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Income Tax Appellate Tribunal, “A” BENCH: KOLKATA
Before: Shri Mahavir Singh, JM & Shri Waseem Ahmed, AM]
ORDER Per Shri Mahavir Singh, JM: Both these appeals by revenue and Cross Objections by assessee are arising out separate orders of CIT(A)-XX, Kolkata in appeal Nos. 488/CIT(A)-XX/Cir-34/07- 08/Kol dated 22.02.2010 and 202/CIT(A)-XX/DC.Cir-34/08-09/Kol dated 23.02.2010. Assessments were framed by ACIT/DCIT, Circle-34, Kolkata u/s. 143(3) of the Income- tax Act, 1961 (hereinafter referred to as “the Act”) for AYs 2005-06 and 2006-07 vide its separate orders dated 31.12.2007 and 24.12.2008 respectively.
2 & 886/Kol/2010 & CO 48 & 49/K/2010 M/s. Banwarilall Pasari AYs 2005-06 & 2006-07 2. The first common issue in the appeal of revenue for AY 2005-06 and the cross objection of assessee is against the order of CIT(A) restricting the disallowance of general expenses at 10% as against the disallowance made by AO at Rs.17,92,993/-. For this, revenue has raised following ground no.1 and assessee has also raised following ground no.1 in Cross Objection: “Revenue’s Ground No. 1:
1. The Ld. CIT(A)-XX, Kolkata has erred on facts and in law in deleting the addition in the head of general expenses of Rs.16,13,694/- made by the AO.” “Assessee’s ground No. 1:
1. For that in view of the facts and in the circumstances the Ld. CIT(A) is wholly unjustified in not fully deleting the arbitrary, ad hoc and estimated disallowance of Rs.17,92,993/- made in assessment on a/c of General Expenses and instead restricting/confirming the disallowance to the extent of Rs.1,79,299/- (10% of Rs.17,92,993/-) without considering the facts that the expenses on this a/c were incurred wholly and exclusively for the purpose of business.”
3. We have heard rival submissions and gone through facts and circumstances of the case. We find that the AO has made disallowance on account of general expenses amounting to Rs.17,92,993/- for the reason that the assessee has claimed expenses against rental income of Rs.1,60,36,143/-, motor car hire charges of Rs.8,91,631/- and dividend income of Rs.17,40,745/-. According to AO, this general expense does have any nexus with earning of income and claim of expenditure. Accordingly, he disallowed the entire claim of general expense. Aggrieved, assessee preferred appeal before CIT(A), who relying on his predecessor’s order for AY 2003-04, wherein the disallowance was restricted by CIT(A) at 10% and also the disallowance made by AO @ 20% in FY 2002-03, restricted the disallowance in this year at 10%. Aggrieved against restriction of disallowance at 10%, both revenue and assessee came in appeals before Tribunal. We find that on a query from the bench, the Ld. Counsel for the assessee as well as Ld. Sr. DR clearly stated that the revenue has accepted the restriction of disallowance at 10% and no further appeal was preferred for both the years i.e. AY 2002-03 and 2003-04 against the order of CIT(A) of the assessment order. In view of the above, we are of the view that the AO has not given any reasoning for making specific disallowance of expenses and even genuineness of expenditure is not in doubt. Accordingly, we confirm the order of CIT(A) restricting the disallowance at 10%. This common issue of both the appeal of the revenue and that of the Cross Objection of the assessee is dismissed.
3 & 886/Kol/2010 & CO 48 & 49/K/2010 M/s. Banwarilall Pasari AYs 2005-06 & 2006-07 4. The next common issue in both these appeals of revenue is against the order of CIT(A) deleting the disallowance of club expenses made by AO at Rs.4,64,052/-. For this, revenue has raised following ground no. 2 in AY 2005-06 and ground no. 1 in AY 2006-07: “AY : 2005-06:
2. The Ld. CIT(A)-XX, Kolkata has erred on facts and in law in deleting the addition in the head of club expenses of Rs.4,64,,052/- made by the AO.” “AY 2006-07:
1. The Ld. CIT(A)-XX, Kolkata has erred on facts and in law in deleting the addition in the head of club expenses of Rs.25,342/- made by the AO.”
