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TMI Blog2011 (6) TMI 860X X X X Extracts X X X X X X X X Extracts X X X X ..... icient reason for writing off the debts as bad. Reliance was placed on the decision of the ITAT Delhi Bench in the case of India Thermit Corporation Ltd. 56 ITD 307, where it has been held that even after the amendment in the Act , the basic condition still remains the same that the write off should be of bad debts and not of any debt. The claim of the assessee was rejected and the addition was accordingly made. It was submitted before the learned CIT(A) that AO s observation that most of the bad debtors are government public sector units. Reliance was also placed on the decision of ITAT Delhi Bench in the case of ACIT Vs Modi Oliveti Ltd. It was submitted by the assessee that as per the provisions of section 36(1) (vii) read with section 36(2) of the IT Act, the debt should have been incidental to the business of the assessee. This condition is fulfilled by the assessee by submitting details at the assessment stage. The assessee placed reliance upon other decision noted in the impugned order. It was further submitted that the learned CIT(A) deleted the disallowance of bad debt for preceding assessment year 2003-04 in the case of the same assessee. The learned CIT(A) however, did n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and obligations. The judgment of the assessee in regarding the debt as bad debt must be a honest judgment and not a convenient judgment. The judgment of the assessee must be established to have been taken on relevant facts and circumstances, which should show that the debt is not realizable for some fault on the part of the debtor or some supervening impossibility on the part of the debtor to pay, but not possible difficulties or hurdles the assessee may have to incur to compel the recalcitrant debtor to pay. The assessee for his convenience may decide that the debt is too small and it is not worthwhile to pursue the debtor but the judgment would not be a honest judgment, which would establish that the debt has become a bad debt. A time-barred debt can be assumed to be bad, but is not necessarily bad because of expiry of limitation for recovery of the same. Devi Films Ltd. Vs. CIT (1963) 49 ITR 874 (Mad) and T. S. PL.S Chidambaram Chettiar Vs. CIT (1967) 64 ITR 81 (Mad) relied on. The Hon. Gujarat High Court in the case of Dhall Enterprises Engineers Pvt. Ltd. Vs CIT reported in 295 ITR 481 has held that the assessee should prove that the debt had become bad. Mere debiting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt in the case of T. R. F. Ltd. 323 ITR 397 in which it was held as under: This position in law is well-settled. After 1st April, 1989, it is not necessary for the assessee to establish that the debt, in fact, has become irrecoverable. It is enough if the bad debt is written off as irrecoverable in the accounts of the assessee. However, in the present case, the Assessing Officer has not examined whether the debt has, in fact, been written off in accounts of the assessee. When bad debt occurs, the bad debt account is debited and the customer s account is credited, thus, closing the account of the customer. In the case of Companies, the provision is deducted from Sundry Debtors. As stated above, the Assessing Officer has not examined whether, in fact, the bad debt or part thereof is written off in the accounts of the assessee. This exercise has not been undertaken by the Assessing Officer. Hence, the matter is remitted to the Assessing Officer for de novo consideration of the above-mentioned aspect only and that too only to the extent of the write off. He has filed the details of the bad debts at pages 44 to 46 of the paper book which includes the amount of TDS disallowed and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... specific finding on any of the items and merely gone by the fact that the department should verify whether write off is done in respect of bad debt or any debt. It would not make any difference whether the debtors were government/public sector units or otherwise. The substantial claim is made by the assessee for the amounts outstanding for more than 3 years. Therefore, the findings of the authorities below would not be relevant in view of the amended provisions of law as noted above. The AO has not verified the facts of the case and has not given any finding whether the bad debt was claimed in respect of income which was offered for taxation in earlier years. Similarly, for TDS no detail was furnished to show that TDS was claimed for income which was offered for taxation in earlier years. The learned CIT(A) relied upon the decision of Dhall Enterprises which is no longer applicable to the issue in view of the decision of the Hon ble Supreme Court in the case of T. R. F. Ltd. (supra). Since the authorities below have not given any finding of fact with regard to conditions of section 36(2) of the IT Act on the matter in issue, therefore, in our view the matter requires reconsiderati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d before the learned CIT(A) that the assessee has written off the obsolete items, therefore, additions be deleted. The learned CIT(A) noted that the assessee made such claim without any technical report. No material was submitted to prove that items written off were not being sold in the market at any rate and further claim is not supported by any evidence. The learned CIT(A) from the material on record noted that the items are in the nature of computer parts etc. which were issued as late as 31-12-2003 which is just 3 months prior to the accounting year. The claim of the assessee was accordingly dismissed. 