M/S HONESTY SUBSCRIPTION AGENCY,MUMBAI vs. ITO, WARD-18(1)(5), MUMBAI

On the facts and circumstances of the case aS well as in law, the Ld. CITIA) has erred in making an addition of Rs.33,311/- to the assessee total income which is 10% of car depreciation of Rs.78,821/- and motor car expenses of Rs.2,54,290/ totaling to Rs.3,33,111/ - and thereby erred treated the same as non-business expenditure.

On the facts and circumstances of the case as well as in law, the Ld. CIT(A) has erred in charging interest u/ s 2344, 234B, and 234C of the Income Tax Act; 1961. 4. On the facts and circumstances of the case as well as in law, the Ld. CITIA) has erred in invoking penalty proceedings u/ s 271(1)(c) r.W.s_ 274 of the income Tax Act; 1961. M/s Honesty Subscription Agency 3 ITA No. 4011/M/2019 4 Brief facts of the case are that the assessee is a partnership firm engaged in the business of subscription agency of various foreign books relating to textile and fabric. The assessee filed its return f income for AY 2014-15 declaring total income of Rs.8,62,760 /-. The case was selected for scrutiny under CASS and notices u/s. 143(2) & 142(1) of the Act were duly served upon the assessee. Ld. AO while examining financial statements observed that the assessee has claimed bad debts of Rs.7,36,356/- for irrecoverable loans and advances. Ld. AO asked for necessary documents in support of such claim. Ld. AO was also of the view that alleged loan writes off were not given in the ordinary course of business and thus not allowable. Ld. AO also made an ad-hoc disallowance of Rs.50,045 / - which included Rs.33,311 / - for the element of personal use of the motor car and Rs.16734 /- towards office and conveyance expenses. Income assessed at Rs.16,49,155 /- 5 . Aggrieved assessee preferred appeal before Ld. CIT(A) and partly succeeded as Ld. CIT(A) deleted the ad-hoc disallowance of Rs.16,734/-and for the remaining, confirmed the view taken by Ld. M/s Honesty Subscription Agency ITA No. 4011/M/2019 Assessing Officer. Aggrieved assessee is now appeal before the Tribunal: There is no representation on behalf of the assessee. 6_ Ld. DR vehemently argued supporting the order of both the lower authorities. We have heard the rival contentions and perused the material placed on record before uS. Ground No.1 of appeal raised by the assessee challenges the addition of Rs.7,36,356/- confirmed by the Ld. CIT(A) which was made by the Assessing Officer denying the claim of expenditure towards outstanding loan written off: 8. We observe that the total sum of Rs.7,36,356/ - pertains to following three parties: (i) Virchand N. Jain HUF at Rs.62,568 / - (ii) M/s B. Fasion & Co. of Rs.3,08,040 /- (iii) M/s Bhagya Laxmi Traders of Rs.3,00,000 / - 9 Before the lower authorities assessee has contended that all the above-stated loans were given in preceding years and interest income received on such loan was offered to tax but for past few years no interest income is being earned and there is no possibility to recover the said amount. It was also submitted before the lower M/s Honesty Subscription Agency 5 ITA No. 4011/M/2019 authorities that Mr. Virchand Jain expired before 3 years, M/s B. Fasion & Co. became insolvent in 2000-01 and the proprietor also expired before 3 years and M/s Bhagya Laxmi Traders became insolvent in 2000-01 10_ We observe that Central Board f Direct Taxes vide its Circular No. 12/2016 dated 30.05.2016 in pursuance to the ratio laid down by the Honble Supreme Court in the case of TRF Ltd._ 320 ITR 397 (SC) has directed that the claim for any debts or part thereof in any previous year shall be admissible u/s 36(1)(iii) of the Act if it is shown as irrecoverable in the books of accounts of the assessee for that previous year and it fulfils the conditions stipulated in sub- section 2 of section 36 of the Act. Thus it is now settled that if the assessee has claimed debts as bad and irrecoverable and written off in the book of accounts then the said claim should be allowed by the Revenue Authorities.

In the light of above and the ratio laid down by the Honble Apex Court in the case of TRF Ltd. (supra), we find in the instant appeal, the assessee-company is a partnership firm engaged in the business and used to give loans to various parties out of its surplus M/s Honesty Subscription Agency 6 ITA No. 4011/M/2019 funds available in the business and earned interest income thereon. Due to the circumstances beyond the control of the assessee some of loans became bad as the parties which were given loan either became insolvent or the owner key person died. Under these given facts the assessee-firm has written off outstanding debts in its books of accounts and reported it in the financial statements placed before the lower authorities. Therefore we are of the view that the assessee's claim of write off of bad debts of irrecoverable loans deserves to be allowed: However , in case the outstanding debts are recovered subsequently, same should be offered to tax Accordingly, Ground No. 1 raised by the assessee is allowed: 12_ As regards Ground No. 2 challenging the addition of Rs.33,311 /- towards the disallowance of car expenditure alleged to have been incurred for personal purposes, we find that the Ld. CITA) has rightly considered the facts of the case and one cannot eliminate the presence of personal element in the expenditure for running of motor car and depreciation claimed on such car. We thus find no reason to interfere in the finding of Ld: CIT(A) M/s Honesty Subscription Agency 7 ITA No. 4011/M/2019 confirming the disallowance of Rs.33,311 /-. Accordingly, the ground No. 2 of the assessee is dismissed.

In the result, the appeal filed by the assessee is partly allowed: Order pronounced in the open Court on 31/08/2021. - / - (SAKTIJIT DEY) (MANISH BORAD) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated: 31/08/2021. Rahul Sharma, Sr. P.S_ Copy of_the Order_forwarded to 1 The Appellant 2 _ The Respondent: 3 The CIT(A) - 4. CIT 5 . DR, ITAT, Mumbai 6. Guard file. BY ORDER, [/ / Dy. _ Assistant Registrar) ITAT, Mumbai