5. We have heard rival submissions and gone through facts and circumstances of the case. We find that the AO has made disallowance on account of claim of club expenses considering the same as personal nature based on tax audit report of the assessee. The assessee before AO and also before CIT(A) claimed that these are genuine business expenditure. He clarified that the claim relates to club expenses does not include club membership fee but expenses are related to entertainment of clients engaged with the business of the assessee from where it is getting business. Ld. Counsel for the assessee drew our attention to column no.17(d)(ii) i.e. page 4 of the tax audit report which specifies the expenses as cost for club services and facilities used. In this regard, the CIT(A) deleted the addition by observing that the AO has not specified any particular item of expenditure which is personal in nature and not related to business. He also took note of the fact that 10% of general expenses have already been disallowed in earlier ground which includes club expenses. Before us also, Ld. Counsel for the assessee reiterated the above facts and placed reliance on the decision of Hon’ble Delhi High Court in the case of CIT Vs. Nestle India Ltd. (2008) 296 ITR 682 (Del) and also other judgments. Hon’ble Delhi High Court in the case of Nestle India Ltd., supra has held as under: “Held, dismissing the appeal, that since the Assessing Officer had allowed a deduction of 50 per cent of Rs.2 lakhs under section 37(2) of the Act, the expenditure incurred was for business purposes otherwise the entire amount would have been disallowed by the Assessing Officer. Even though there was no specific finding that the payment was made by the assessee for improving its business there was an implicit acknowledgment that the expenses incurred by the assessee were for business purposes. The assessee was entitled to deduction as claimed.” In view of the above, the club expenses are to be allowed because it is not admission fee of club but these expenses are in the nature of business and not personal in nature.
4 & 886/Kol/2010 & CO 48 & 49/K/2010 M/s. Banwarilall Pasari AYs 2005-06 & 2006-07 Accordingly, we confirm the order of CIT(A) and this issue of revenue’s appeals are dismissed. 6. The next issue in this appeal of revenue for AY 2005-06 is against the order of CIT(A) deleting the addition made by AO under the head interest on fixed deposit amounting to Rs.2.55 lacs. For this, revenue has raised following ground no.3: “3. The Ld. CIT(A)-XX, Kolkata has erred on facts and in law in deleting the addition in the head of interest on fixed deposits of Rs.2,55,000/- made by the AO.”
7. Briefly stated facts are that the AO noted the fact that the assessee has a fixed deposit of Rs. 30 lacs with SBI but no interest thereon has been credited in the P&L Account or in the computation of income or no interest has been disclosed while filing return of income. The AO calculated the interest @ 8.5% and added the same to the returned income of the assessee. The CIT(A) deleted the addition by observing that the fixed deposit was made with the SBI in the FY 1995-96 as a lien to secure banking facility for Anantha Udyog (P) Ltd. and not for earning any interest. According to CIT(A), no interest was received from this fixed deposit and even the principal amount was forfeited and ultimately written off in the books of account for FY 2005-06. According to him, no notional interest can be added as income of the assessee. Accordingly, he deleted the addition. Aggrieved, assessee is in second appeal before Tribunal.
We have heard rival submissions and gone through facts and circumstances of the case. We find that the AO has not made addition of notional interest but this interest has accrued to the assessee on fixed deposit of Rs. 30 lakhs made with SBI. The assessee neither credited any interest income to the P&L Account nor disclosed in the return of income. This fact when confronted to Ld. Counsel for the assessee, he fairly conceded that this addition can be confirmed. Accordingly, we are of the view that the addition on account of interest income accrued on fixed deposit of Rs.30 lacs is to be sustained. Accordingly, we confirm the addition and reverse the order of CIT(A) on this count. This issue of revenue’s appeal is allowed.