8. The learned Counsel for the assessee reiterated the submissions made before the authorities below and referred to the details of the items written off at PB-74 to 77 of the paper book and submitted that date of issue is relevant and the decision was taken in the course of the business to write off the obsolete items of the stock. He has submitted that profit loss account of the assessee (PB 113/17) would show that income of the assessee is offered in crores of rupees; therefore, reasonable claim is made by the assessee. He has relied upon the order of ITAT Bangalore Benc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the immediate preceding year. The assessee was asked to give break-up of the same and was also asked to justify the claim of the sale promotion expenses amounting to ₹ 37,61,506/- debited under the head selling and sales promotion expenses . The assessee submitted that an amount of ₹ 37,00,000/- is payable in respect of Mizoram e-governance project. It was stated by the AO that the assessee could not place on record any material to prove its claim. It was held that lump sum payment made to Mr. Larsing M is nothing but nonbusiness expenditure claimed by the assessee. The assessee could not place on record how much income earned by the assessee on account of this payment to Mr. Larsing M. The addition was accordingly made. It was submitted before the learned CIT(A) that the assessee has accounted expenses of ₹ 37,61,506/- and offered income of ₹ 2,14,35,800/- in the year under reference in respect of Mizoram government s project. For which the expenses were incurred. The learned CIT(A) however did not accept the contention of the assessee and confirmed the addition. His findings in Para 5.3 are reproduced as under: 5.3 I have considered the submissions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her argument that the party is not related is not relevant since the disallowance is made u/s. 37(1) and not u/s. 40A(2) (b). Considering these, the disallowance made by the Assessing Officer is confirmed. 12. The learned Counsel for the assessee reiterated the submissions made before the authorities below and referred to PB- 94 and 95 which are the bills for the payment and submitted that complete name and address and the details of the services rendered has been mentioned in these bills. Therefore, addition is unjustified. He has further submitted that copy of the contract with Mr. Larsing M is not available. 13. On the other hand, the learned DR relied upon the orders of the authorities below and submitted that the assessee has failed to discharge the onus upon it to prove genuineness of the expenditure incurred for business purpose, therefore, addition is justified. 14. We have considered the rival submissions and do not find any justification to interfere with the orders of the authorities below. The assessee submitted two bills for the period of 2 months i.e. March, 2005 and January, 2005 which contained the liaisoning work etc. performed by Mr. Larsing M. No other det ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loan from Global Asia Partners LLP amounting to ₹ 2,40,56,166/- and VNT Enterprises Inc. at ₹ 1,35,36,100/- and Ambalal Sarabhai Enterprises Ltd. amounting to ₹ 2,50,30,210/-. It was stated by the assessee that it has paid interest of ₹ 13,08,666/- to Global Asia Partners LLP as the same is purely in the nature of loan. The amount payable to other concerns has been reported as loans taken actually represent the amount of advances for supply or in respect of services already received. Therefore, in the case of other than for Global Asia Partners LLP, no interest has been paid. It was seen that on one hand, assessee is paying heavy interest on its borrowed funds and on the other hand it was giving interest free advances. The claim of the assessee forgiving trading advances was not accepted and accordingly interest @15% was charged on amount of ₹ 50,29,297/- and addition was made of ₹ 7,54,397/-. It was contended before the learned CIT(A) that advance was granted to VNT Enterprises for purchase of material for project in Afghanistan in order to secure material. Similarly, advance was given to other concern for the purpose of business. The assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in section 37 also the expression used is for the purpose of the business . For the purpose of business includes expenditure voluntarily incurred for commercial expediency, and it is immaterial if a third party who benefits thereby. 17.1 The Hon ble Supreme Court in the case of Munjal Sales Corporation Vs CIT and Another, 298 ITR 298 held as under: Under the Income-tax Act, 1961, after amendment of the Act by the Finance Act, 1992, in order that interest paid on borrowings can be allowed as a deduction in computing the business profits, every assessee, including a firm, has to establish, in the first instance, that it was allowable under section 36 (1) (iii); and, in the case of a firm, further that the amount does not exceed the limit fixed by section 40 (b)(iv). Held, however, on the facts, in this case, that since the assessee had borrowed the moneys from its partners as early as 1991, and the Appellate Tribunal had held that the loans were given by the partners for business purposes and the interest did not exceed 18 per cent per annum simple interest, the assessee firm was entitled to deduction of interest on the borrowings for the assessment years 1993-94 to 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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