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TMI Blog2017 (11) TMI 1747X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 13,02,182/- on account of customer balances was allowed as bad debt by the ld. CIT(A) - no reason to decline with the detailed findings of the Ld. CIT(A) - decided against revenue Disallowance on account of interest on loans to Associate Concern - Held that:- In assessment year and subsequent years, assessee has stopped charging interest and accounting it in the income on accrual basis. This is not a sound accounting policy as at outset it should have been recognized the same as income on accrual basis and thereafter would have given the deduction of claim of bad debt which the assessee failed in these years. Further, when we visualize this situation as a whole traveling from three assessment years, then, it is observed that interest income was recognized on accrual basis and thereafter claimed as a bad debt of its non-realization, this has been allowed by ld. CIT(A). If we remit the issue to the file to assessing officer in subsequent years by holding that income is to be recognized on accrual basis and thereafter, it is to be claimed as bad debt whether allowable or not, then, to our mind, it will be an academic and futile exercise because in reality assessee has not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e learned Commissioner of Income Tax (Appeals) erred in law and on facts has dismissed the ground relating to the initiation of penalty proceedings under section 271 (1)(c) of the I T Act. 5.0 The learned Commissioner of Income Tax (Appeals) has erred in law and on facts in confirming the charging of interest under section 234B, 234C and 234D of the Income Tax Act, 1961. 3. The brief facts of the case as per the issue involved in the grounds of appeal are as under:- Disallowance on account of bad debt of ₹ 33,90,768/-:- 4. The assessee has filed return of income declaring income of ₹ 15,160/-.During the course of assessment proceedings u/s. 143(3) the assessing officer noticed that assessee has claimed bad debt to the amount of ₹ 66,90,942/-. The assessing officer has declined the claim amount of bad debt on the ground that the assessee failed to prove that the debt has become bad in that particular year. Therefore, bad debt claim was disallowed. Aggrieved assessee filed appeal before the ld. CIT(A). The ld. CIT(A) allowed the part relief to the assessee by observing as under:- 5.2.17 The disallowance of ₹ 66, 90, 942/- is stated to be on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,90,768/- is confirmed. Thus, this ground of appeal is partly allowed. 5. We have heard rival contention and perused the material on record carefully. The assessing officer has disallowed the bad debt claim of the assessee of ₹ 66,90,942/- on the ground that assessee had failed to provide sufficient reasons for writing off this debt as bad for the year under consideration. The assessing officer has relied on the decision of the hon ble Gujarat High Court in the case of M/s. Dhal Enterprises and Equipment 207 ITR 719 (Guj). We observed that assessing officer has not taken into consideration amended provision of section 36(1)(vii) that w.e.f. 01.04.1989 that the amount of debt become bad if it is written off as irrecoverable in the account of the assessee for the previous year. We have further observed that The Ld.CIT(A) has considered the aforesaid amendment and the decision of the Hon ble Supreme Court in the case of TRF Limited V. CIT(2010) 190 Taxmann 391(SC) while adjudicating the appeal of the assessee. We noticed that assessee has given advances to its sister concerns viz Shah Engineers M/s. Tetra Tract. The assessee has charged interest of ₹ 32,04,890/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t on the above loan from the assessment year 2002-03 to 2005-06. The assessee has stopped charging interest on the aforesaid loan on the reasoning that preceding year interest was not recovered. On an analysis of the accounts, it came to our notice that assessee has availed loan from the banks and forwarded this loan to sister concern from whom it has not recognized the interest income on the ground that sister concern has stopped paying any interest to the assessee. It is pertinent to observe that the assessing officer has not doubted the genuineness of the transaction i.e. taking loan from the banks and forwarding it to the sister concern. The assessing officer has not made any inquiry whether interest expenditure relatable to the loan s deduction from the accounts and given to the sister concern is an allowable deduction or not in the present scenario? We further find that assessee has been following mercantile system of accounting and agreed that system while recognizing the interest income on accrual basis. In the past, it has been recognized interest income, however, on account of its non-realization, assessee has claimed bad debt of those interest incomes which have been rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on this issue. 10. Grounds of appeal no. 4 5 are of general and consequential nature therefore, same are not adjudicated. 11. The assessee has raised the following grounds of appeals for the other assessment years:- ITA No. 836/Ahd/2012 Assessment Year 2007-08 1.0 The learned Commissioner of Income Tax (Appeals) erred in law and on facts has confirmed the addition on account of interest on loans to associate concerns to the extent of ₹ 10,87,560/- out of the total addition of ₹ 17,34,120/- without considering the facts of the case in right spirit. ITA No. 2627/Ahd/2012 Assessment Year 2009-10 1. The learned Commissioner of Income Tax (Appeals) erred in law and on facts has confirmed the addition on account of interest on loans to associate concerns to the extent of ₹ 8,75,437/- without considering the facts of the case in right spirit. 2. The learned Commissioner of Income Tax (Appeals) erred in law and on facts has dismissed the ground relating to the initiation of penalty proceedings under section 271(1)(c) of the I T Act. 3. The learned Commissioner of Income Tax (Appeals) has erred in law and on facts in confirming the charging ..... X X X X Extracts X X X X X X X X Extracts X X X X
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