The next issue in this appeal of revenue for AY 2005-06 is against the order of CIT(A) deleting the addition made by AO under the head interest from loan amounting to Rs. 1,80,000/-. For this, revenue has raised following ground no. 4:
5 & 886/Kol/2010 & CO 48 & 49/K/2010 M/s. Banwarilall Pasari AYs 2005-06 & 2006-07 “4. The Ld. CIT(A)-XX, Kolkata has erred on facts and in law in deleting the addition in the head of interest from loan of Rs.1,80,000/- made by the AO.”
We have heard rival submissions and gone through facts and circumstances of the case. Briefly stated facts are that the AO noted the fact that the assessee has given a loan of Rs.15,00,000/- to one Shri Jaidev Prasad but no interest was charged thereon. This loan was given to Shri Jaidev Prasad in FY 2002-03 but since then no interest has been received by the assessee and even the principal is outstanding. Therefore, the interest has not been charged on the loan. The assessee before the AO contended that this is interest free loan. The AO did not accept the explanation of the assessee and charged notional interest @ 12% on the loan of Rs.15,00,000/- and accordingly, made addition of Rs.1.80 lacs. Aggrieved, assessee preferred appeal before CIT(A), who deleted the addition that no notional interest can be added unless and until there is positive proof that the assessee has actually charged interest or credited interest. We find that this is purely a notional interest and assessee specifically contended that this is interest free loan. The assessee since FY 2002-03 no interest has been charged and revenue has not made any addition qua this earlier years also. In view of the above facts, we confirm the order of CIT(A) in deleting the addition and this issue of revenue’s appeal is dismissed.
The next issue in this appeal of revenue for AY 2005-06 is against the order of CIT(A) deleting the addition made under the head loss on account of share trading. For this, revenue has raised following ground no. 5: “5. The Ld. CIT(A)-XX, Kolkata has erred on facts and in law in deleting the addition in the head of loss on account of share trading of Rs.76,05,429/- made by the AO.”
12. Briefly stated facts are that the assessee is engaged in the business of share trading and from share trading it claimed loss of Rs.76,05,429/-. The AO required the assessee to prove the claim of loss and in lieu of that assessee filed complete contract notes and purchase bills and sale bills for share trading but the AO made disallowance of this loss as no details whatsoever have been furnished for verification of assessee’s claim in respect to following parties: “(i) Assam Roofing Ltd. Rs. 66,04,500 (ii) Globe Stock & Securities Ltd. Rs. 3,91,300 (iii) Sangatri Construction Ltd. Rs. 4,77,309 (iv) Stanbey Securities Ltd. Rs. 1,32,320/-”
The AO also observed that the major portion of share loss of Rs.66,04,500/- has been claimed to have from the transaction of share of Assam Roofing Ltd., which is a company related to the assessee as a sister concern or as a financier. He also noted that the assessee has received a sum of Rs.6,94,559/- as interest from above stated company out of loan given to the company. Accordingly, he said that this is a plain claim of loss to adjust against the rental income. Accordingly, he disallowed the claim of loss. Aggrieved, assessee preferred appeal before CIT(A). Before him assessee contended that all the details of share trading along with closing stock of shares, copies of contract notes, purchase and sale bills were produced and no specific defect was pointed out in the share transaction and on the basis of the same, CIT(A) deleted the addition by observing as under: “Ground no. 5 relates to addition of Rs.1,80,000/- on account of interest. The AO found that the appellant has given loan of Rs.15,00,000/- to Shri Jaidev Prasad, but no interest was charged thereon. It was explained before the AO that the loan was given in FY 2002-03, but, since then, no interest has been received by the appellant; and, even the principal has not been returned. The appellant has therefore not charged any interest on the loan. The AO did not accept the explanation and made an addition of Rs.1,80,000/- on account of interest @ 12%. The ld. AR reiterated the submission already made before the AO. It was also submitted that the provisions of the Income Tax Act provide for taxation of the real income and not the notional income. I find force in the submission of the appellant. The AO has failed to bring any positive material on record to establish that the appellant has actually earned interest on loan. The AO was not justified in making the addition on account of notional interest. Ground no. 5 is allowed.”
