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TMI Blog2014 (9) TMI 349X X X X Extracts X X X X X X X X Extracts X X X X ..... nal element cannot be denied – there was no infirmity in the order of the CIT(A) who has rightly confirmed disallowances on account of vehicle expenses, depreciation on car and traveling allowance – Decided against assessee. - I.T.A. No.110(Asr)/2013 - - - Dated:- 15-4-2014 - SH. H.S. SIDHU AND SH. B.P.JAIN, JJ. For the Appellant : S/Sh.S.K.Bansal Tarun Bansal, Advocates For the Respondent : Sh. Tarsem Lal, DR ORDER Per: Bench: This appeal of the assessee arises from the order of the CIT(A), Jammu dated 21.12.2012 for the assessment year 2001-02.The assessee has pressed following grounds of appeal: 1a) That the Ld. CIT(A) has not appreciated the law relating to section 36(1)(vii) after amendment w.e.f. 1.4.89 when the only condition to allow bad debt is to write off in the year of assessment. 1b) That the Ld. CIT(A) has not appreciated the circular No.551 dated 23rd January, 1990 appearing in 183 ITR St. 37 to write off bad debts in the year of assessment to reduce litigation. 1c) That the Ld. CIT(A) has not appreciated that the appellant has written off all the four bad debts at ₹ 43,52,764/- in the year now under appeal wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consideration, the assessee firm has paid interest on the deposits made by the public to the tune of ₹ 61,29,866/-. In the audit report the C.A. has mentioned the accounts have been prepared in accordance with generally accepted accounting principal and are based on mercantile system of accounting except interest on debt considered doubtful of recovery by the partner where interest income has not been recognized on accrual basis of accounting and shall be taken to income on receipt basis. The assessee has in the current assets, loan and advances shown debt doubtful of recovery to the tune of ₹ 20,43,390/-. Assessee was asked as to why interest has not been credited to the income in the case of loans and hire money in cases the amounts have been considered doubtful for recovery. He was also asked to explain as to what is the basis for the loan to be considered doubtful for recovery and what steps were taken for recovery. Since the system of accounts being followed is mercantile assessee was supposed to account for all the expenses and income on the basis of the accrual. No reply to this query has been filed except for saying that the amount has been considered to be ir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - which could be recovered and the assessee has no option except claiming it a bad debts which has to be written off. In another reply dated 12.12.2003 assessee has submitted that regarding the other enquiries about Sh. Ashwani Kumar S/o Sh. Kewal Krishan the assessee submits that whereabouts are not known as such the assessee is not in a position to convey to your goodself has permanent account No. and place of residence. How strange it is to know that a person advancing loans does not know the address of the person to whom such heavy amount is being advanced as loans. Virtually when some loans is advance an agreement is entered into and also some securities is taken to safe guard the money. Assessee was many times requested to supply the copy of agreement entered into while advancing the loans to Sh. Ashwani Kumar. However, he has never brought any agreement not told about any securities taken against the loans. Now a days the modus operandi in the cases of most of the finance companies is to claim bad debts and receive the amount out of the books of accounts and invest the same in the real estate. Mostly these are finance companies who have acquired real estate by ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assessee for the previous year]: [Provided that in the case of [an assessee] to which clause (viia) applies, the amount of the deduction relating to any such debt or part thereof shall be limited to the amount by which such debt or part thereof exceeds the credit balance in the provision for bad and doubtful debts account made under that clause.] [Explanation].-For the purposes of this clause, any bad debt or part thereof written off as irrecoverable in the accounts of the assessee shall not include any provision for bad and doubtful debts made in the accounts of the assessee;] 36 (2) In making any deduction for a bad debt or part thereof, the following provisions shall apply- [(i) no such deduction shall be allowed unless such debt or part thereof has been taken into account in computing the income of the assessee of the previous year in which the amount of such debt or part thereof is written off or of an earlier previous year, or represents money lent in the ordinary course of the business of banking or money-lending which is carried on by the assessee;] (ii) if the amount ultimately recovered on any such debt or part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... where sum is written off in the books as irrecoverable debt; Kashmir trading Co; vs. DCIT (2007) 291 ITR 228 (Raj). The intention of Legislature while providing for the claims of deduction u/s 36(1)(vii) was not to give unfettered right to the appellant to claim anything as per its wish. Unless some efforts of recovery is made which failed to yield result the debt cannot be said to be irrecoverable. A bare look at the above provisions shows that there is no ambiguity in the language used by the Legislature. Clear and unambiguous words are used in the above provisions. No words used by the Legislature can be considered as superfluous. Each word has to be given its due meaning. The word debt is qualified by the word bad . Therefore, it is not any or every debt which can be written off as debt. Assessee must form an honest opinion on the basis of material on record that debt has become bad. Mere writing off any debt is not sufficient for claiming deduction u/s 36(1)(vii). The assessee must show, at least prima facie, that debt has become bad. It is interesting to note that in the schedule C attached with the balance sheet which is in respect of current asset loans and advanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng years and accepted by the AO in succeeding years and interest was not charged in the earlier year and accepted by the AO. therefore, the charging of interest by the AO in the year under reference is not within the law. This argument and interpretation of the appellant is weired and not convincing that the debts which were written off in the subsequent asstt. year 2003-04 and 2004-05, it was justified in not providing the interest in the year under reference i.e. AY 2001-02. Out of total addition of ₹ 21,43,884/- the major interest amount was relating to Sh. Ashwani Kumar for ₹ 17,53,162/-. The bad debts relating to Sh. Ashwani Kumar is not accepted and my findings are given in preceding paragraph. Thus, addition on account of interest relating thereto is also confirmed. For similar reason the other disallowances of interest for ₹ 3,67,810/- and ₹ 22,912/- are also confirmed. 4.3. Regarding routine disallowances on account of vehicle expenses for ₹ 2568/-, depreciation on car for ₹ 5579/- and traveling allowance for ₹ 2000/- the appellant has not denied in its submission about the element of personal user. Hence, there is no occasi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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