9911796707
TMI Blog1987 (11) TMI 108X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. (in short, the KEW) are managed by the same group to people controlling the two companies. Before the ITO the assessee claimed deduction of bad debt amounting to Rs. 9,73,772 being the amount outstanding in the accounts of M/s KEW up to the end of 31-3-1981 as follows : Bad debt pertaining to Period of transaction Amount Rs. Passage A/c. 11-4-78 to 8-5-79 22,709.03 Foundry Chemicals A/c. 27 8-8-78 to 16-5-79 5,51,804.27 Grease A/c. 18-12-78 to 31-12-79 40,959.73 Central A/c. 25-10-78 to 31-3-80 3,58,249.32 ----------- 9,73,722.35 ----------- In the first three accounts, the amounts outstanding are in respect of goods and provisions supplied by the assessee. In respect of the 4th account the same represents the unrealised rent and establishment charges payable by M/s KEW to the assessee. Both t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... since mid-1979; (iii) it has not been functioning as a company; (iv) there are no prospects at all of realising the dues in view of the utterly hopeless financial position of the company and the gross uncertainties of even the priority creditors being paid their dues; (v) there are no possibilities of revival of the above unit; and (vi) KEW is in the process of being would up by Court and an Official Liquidator has been appointed in that regard by the Calcutta High Court, the Board after consideration of all aspects passed the following resolution : 'RESOLVED that the company's unsecured dues of Rs. 9,73,722 from Kumardhubi Engineering Works Ltd. (In Liquidation) be written off as irrecoverable in the financial accounts of the company for the year ended 31st March, 1981.'" 3. The ITO on the basis of the IAC's direction under section 144B (4) rejected the assessee's contentions as contained in the aforesaid letter as also in the assessee's subsequent letter dated 15-2-1984 by observing, inter alia, that - (a) the assessee raised bills against supplies made to M/s KEW in the period subsequent to the closure of the unit, i.e., mid-1979 to the early part of 1980; (b) that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A) further observed that- ".......... the appellant could not hope to have any chance of recovery, when the compensation by the Bihar Govt. has been fixed at Rs. 4 crores whereas the Allahabad Bank has got decree for over Rs. 7 crores besides having other priority creditors and also other claims.........." 5. Before us, a paper book has been submitted containing copies of letters of the assessee to the ITO (undated) letter dated 15-2-1984, the assessee's objections submitted before the IAC during the course of proceedings u/s 144B, written submission dated 18-9-1984 filed before the IAC, xerox copy of the published accounts of M/s. KEW for the year ending 31-3-1977, summary of debtor-company's position as per the IT records with copies of assessment order for 1979-80 and 1980-81, copy of the Bihar Gazette Notification dated 10-8-1983 taking over the assets of M/s. KEW (excluding its liabilities) and copy of the Tribunal's order in the case of Anniversary Investment Agencies Ltd. [IT Appeal No. 2093 (Cal.) of 1985] wherein also a claim for bad debt arose out of transactions entered into by the said company with M/s. KEW. The assessee's learned counsel pointed out that the Calc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from M/s. KEW as at the end of the accounting year, i.e., 31-3-1981. 6. The facts mentioned in the assessee's letter dated 18-9-1984 are not in dispute before us. The authorities below rejected the assessee's claim for deduction of bad debt claimed by the assessee mainly on the ground that there was no sufficient material before the directors of the assessee-company for coming to the conclusion that 'the hope of realisation of the debt was totally lost during the particular previous year', and that the liquidation proceedings initiated as per the orders of the Hon'ble High court dated 15-12-1980 were not yet completed. In regard to the first objection of the IAC as well as the ITO, the resolution of the Board of Directors dated 12-5-1981 which has been extracted above, indicates that they took into consideration the fact that there was no possibility of revival of M/s. KEW as it was in the process of being would up under the order of the Hon'ble High Court. The Allahabad Bank's letter dated 10th April, 1980, which was also before the Board of Directors, mentioned clearly that the net worth of M/s. KEW was a negative figure as its outstanding liability exceeded Rs. 12 crores. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts of loan advanced have been authorised by the Board of Directors in their meeting held on 21-8-1980 mentioning, inter alia, that : "The rate of interest chargeable on the loan would be the same as the Dalhousie Jute Co. Ltd. pays on its cash credit account with its Bankers". Subsequently, the assessee sold its entire equity holdings of the said subsidiary company and with effect from 4th February, 1981 M/s Dalhousie Jute Co. Ltd. ceased to be the subsidiary company of the assessee. In its books for the year ending 31-3-1981 the assessee charged interest on the said loan of Rs. 15 lacs but the entry was reversed subsequently on the basis of the resolution passed in the meeting of the Board of Directors held on 12th May, 1981 which, inter alia, read as follows : "10. Settlement of accounts with the Dalhousie Jute Co. Ltd. -The Chairman explained that certain claims have been made by the Dalhosie Jute Co. Ltd. (hereinafter referred to as 'The Dal Jute'). The details of these claims were laid on the table and the Chairman apprised the Board in regard to each claim. Apart from these claims The Dal Jute have also claimed rebates on the sales effects by the company from April 1980 on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n recovered as per stipulation." The ITO brought to tax interest on the aforesaid loan of Rs. 15 lacs which accrued to the assessee asset the end of the accounting year, viz., 31-3-1981 amounting to Rs. 1,68,895 by stating, inter alia, that "Interest amount had already accrued on 31-3-1981 as is seen from the copy of ledger account for interest on loan". The CIT (A), however, delete the addition by bringing certain facts which are not borne out from the records. The CIT (A)'s finding that "No interest was ever paid by or received from the subsidiary company on the said accommodation"-is contrary to the ITO's finding that "interest was credited in ledger account but on the same date by a reverse entry the interest was squared up...." The CIT (A)'s other observations namely that "The company for some time was under deep financial crisis....... " also remains unsubstained particularly in the light of the facts recorded in the Memorandum of Settlement dated 19th May, 1981. 8. The assessee's learned counsel by relying on the Calcutta High Court decision in the case of CIT v. North West Coal Ltd. (1987) 167 ITR 419 argued that the subsequent action by the assessee to forego the inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The proposal for surrender of the part of the depreciation charges was mooted before the end of the accounting year and immediately, after the end of the previous accounting year, the proposal was finally accepted by the assessee." In this context we may refer to the following observation of their Lordships of the Supreme Court in the case of State Bank of Travancore at page 154 which reads as follow : "When and how does an income accrue and what are the consequences that follow from accrual of income are well-settled. The accrual must be real taking into account the actuality of the situation. Whether an accrual has taken place or not must, in appropriate cases, be judged on the principles of real income theory. After accrual, non-charging of tax on the same because of certain conduct based on the ipse dixit of a particular assessee cannot be accepted. In determining the question whether it is hypothetical income or whether real income has materialised or not, various factors will have to be taken into account. It would be difficult and improper to extend the concept of real income to all cases depending upon the ipse dixit of the assessee which would then become a value jud ..... X X X X Extracts X X X X X X X X Extracts X X X X
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