Aggrieved, now revenue is in appeal before us.
We have heard rival submissions and gone through facts and circumstances of the case. Before us Ld. Counsel for the assessee filed complete paper book consists of pages 1 to 62 and another supplementary paper book consists of pages 1 to 68. Ld. Counsel for the assessee drew our attention to page 62 of the assessee’s paper book wherein vide letter dated 29th December, 2007 the assessee has filed complete details i.e. opening stock, purchases, sales, closing stock of the shares and profit or loss vide item no. 3, which reads as under: “3. Detailed chart showing opening stock, purchase, sale, closing stock and profit or loss thereon has been filed vide letter dated 20.12.2007. Further copy of contract notes and bills are been produced for verification.”
7 & 886/Kol/2010 & CO 48 & 49/K/2010 M/s. Banwarilall Pasari AYs 2005-06 & 2006-07 Ld. Counsel for the assessee drew our attention to the details of contract notes, purchase and sale bills of shares wherein complete details are enclosed in the paper book. In view of the above details available in the assessment record and the fact that the assessee has entered into transactions by virtue of which incurred loss in share trading business is proved. Moreover, the AO has not carried out any verification despite the fact that he was having complete information before him. The addition made by AO is totally on the basis of conjecture and surmises. The assessee has filed complete details which was considered by CIT(A). In view of the above, we are of the view that the CIT(A) has rightly allowed the claim of loss and we confirm the same. This issue of revenue’s appeal is dismissed.
The next issue in this appeal of revenue for AY 2006-07 is against the order of CIT(A) deleting the addition made under the head speculation loss. For this, revenue has raised following ground no. 4: “4. The Ld. CIT(A)-XX, Kolkata has erred on facts and in law in deleting the addition in the head of speculation loss on account of Rs.79,30,000/- made by the AO.”
15. At the time of hearing, both the representatives of revenue and assessee conceded that the issue is identical and the facts are common to the ground of appeal for AY 2005-06. Since we confirmed the action of CIT(A) and dismissed the ground of appeal of revenue for AY 2005-06, and since the issue is identical and facts are common to the ground of appeal of revenue for AY 2006-07, following the same, we also dismiss this ground of appeal of revenue.
16. The next issue in this appeal of revenue for AY 2005-06 is against the order of CIT(A) deleting the addition made by AO under the head legal expenses amounting to Rs.1,39,836/-. For this, revenue has raised following ground no.6: “6. The Ld. CIT(A)-XX, Kolkata has erred on facts and in law in deleting the addition in the head of legal expenses of Rs.1,39,836/- made by the AO.”
17. Briefly stated facts are that the AO disallowed the claim of legal expenses of Rs.1,39,836/- by noting that the legal expenses are incurred with regard to acquisition of properties and maintenance of properties and these are not related to business. Hence, he disallowed the expenses being capital in nature. Aggrieved, assessee preferred appeal before CIT(A). The CIT(A) allowed the claim of the assessee by observing that 8 & 886/Kol/2010 & CO 48 & 49/K/2010 M/s. Banwarilall Pasari AYs 2005-06 & 2006-07 the AO has not brought any material on record to show that expenses are capital or personal in nature. Hence, he deleted the addition. Aggrieved, revenue is in second appeal before Tribunal.
