not applicable for that year and determined the disallowance at Rs. 46,425, about 5% of the dividend income. Considering various factors, including the nature of investments and business activities, the tribunal sustained the disallowance at the revised amount.In conclusion, the appellate tribunal partially allowed the appeal, confirming the disallowance of bad debts and the disallowance under section 14A while directing the deletion of the repair and maintenance expenditure disallowance. The judgment provided detailed reasoning for each issue, emphasizing the need for substantiating claims and applying relevant legal provisions.