2011 (11) TMI 680 - AT - Income Tax

Summary

Issues involved:
The judgment involves the deletion of addition of bad debts and disallowance of excessive interest payments u/s 36(1)(vii) and section 40A(2)(b) of the Income Tax Act.

Deletion of addition of bad debts:
The AO disallowed bad debts of Rs. 16,47,827 due to failure of the assessee to prove the debts had become bad during the relevant year. The ld. CIT(A) deleted the addition based on the Supreme Court decision in TRF Ltd. vs. CIT, stating that it is enough if bad debts are written off as irrecoverable in the accounts. The Tribunal upheld the deletion, emphasizing that the debts were written off during the year under consideration, as per the decision cited.

Disallowance of excessive interest payments:
The AO disallowed Rs. 3,78,699 of interest paid to related parties at 18% under section 40A(2)(b), considering it excessive compared to the 14% paid to other parties. The ld. CIT(A) deleted the disallowance after the assessee's detailed submissions. The Tribunal upheld the deletion, noting that the interest paid was reasonable and had reduced from 24% in previous years. The borrowing from related parties was for long term without security, justifying the higher interest rate. The Tribunal found no justification for the AO's disallowance and upheld the CIT(A)'s decision.