9911796707
TMI Blog1993 (4) TMI 104X X X X Extracts X X X X X X X X Extracts X X X X ..... On appeal, CIT(A) rejected the contention of the assessee that the impugned amount should be allowed as a trading loss in the computation of income itself under s. 28 of the IT Act. The assessee is on appeal against this. 4. Sri C. Abraham, the learned Senior Departmental Representative submitted that the amount advanced to the company was in the nature of investment because the assessee had not accounted for any interest though the advances were made prior to the asst. yr. 1984-85. He had not written off the amount in the money lending books. In fact, no books of accounts were maintained for the money-lending business. Therefore, the disallowance was justified. On the other hand, Sri R. Srinivasan, the learned Chartered Accountant submitted that the assessee used to offer interest income only on cash basis. Because no interest was received from the debtor it was not admitted. The adverse inference drawn by the Assessing Officer that it was not an advance but only an investment is based on no material. The company to which the advance was given was running into heavy losses. The State Bank of India initiated proceedings against the debtor-company. The Kerala Financial Corporatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apital and reserves totalling Rs. 15.99 lakhs. In addition, the company had current liabilities which are immediately payable to the tune of Rs. 6.7 lakhs. The secured loans outweighed the unsecured loans and the assessee's advance is one of the items of unsecured loans. The assessee is also one of the directors of the company and, therefore, he can be credited with the inside knowledge of the inherent financial and economic weakness of the company apart from the precarious condition of its existence as revealed in the balance-sheet. For one thing the debtor-company had not commenced production at all. For another, it was facing huge liabilities. Thirdly, its assets were taken over by one of the creditors, viz., the Kerala State Financial Corporation in August, 1982 with no commitment to liability. In such circumstances any prudent person can only consider the unsecured advance to the debtor-company as one having little chances of recovery. Sri Abraham relied on the appellate order of the CIT(A) in the case of M/s Manickanamparambil Chitties for the asst. yr. 1986-87 wherein an advance of Rs. 5,00,000 made to the debtor-company was allowed as bad debt and submitted that the loss, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3,05,215 Less : (1) Deposit received from Smt. Thresiyamma Varghese. Rs. 15,000 (2) Drawing from firms Rs. 9,073 (3) Interest on private loans advanced Rs. 1,71,531 (4) Agricultural income as shown Rs. 20.000 (5) Amount disclosed by the assessee under other sources. Rs. 4,82,000 Rs. 6,97,604 Balance unexplained investments/outgoings . Rs. 6,07,611 Add : Income disclosed under other sources . Rs. 4,82,000 Total : . Rs. 10,89,611" 7. The additions were made after considering the slips recovered in the course of the search resulting in estimate of household expenses and educational expenses of the children and also calculation of peak credits. The assessee appealed. It was contended before the first appellate authority that the Assessing Officer erred in ascertaining the peak credits in each account without combining together all the accounts. It was further stated that the assessee, on the other hand, had a comprehensive review of all the accounts and on that basis the peak credit was computed in a sum of Rs. 8,93,965 as on 27th March, 1984. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is seen that the Assessing Officer has adopted similar method of computation. In para-5 of the assessment order, he had stated that he had adopted the same basis as in the asst. yr. 1983-84. The Tribunal did not accept such mode of computation of peak credits in the assessment for 1983-84 for the reason that when the deposits in bank accounts of the assessee and others are taken together for assessment, the proper method would be to have a comprehensive review of all the transactions in a chronological order cancelling the effect of "transfer to" and "transfer from" such account and work out the peak credit on that basis. Such a computation has been given by the assessee before the CIT(A), a copy of which has been furnished by the Revenue before us. On going through the assessee's computation, we concur with the view of the CIT(A) that the peak credit amounted only to Rs. 8,93,965 as on 27th March, 1984. From the peak credit thus arrived at, the assessee took credit for the opening balance of Rs. 1,97,005 which is the starting point of computation. This is because the opening balance was increased by further deposits from time to time resulting in the peak of Rs. 8,93,965. Henc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee. This was rounded off to Rs. 4,82,000 and offered for assessment suo motu by the assessee under 'other sources', and thus the same is in order. 9. Sri C. Abraham, the learned Senior Departmental Representative, referred to the working as given in para 5 of the assessment order as to how the assessee had arrived at the sum of Rs. 4,81,960 which was rounded off to Rs. 4,82,000 as income from other sources. Before the CIT(A) totally different workings were given and, therefore, the CIT(A) erred in accepting the same. 10. We have carefully considered the rival submissions. We do not find any inconsistency in the figures furnished before the Assessing Officer or before the CIT(A) and as rightly pointed out by Sri Srinivasan, the learned Chartered Accountant, the figures stand reconciled as follows: Loans and advances Rs. 5,00,000 Add : Peak credits after considering the above loans Rs. 3,51,418 Add : Loan to Antony George Rs. 42,547 . Rs. 8,93,965 Figures furnished before the CIT(A) in different set of workings taking a comprehensive view of the transactions In view of the fact that the figures st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income on the other advances made by him. It was the contention of the assessee that no income was received on other advances and the same had been accounted for on receipt basis in subsequent years. The Assessing Officer, however, computed the interest on accrual basis on the advances against the names found in the slips recovered in the course of search as under: . Amount of loan Name of the person Period Rs. 1,00,000 K.K.B 1 year Rs. 3,11,380 Rush 1 year Rs. 5,00,000 A.M 2 months Rs. 2,20,000 (peak amount) Antony George 1 year .Interest due on the loans Rs. 1,71,531 Less: Shown in the return Rs. 38,800 Balance : Rs. 1,32,731 The CIT(A) held that the amount of Rs. 3,11,380 noted against "Rush" was not an advance made by the assessee but only represented deposits received. He, therefore, excluded the said sum for calculation of interest. Whether the sum of Rs. 3,11,380 was really an advance made by the assessee or a deposit received came up for consideration before the Tribunal for the asst. yr. 1983-84 and the Tribunal by its order in ITA ..... X X X X Extracts X X X X X X X X Extracts X X X X
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