We have heard rival submissions and gone through facts and circumstances of the case. We find that these legal expenses comprised of audit fee paid to M/s. G. L. Jhunjhunwala & Co., Chartered Accountants and arbitration fee paid to one Shri Chittatosh Mukherjee. These expenses like audit fee and arbitration fee are allowable as business expenditure. The revenue in earlier years had not made any disallowance on this aspect and accepted the claim of legal expenses. Even for the sake of consistency also, these expenses should have been allowed. Accordingly, we confirm the order of CIT(A) on this issue and the revenue’s ground of appeal is dismissed.
19. The next common issue in revenue’s appeals and the Cross Objections of the assessee is as regards to the order of CIT(A) in directing the AO to compute the disallowance u/s. 14A of the Act read with Rule 8D of the I. T. Rules, 1962. For this, revenue has raised following ground no. 7 in appeal for AY 2005-06 and assessee has raised following grounds nos. 2 and 3 in cross objection for AY 2005-06: Revenue’s ground for AY 2005-06:
7. The Ld. CIT(A)-XX, Kolkata has erred on facts and in law in giving relief to the assessee in the head of disallowance u/s. 14A of Rs.14,54,746/-.”
Assessee’s grounds for AY 2005-06: “2. For that in view of the facts and in the circumstances the Ld. CIT(A) is wholly unjustified in directing the AO to compute the disallowance of expense on a/c of interest paid on loan u/s. 14A of the Act read with Rule 8D of the I T Rules allegedly attributable to the earning of exempt dividend income of Rs.17,40,745/- without establishing the direct nexus between the expenses incurred and the dividend earned and also without considering the fact and the law that the new Rule 8D introduced w.e.f. 24.03.2008 was not applicable for the relevant AY 2005-06.
For that in view of the facts and in the circumstances the Ld. CIT(A) is wholly unjustified in issuing the aforesaid direction to the AO to compute the disallowance of expense on a/c of interest paid on loan u/s. 14A of the Act read with Rule 8D of the I. T. Rules, without first directing the deletion of the arbitrary, ad hoc and estimated disallowance of Rs.17,40,745/- made in assessment.”
Briefly stated facts are that the assessee has earned dividend income of rs.17,40,742/- from investment in shares. The AO noted from the accounts of the assessee that it had taken loan of Rs.15,48,11,638/- and invested in shares at 9 & 886/Kol/2010 & CO 48 & 49/K/2010 M/s. Banwarilall Pasari AYs 2005-06 & 2006-07 Rs.7,73,33,203/- which represents 49.95% of the loan taken and balance 49.85% borrowing represents loans given to parties. The assessee debited a sum of Rs.35,81,188/- on account of interest paid/payable to parties and accordingly, he made disallowance u/s. 14A of the Act qua the exempt income but restricted the disallowance to the extent of exempt income only at Rs.17,40,745/-. Aggrieved, assessee preferred appeal before CIT(A), who directed the AO to apply rule 8D of the I. T. Rules read with section 14A of the Act and made disallowance accordingly. Against these directions, revenue as well as assessee both came in appeal before us.
We have heard rival submissions and gone through facts and circumstances of the case. We find that the dividend income earned by the assessee is to the extent of Rs.17,40,745/-. The AO is unable to prove any nexus with the disallowance of expenditure and that of the earning of exempt income. However, the relevant assessment year involved is 2005-06 and Rule 8D of the I. T. Rules will not apply to this assessment year as held by Hon’ble Bombay High Court in the case of Godrej Boyce Mfg. Co. Ltd. Vs. DCIT (2010) 328 ITR 81 (Bom), the provision being prospective and not retrospective. In term of the above, we are of the view that the Tribunal is taking a consistent view and restricted the disallowance at 1% of the exempt income. Hence, we also direct the AO to make disallowance to the extent of 1% of the dividend income. The AO is directed accordingly. Both the ground of appeal
of revenue and that of the assessee are partly allowed as indicated above.
