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of <h1>Tribunal allows Revenue's appeal on interest disallowance, remands bad debts issue for reassessment.</h1> <h3>DEPUTY COMMISSIONER OF INCOME TAX. Versus SANJAY JAIN.</h3> The Tribunal partially allowed the Revenue's appeals by upholding the disallowance of interest on borrowed funds. However, the Tribunal remanded the issue ... - Issues Involved:1. Disallowance of bad debts/business loss claims.2. Disallowance/addition of interest on funds borrowed and allegedly diverted to connected concerns.Issue-wise Detailed Analysis:1. Disallowance of Bad Debts/Business Loss Claims:The respondent, an individual with diverse income sources, claimed bad debts of Rs. 4,45,219 for the assessment year (AY) 1984-85 and Rs. 2,88,109 for AY 1985-86. The Assessing Officer (AO) questioned these claims, noting that most debts were from 1981-1983 and not legally barred. The AO allowed claims below Rs. 3,000 for AY 1984-85 and Rs. 10,000 for AY 1985-86, disallowing Rs. 3,86,288 and Rs. 2,70,109 respectively. The AO believed the respondent should have pursued legal action.The respondent appealed to the Commissioner of Income Tax (Appeals) [CIT(A)], arguing these were trading losses incidental to business, citing P. Satyanarayana vs. CIT. The CIT(A) found the AO had not properly analyzed the claims and directed a re-examination by the AO, emphasizing the role of Motion Picture Associations in disputes and the specific case of Universal Films where the debt was unrecoverable due to the project's abandonment.The Tribunal upheld the CIT(A)'s decision, stating that the matter should be re-examined by the AO to determine if the claims are allowable as business losses or bad debts, thus rejecting the Revenue's appeal on this ground.2. Disallowance/Addition of Interest on Funds Borrowed and Allegedly Diverted to Connected Concerns:The AO disallowed Rs. 89,350 for AY 1984-85 and Rs. 96,490 for AY 1985-86, claiming the respondent diverted borrowed funds to M/s Gymkhana Service Station and M/s Jyoti Shipping (P) Ltd., where the respondent was a partner and director respectively. This followed a similar disallowance for AY 1983-84. The CIT(A) reversed the AO's decision, noting sufficient interest-free funds were available, and the facts were similar to AY 1983-84.The Departmental Representative argued that the Tribunal had reversed the CIT(A)'s decision for AY 1983-84, confirming the funds were borrowed on interest. The respondent's counsel argued sufficient interest-free funds were available and no fresh amounts were advanced to M/s Jyoti Shipping (P) Ltd. during the assessment years under appeal.The Tribunal noted the factual finding from AY 1983-84 that funds advanced to connected concerns came from borrowed funds. The Tribunal found no change in circumstances to alter this view and upheld the disallowance of interest.However, regarding the alternative submission under Section 67(3) of the Income Tax Act, 1961, for the amount advanced to M/s Gymkhana Service Station, the Tribunal directed the AO to examine this claim on merits, as it was raised for the first time and relevant facts were not before the Tribunal.Conclusion:The Tribunal partially allowed the Revenue's appeals, upholding the disallowance of interest on borrowed funds but remanding the issue of bad debts/business losses and the alternative claim under Section 67(3) to the AO for re-examination.
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