1995 (9) TMI 93 - AT - Income Tax

Tribunal grants relief on interest charges, affirms accounting method, and directs AO on refund adjustment

PRADESHIYA INDUSTRIAL & INVESTMENT CORPORATION OF UP. LTD. Versus DEPUTY COMMISSIONER OF INCOME TAX.

PRADESHIYA INDUSTRIAL & INVESTMENT CORPORATION OF UP. LTD. Versus DEPUTY COMMISSIONER OF INCOME TAX. - TTJ 054, 438, Issues Involved1. Non-est return filed on 9th July, 1992.2. Consideration of facts and particulars furnished with the return.3. Credit of interest on refund for the assessment year 1989-90.4. Disallowance of part of the expenditure claimed in earning interest income.5. Disallowance of bad debt of Rs. 2,23,891.6. Disallowance of Rs. 17,099 as expenditure on gifts.7. Charge of interest under sections 234B and 234C of the IT Act.8. Adjustment of refund for the assessment year 1989-90 against the demand for the assessment year 1990-91.Issue-wise Detailed Analysis1. Non-est Return Filed on 9th July, 1992The appellant contended that the CIT(A) did not address the grounds related to the non-est return filed on 9th July, 1992. However, the appellant was not serious in pressing this ground. The Tribunal treated this ground as not pressed.2. Consideration of Facts and Particulars Furnished with the ReturnSimilarly, the appellant did not press the ground regarding the consideration of facts and particulars furnished with the return. This ground was also treated as not pressed.3. Credit of Interest on Refund for the Assessment Year 1989-90The appellant requested the adjustment of the refund for the assessment year 1989-90 against the demand for the year under appeal. The Tribunal found this request reasonable and directed the AO to address this grievance according to law and facts on record.4. Disallowance of Part of the Expenditure Claimed in Earning Interest IncomeThe appellant followed a mixed or hybrid system of accounting, showing interest income on a cash basis and expenses on an accrual basis. The AO disallowed Rs. 8,31,71,272 of expenses not paid by 31st March, 1990, but the CIT(A) apportioned the disallowance to Rs. 2,30,88,862. The Tribunal held that the appellant's method of accounting, as per section 209(3)(b) of the Companies Act and the Government Notification of 16th May, 1989, was valid. It was concluded that the appellant correctly showed gross interest on a cash basis and disclosed the accrued amount by way of a note in the annual accounts. The Tribunal directed the deletion of the entire disallowance.5. Disallowance of Bad Debt of Rs. 2,23,891The appellant wrote off a bad debt of Rs. 2,23,891 in the assessment year under appeal, although it became bad in an earlier year. The Tribunal noted that under the amended section 36(1)(vii), the only requirement was that the debt should be written off in the year of the claim. The Tribunal allowed the claim for the bad debt.6. Disallowance of Rs. 17,099 as Expenditure on GiftsThe AO disallowed Rs. 17,099 under Rule 6B of the IT Rules, considering it as advertisement expenditure. The CIT(A) accepted that the expenditure was not for advertisement but still disallowed it. The Tribunal held that the expenditure on gifts and presentations was for business purposes and allowable under section 37 of the Act. The Tribunal allowed the entire amount and directed its deletion.7. Charge of Interest under Sections 234B and 234C of the IT ActThe CIT(A) held that the charge of interest under sections 234B and 234C was not appealable. The appellant requested proportional relief in interest charges based on the reduction in total income. The Tribunal agreed and directed the AO to allow necessary relief.8. Adjustment of Refund for the Assessment Year 1989-90 against the Demand for the Assessment Year 1990-91The Tribunal directed the AO to address the appellant's grievance regarding the adjustment of the refund for the assessment year 1989-90 against the demand for the assessment year 1990-91 according to law and facts on record.ConclusionThe appeal was partly allowed, with directions for the AO to address specific grievances and adjustments, and the deletion of disallowed expenses and bad debt.