22. The next common issue in revenue’s appeals and the Cross Objections of the assessee is as regards to the order of CIT(A) in directing the AO to compute the disallowance u/s. 14A of the Act read with Rule 8D of the I. T. Rules, 1962. For this, revenue has raised following ground no. 3 in appeal for AY 2006-07 and assessee has raised following grounds nos. 1 and 2 in cross objection for AY 2006-07: Revenue’s ground for AY 2006-07: “3. The Ld. CIT(A)-XX, Kolkata has erred on facts and in law in giving relief to the assessee in the head of disallowance u/s. 14A of Rs.5,87,902/-.”
Assessee’s grounds for AY 2005-06: “1. For that in view of the facts and in the circumstances the Ld. CIT(A) is wholly unjustified in directing the AO to compute the disallowance of expense claimed on different a/cs. u/s. 14A of the Act read with Rule 8D of the I. T. Rules allegedly attributable to the earning of exempt dividend income of Rs.30,14,985/- without 10 & 886/Kol/2010 & CO 48 & 49/K/2010 M/s. Banwarilall Pasari AYs 2005-06 & 2006-07 establishing the direct nexus between the expenses incurred and the dividend earned and also without considering the fact and the law that the new Rule 8D introduced w.e.f. 24.03.2008 was not applicable for the relevant AY 2006-07.
For that in view of the facts and in the circumstances the Ld. CIT(A) is wholly unjustified in issuing the aforesaid direction to the AO to compute the disallowance of expense u/s. 14A of the Act read with Rule 8D of the I. T. Rules, without first directing the deletion of the arbitrary, ad hoc and estimated disallowance of Rs.10,29,476/- made in assessment.”
At the time of hearing, both the representatives of revenue and assessee conceded that the issue on hand is identical and the facts are common to the ground of appeal
for AY 2005-06. In this case also the AO is unable to prove any nexus with the disallowance of expenditure and that of the earning of exempt income. However, the relevant assessment year involved is 2006-07 and Rule 8D of the I. T. Rules will not apply to this assessment year as held by Hon’ble Bombay High Court in the case of Godrej Boyce Mfg. Co. Ltd. Vs. DCIT (2010) 328 ITR 81 (Bom), the provision being prospective and not retrospective. In term of the above, we are of the view that the Tribunal is taking a consistent view and restricted the disallowance at 1% of the exempt income. Hence, we also direct the AO to make disallowance to the extent of 1% of the dividend income. The AO is directed accordingly. Both the ground of appeal of revenue and that of the assessee are partly allowed as indicated above.
24. The next issue in this appeal of revenue for AY 2005-06 is against the order of CIT(A) deleting the addition made by AO under the head repair charges at Rs.12,58,563/-. For this, revenue has raised following ground no. 8: “8. The ld. CIT(A)-XX, Kolkata has erred on facts and in law in deleting the addition in the head of repairing charges of Rs.12,58,563/- made by the AO.”
25. Briefly stated facts are that the AO noted from the accounts of the assessee that it has claimed repair charges expenses at Rs.12,58,563/-. The AO during the course of assessment proceedings observed that these properties were taken by parties on lease/rent and no agreement to that effect has been furnished during the course of assessment proceedings and even there is no requirement of any repair to be carried out. Accordingly, he made disallowance of repair expenses. Aggrieved, assessee preferred appeal before CIT(A), who deleted the disallowance on the reasoning that the necessary details in respect to repair expenses were filed before AO which are available in assessment records. According to him, these expenses are in respect to general repairs 11 & 886/Kol/2010 & CO 48 & 49/K/2010 M/s. Banwarilall Pasari AYs 2005-06 & 2006-07 and up-keeping of the business premises of the assessee. Hence, he allowed the claim. Aggrieved, now revenue is in appeal before Tribunal.
We have heard rival submissions and gone through facts and circumstances of the case. We find that the assessee before the AO has filed complete details in respect to repair expenses and this is verified by the CIT(A) as observed by him in his order. Even otherwise, the assessee now before us contended that in AY 2006-07 the repair expenses were allowed by the AO in full while framing assessment u/s. 143(3) of the Act dated 24.12.2008. We find no infirmity in the order of CIT(A) and hence, this issue of revenue’s appeal is dismissed.
