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2015 (3) TMI 643 - AT - Income TaxDisallowance of Bad Debts - failure of the Appellant to prove revenue recognition of such debts in earlier years - Held that:- We note that assessee has claimed before the ld. CIT(A) that details of bad debt were furnished by the assessee regarding offer for taxation in the respective year and all such debts carried over for long periods arising out of hotel operations. However, we find that the detailed as referred in the above submissions have not been produced by the assessee before us. The ld. CIT(A) has given finding that the assessee has not proved that the amount of bad debts was taken into income of the assessee in the earlier years. We find that there is contradiction between the submissions of the assessee and the finding of the ld.CIT(A) as to whether the details were furnished that the income relating to bad debts were offered for taxation in the earlier years. In this view of the matter, in our considered opinion the issue needs to be remitted to the file of the AO to make factual examination of the assessee’s claim after giving the assessee adequate opportunity of being heard. - Decided in favour of assessee for statistical purposes. Deduction u/s. 43B of municipal taxes - CIT(A) allowed the claim - Held that:- CIT(A) has allowed the impugned payment on the basis of provisions of section 43B of the I.T Act 1961. The said section mandates that the statutory dues should be allowed if they are paid during the year or subsequently prior to the due date of filing of return irrespective to the year to which they pertain. In this case, the ld. CIT(A) has given a finding that liability of municipal tax though pertaining to earlier year crystallized during the year as necessary bill was raised during the year. This was paid before the due date of filing of return. Hence, the amount involved is allowable as per provisions of section 43B of the Act. It is not the case of the revenue that the concerned payment has not been made before the due date of filing of return. The revenue has taken the ground that the said amount should not be allowed if it was paid in subsequent financial year. We find that this ground is not sustainable as section 43B itself mandates that the amount involved can be allowed if the same is paid after the close of the financial year, but before the due date of filing of return. Hence, we do not find any infirmity in the order of the ld.CIT(A) - Decided against revenue. Disallowance of expenses on apartment and board - CIT(A) granted part relief to the assessee - Held that:- CIT(A) has noted that AO in his remand report has stated that though the details of the expenses have been furnished but no names, addresses or bills of suppliers etc were furnished. Therefore, expenditure remained unverifiable. The ld.CIT(A) has dislodged this finding of the AO by holding that AO’s objection is not good because the accounts of the assessee are subjected to audit and the auditors have not mentioned any short coming on that account, in assessee’s books, in their Audit report. We find that AO’s remand report indicates that the bills submitted in this regard were not proper inasmuch as names, addresses or bills of suppliers etc were not mentioned in the vouchers. This finding of the AO cannot be dislodged only by plea that the accounts of the assessee were audited and the auditors have not pointed out any short coming. Income tax laws do not provide that the auditors report should be treated as sacrosanct and the AO need not make proper examination. Hence, assessee’s claim of expenditure in absence of proper supporting by way of cogent vouchers cannot be allowed. In such circumstances, we set aside the order of the ld.CIT(A) on this issue and restore that of the AO. - Decided in favour of revenue. Disallowance of management fees - CIT(A) deleted addition - Held that:- assessee had entered into agreement with Sarovar Park Plaza Hotels & Resorts P.Ltd for operation of hotel of the assessee and also to render supervisory services. The amount paid was based upon percentage of gross revenue and gross operating profit. The ld. CIT(A) has given a finding that after availing services of the above referred reputed hotel chain the business position of the assessee in subsequent years improved. In such situation, it cannot be said that the amount paid as management fee, was not allowable. The ld.CIT(A) has rightly held that management fee is directly attributable to income from operations and is fully allowable as business expenditure. There is no basis for AO’s observation that the assessee cannot pay the management fees, if it has also paid director’s remuneration, director’s salary, and any other administration expenses. There is no basis for such observation of the AO. By no stretch of imagination, it can be inferred that since the assessee has paid management fees, hence, services of the directors and salary to the staff are not required. In this respect, we also refer to the case of CIT Vs. Walchand & Co. Pvt. Ltd reported in (1967 (3) TMI 2 - SUPREME Court). In this case, it was held that in applying the test of commercial expediency for determining whether the expenditure was wholly and exclusively made out for business reasonableness has to be judged from the point of view of businessman. - Decided against revenue.
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