Bad debt proof and expense disallowance: irrecoverability must be shown, while statutory travel limits bar rule-based additions.

Bad debt deduction for administrative charges recoverable from a sister concern was denied because the assessee did not prove that recovery had become irrecoverable in the relevant year; financial difficulty alone was insufficient. Disallowance under section 37(2A) for business promotion, travelling and hotel expenses was upheld only in part, as the record showed mainly director-related, entertainment-like expenditure, while the hotel expense component was not established as inadmissible and the employee-related portion alone warranted restriction. Disallowance under rule 6D failed because the travelling expenditure remained within the prescribed statutory ceiling, so no addition could survive on that ground.

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Issues: (i) Whether the amount written off towards administrative charges recoverable from a sister concern was allowable as a bad debt; (ii) whether the disallowance made under section 37(2A) of the Income-tax Act, 1961, in respect of business promotion, travelling and hotel expenses was justified; and (iii) whether the disallowance under rule 6D of the Income-tax Rules, 1962, was sustainable.

Issue (i): Whether the amount written off towards administrative charges recoverable from a sister concern was allowable as a bad debt.

Analysis: The claim failed because the record did not establish that the debt had become irrecoverable in the relevant year. Mere financial difficulty of the sister concern or reduction of charges, without evidence showing that recovery had become hopeless, was insufficient to justify a bad debt deduction. The absence of a formal agreement on the charging arrangement did not alter the need to prove actual irrecoverability. The cited authority was distinguished on facts because there the debtor had gone into liquidation and recovery was shown to be impossible.

Conclusion: The deduction was not allowable in favour of the assessee.

Issue (ii): Whether the disallowance made under section 37(2A) of the Income-tax Act, 1961, in respect of business promotion, travelling and hotel expenses was justified.

Analysis: The expenses were found to relate largely to directors and to expenditure of an entertainment-like character at expensive hotels and clubs. Only a small portion could be attributed to employee participation. The hotel expenses were not shown to be inadmissible on the facts, so no disallowance was warranted for that component. Relief was therefore restricted to the portion attributable to employees, together with the full hotel expense component.

Conclusion: The disallowance was partly sustained and partly deleted, resulting in partial relief to the assessee.

Issue (iii): Whether the disallowance under rule 6D of the Income-tax Rules, 1962, was sustainable.

Analysis: The travelling expenditure was found to be within the permissible limit prescribed by rule 6D. Since the statutory ceiling was not exceeded, the addition could not survive.

Conclusion: The disallowance was deleted in favour of the assessee.

Final Conclusion: The appeal succeeded only in part, with relief granted on the entertainment and travelling expenditure additions, while the bad debt claim was rejected.

Ratio Decidendi: A bad debt deduction is allowable only when irrecoverability is proved for the relevant year, and disallowance provisions cannot be invoked where the expenditure falls within the statutory limit or where the inadmissible component is not established on the facts.

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