The next issue in this appeal of revenue for AY 2005-06 is against the order of CIT(A) deleting the addition of corporation tax made by AO amounting to Rs.14,91,863/-. For this, revenue has raised following ground no. 9: “9. The Ld. CIT(A)-XX, Kolkata has erred on facts and in law in deleting the addition in the head of Corporation Tax of Rs.14,91,863/- made by the A.O.”
28. We have heard rival submissions and gone through facts and circumstances of the case. We find that the AO has disallowed the payment of Corporation tax claimed by the assessee at Rs.14,91,863/- in the absence of any evidence. Aggrieved, assessee preferred appeal before CIT(A) and assessee contended that all the letters regarding payment of corporation tax was filed before AO vide letter dated 19.02.2007. The same letter was filed before Tribunal also wherein complete details of Corporation Tax paid is enclosed at annexure-7. The relevant details are given at page 35 of assessee’s paper book, which clearly proves that the assessee has paid the Corporation tax and it is the responsibility of the owner only to pay the Corporation tax and not the tenant. Accordingly, we confirm the order of CIT(A) and this issue of revenue’s appeal is dismissed.
29. The next issue in this appeal of revenue for AY 2005-06 is against the order of CIT(A) deleting the disallowance of motor car expenses at Rs.9,70,629/- and depreciation at Rs.10,02,971/-. For this, revenue has raised following ground no.10: “10. The Ld. CIT(A)-XX, Kolkata has erred on facts and in law in deleting the addition in the head of motor car expenses of Rs.9,70,629/- and depreciation of Rs.10,02,971/- made by the AO.”
12 & 886/Kol/2010 & CO 48 & 49/K/2010 M/s. Banwarilall Pasari AYs 2005-06 & 2006-07 30. We have heard rival submissions and gone through facts and circumstances of the case. We find that the AO disallowed claim of motor car expenses at Rs.9,70,629/- and depreciation at Rs.10,02,971/- as no details were furnished before AO. Aggrieved, assessee preferred appeal before CIT(A), who deleted both the disallowances by observing that all the details were furnished before the AO and even in Ay 2003-04 the ad hoc disallowances made @ 20% by the AO was deleted by CIT(A). The CIT(A) observed that he has verified from the records that necessary details were filed before the AO and no specific particular of item is held to be non-genuine or not related to the business. Accordingly, he deleted the disallowance on motor car expenses and depreciation. Aggrieved, now revenue is in appeal before Tribunal.
We find that the assessee in its paper book at pages 34 to 36 has filed complete details of motor car expenses as annexure-8 of the same and also depreciation chart on which depreciation is claimed to have been made. The assessee has disclosed receipt of motor car hire charges on which depreciation is claimed. In view of these facts, we confirm the order of CIT(A) and this issue of revenue’s appeal is dismissed.
The only issue before us in the Cross Objection of assessee for AY 2005-06 is against the order of CIT(A) restricting the disallowance of telephone expenses at Rs.25,058/- @ 10% of the total expenses of Rs.2,50,580/-. For this, assessee has raised following ground no. 4: “4. For that in view of the facts and in the circumstances the Ld. CIT(A) is wholly unjustified in not fully deleting the arbitrary, ad hoc and estimated disallowance of Rs.62,645/- made in assessment @ 25% of Rs.2,50,580/- on a/c of Telephone Expense allegedly for personal use of telephone and instead restricting/confirming the disallowance of the expenses to the extent of Rs.25,058/- (10% of Rs.2,50,580/-) without considering the facts that the expenses on this a/c were incurred wholly and exclusively for the purpose of business.”
