ORDER
MISS MOKSH MAHAJAN, A.M. :
The order of the CIT(A), dt. 16th Jan., 1990 for asst. yr. 1986-87 has been challenged on various grounds of appeal. Shri Vivek Mehra appeared on behalf of the assessed and Shri D. S. Sallan represented the Department.
2. The first contention pertains to rejection of the assesseds claim in respect of administrative charges of Rs. 3,45,000 claimed as bad debts. Explaining the facts, Shri Vivek Mehra, the learned counsel for the assessed submitted that the assessed has been charging administrative charges of Rs. 45,000 per month from its sister concern, namely, Universal Marble Industries (P) Ltd. These charges were for rendering administrative and other assistance and also for use of common facilities like telephone, electricity and water, free furnishing of air-conditioned office premises and photostat, etc. The concerned office is located at 28, Prithvi Raj Road, New Delhi. These administrative charges were duly accounted for as an income for the respective assessment year. As on 1st July, 1982, the account of M/s. Universal Marble Industries (P) Ltd. in the books of the assessed reflected an amount of Rs. 3,75,000 recoverable from it. On 30th June, 1983, this increased to Rs. 8,40,000. As on 1st July, 1984, the assessed had to recover Rs. 9,75,500 from the sister concern. Keeping the circumstances in view, the administrative charges were reduced from Rs. 45,000 per month to Rs. 5,000 per month chargeable from 1st Oct., 1983 onwards. Accordingly, the sum of Rs. 3,45,000 (as against Rs. 3,60,000 s. 40,000 per month for 9 months) was written off. This was done by reversing the entries of the aforesaid sum on 31st Aug., 1984. This fact was brought to the notice of the assessing officer when the return for asst. yr. 1984-85 was revised. The AO disallowed the claim of the assessed disregarding the circumstances under which the entry was reversed. According to learned Authorised Representative, while the income has been assessed in the hands of the assessed., the expenditure claimed by M/s. Universal Marble Industries (P) Ltd. in respect of these administrative charges was not allowed in full. For asst. yr. 1984-85, the assessing officer allowed the expenses to the tune of Rs. 1,00,000 in the hands of M/s. Universal Marble Industries (P) Ltd. which was increased by a sum of Rs. 25,000 by the learned CIT(A). The remaining amount stood disallowed. The Tribunal on the other hand restored the matter back to the file of the CIT(A) for re-examination of the issue afresh. On these facts, it was argued that at least the assessed should be allowed the deduction to an extent for which the amount stood disallowed in the hands of its sister concern which would be quite just and fair. As to the argument that the amount was to be recovered from its sister concern, reliance was placed on the decision of the Calcutta High Court in the case of CIT vs. Gillanders Arbuthnot & Co. Ltd. (1982) 138 ITR 763 (Cal). The learned Authorised Representative on the other hand supporting the orders of the Revenue authorities argued that it was not proved that the amount had become bad in the year under consideration and as such was allowable.
3. We have considered the rival submissions. On the facts as placed before us, we find that all along the line the assesseds argument was that as M/s. Universal Marble Industries (P) Ltd. suffered heavy and continued losses, the charges were not recoverable. There was also no formal agreement between the assessed-company and M/s. Universal Marble Industries (P) Ltd. regarding the reduction of the higher charges to an alleged reasonable rate of Rs. 5,000 per month as against the charges at the rate of Rs. 45,000 per month. While no evidence was rendered to show that the party was not in a position to make the payment, the mere fact that it was in difficulty was not sufficient to write off the amount unless it was proved that the same had become bad and that too in the year under consideration. The arguments that in absence of formal agreement, the amount could not be recovered is devoid of any force. There was no formal agreement for charging the administrative charges at Rs. 45,000 per month. The short point for decision is whether the debt had become bad at the point of time when the same was written off in the books of account. For this, it was necessary to render evidence to show that there was no hope for recovery of the same taking the financial condition of the party and the chances of its recovery. It would be relevant to point out that in case of M/s. Universal Marble Industries (P) Ltd. no such plea was raised. The party never contended that it was not in a position to make the payment as stated by the assessed. At this juncture the fact that the recovery had to be made from its sister concern cannot be lost sight of. In the case relied upon by the learned Authorised Representative, the facts are different. In the cited case of CIT vs. Gillanders Arbuthnot & Co. Ltd. (supra), the assessed-company had advanced loans to its subsidiary from time to time. There was a running account between the assessed-company and the subsidiary on account of which there was a debit balance of Rs. 87,546 which was written off by the assessed during the relevant assessment year. It was found as a fact that the subsidiary company went into liquidation and the liquidator wrote to the assessed-company that there was absolutely no chance of effecting any recovery. It was on these facts that the amount was held to be a trading loss and allowable. In the case of the assessed no evidence was rendered to show that the amount had become irrecoverable and as such was rightly written off as a bad debt. Rather the arguments of the learned Authorised Representative that at least the amount which stand disallowed in the hands of the sister concern should be allowed shows that the assessed itself was not convinced that the debt had become irrecoverable during the year. In the circumstances, we are of the considered view that the deduction is not allowable in the year as claimed. The assesseds appeal on this issue fails.
4. The second contention pertains to disallowance of Rs. 26,375 made under s. 37(2A) of the Act as upheld by the learned CIT(A). The facts as gathered from the orders are that the assessed claimed Rs. 24,650 under the head business promotion expenses and Rs. 44,059 under the head traveling expenses. The later amount included a sum of Rs. 6,725 incurred on hotels expenses. These were considered to be of entertainment nature. After allowing deduction of Rs. 5,000, the addition at Rs. 26,375 came to be made. According to the learned Authorised Representative, the inclusion of Rs. 6,725 was not called for as there was no provision for including the same as per r. 4D of IT Rules. The learned Departmental Representative on the other hand relied on the orders of the authorities below. It was also contended that the total expenses of Rs. 24,656 included the expenses attributable to the employees which at least should have been allowed by the AO. Relying on the decision of the Delhi High Court in the case of CIT vs. Expo Machinery Ltd. (1991) 190 ITR 576 (Del), it was submitted that 50 per cent of expenses at least should be allowed.
6. We have considered the rival submissions. We find that the total expenses shown at Rs. 24,656 mostly relate to Five Star hotels as well the Dinners club, India. They are mostly on directors of the company. A small amount of expenses could only be attributable to the employees of the company. Accordingly, out of the total expenses of Rs. 24,650, 10 per cent would be attributed to the employees participation in these expenses to which extent the relief is allowable. As regards a sum of Rs. 6,725, as it was not shown that the expenses were not allowable, no disallowance was called for. In the circumstances, the assessed is allowed relief of Rs. 9,190 (Rs. 2,466+6,725).
7. The final ground of appeal relates to disallowance of Rs. 3,244 made under r. 6D of the IT Rules. The only submission made by the learned Authorised Representative was that in view of the decision of the Tribunal, Bombay Bench A in the case of S. V. Gatalia vs. ITO (1983) 4 ITD 583 (Bom) the amount is allowable. The learned Departmental Representative on the other hand relied on the orders of the Revenue authorities.
8. We find that the expenses claimed by the assessed are well within the permissible limit of r. 6D of IT Rules. Accordingly, we delete the addition sustained by the CIT(A).
9. In the result, the appeal is partly allowed.