33. We have heard rival submissions and gone through facts and circumstances of the case. We find that the AO made the disallowance on account of personal use of telephones. The assessee contended that the expenses are genuine and incurred for business purposes. The CIT(A) restricted the disallowance to 10% instead of 25% as made by AO by observing that personal use of telephone cannot be ruled out and the disallowance as made by AO is on higher side. We find no infirmity in the order of CIT(A) in restricting the disallowance to 10% as the disallowance made by AO is on 13 & 886/Kol/2010 & CO 48 & 49/K/2010 M/s. Banwarilall Pasari AYs 2005-06 & 2006-07 higher side and hence, the same is hereby upheld. This ground of appeal of assessee is dismissed.
34. The next issue in this appeal of revenue in ITA No. 886/K/2010 for AY 2006-07 is as regards to the order of CIT(A) deleting the addition of bad debts written off amounting to Rs.42,22,131/-. For this, revenue has raised following ground no.2: “2. The Ld. CIT(A)-XX, Kolkata has erred on facts and in law in deleting the addition in the head of bad debts written off of Rs.42,22,131/- made by the AO.”
35. Briefly stated facts are that the assessee submitted a detailed list of bad debts at Rs.42,22,131/- without any evidence that the amounts have been treated as income in earlier years or any recovery measure including legal action have been taken against the debtors. In the absence of the same, the AO disallowed the bad debts. Aggrieved, assessee preferred appeal before CIT(A), who after considering the fact that the assessee has written off the debts in its books of account, which is arising out of the business transaction of the assessee of giving loans and advances. He also observed that the assessee has earned substantial interest out of these loans, which is assessed as business income in the relevant years pertaining to relevant preceding years. The assessee has filed details which are reproduced in CIT(A)’s order at pages 4 to 12. It was contended before the CIT(A) that complete details of debtors were filed before AO vide letter dated 28.12.2008 and the same is also enclosed by the assessee now before us in the paper book. In term of the above, the CIT(A) held that the deduction is allowable under the provisions of section 36(1)(vii) read with section 36(2) of the Act. Aggrieved, revenue is in appeal before us.
36. We have heard rival submissions and gone through facts and circumstances of the case. We find that the assessee has filed complete details before the AO as well as before CIT(A) and there is no dispute with regard to the transaction made by the assessee with the debtors. The assessee is engaged in the business of giving loans and advances from where he is earning substantial interest which is assessed as business income in the relevant assessment years. It is also not disputed that the amount written off was given in earlier years during the course of normal business of money lending and interest is also disclosed in those years. The assessee has claimed this as paid and this issue is squarely covered in favour of assessee and against the revenue by the 14 & 886/Kol/2010 & CO 48 & 49/K/2010 M/s. Banwarilall Pasari AYs 2005-06 & 2006-07 decision of Hon’ble Supreme Court in the case of TRF Ltd. Vs. CIT (2010) 323 ITR 397 (SC), wherein it has been held as under: “This position in law is well-settled. After April 1, 1989, it is not necessary for the assessee to establish that the debt, in fact, has become irrecoverable. It is enough if the bad debt is written off as irrecoverable in the accounts of the assessee. However, in the present case, the Assessing Officer has not examined whether the debt has, in fact, been written off in the accounts of the assessee. When a bad debt occurs, the bad debt account is debited and the customer’s account is credited, thus, closing the account of the customer. In the case of companies, the provision is deducted from sundry debtors. As stated above, the Assessing Officer has not examined whether, in fact, the bad debt or part thereof is written off in the accounts of the assessee. This exercise has not been undertaken by the Assessing Officer. Hence, the matter is remitted to the Assessing Officer for de novo consideration of the abovementioned aspect only and that too only to the extent of the write-off.” As the issue is settled by Hon’ble Supreme Court in the case of TRF Ltd. (supra) and going through the facts and circumstances of the present case as narrated above, we are of the view that there is no reason for us to interfere in the order of CIT(A). We dismiss this ground of appeal of revenue.