9911796707
TMI Blog1991 (10) TMI 81X X X X Extracts X X X X X X X X Extracts X X X X ..... . of India under the provisions of Sick Textiles Undertaking (Nationalisation) Act, 1974 took over the assets of the undertaking, M/s Central Cotton Mills Ltd. and paid by way of compensation Rs. 44,10,000. The said amount of Rs. 44,10,000 was hardly sufficient to discharge even the secured loans of the said mill, which amounted to Rs. 99,87,235 and that there were other liabilities of the mill before the unsecured loans could be paid. Therefore, the assessee has no chance of recovery of any sums from the Commissioner of Payments though a formal claim was lodged with the Commissioner of Payments. In these circumstances, the assessee has written off the sums and claimed the same as deduction. But the ITO disallowed the claim on the ground th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been advanced with extraneous consideration and not in the normal course of its business. The CIT(A) has also posed a question whether it is a case of deliberate incurring of losses? 5. The CIT(A) has also noted that the two of the partners of the appellant-firm are the directors of the cotton mills. They were, therefore, very much aware of the financial affairs of the mills even at the time of advance. Even as early as 1970 mill's liabilities were in excess of the assets and the share value was nil. The mill remained closed from April, 1970. It never resumed its business later on and was taken over by the Government. The advances were made after the closure of the mill in April, 1970 between 18th Aug., 1970 to 29th Oct., 1970. Thes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that the CIT(A) has no material to come to this conclusion. On the contrary, it is stated that the assessee has advanced sums and wanted to revive the mill which was not functioning properly and was incurring losses. As regards the CIT(A)'s reliance on McDowell's case, it is stated that the facts of the present case and the case relied are entirely different. The McDowell's case involved loss whereas the appellant's case was a loan during the normal course of business. As regards the CIT(A)'s observation that the mill remained closed from April, 1970 and it never resumed its business later on is also not correct in view of the fact that the company was very much operative and was carrying on its business, which will be clear from the pri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive figure because of the losses for so many years. The value of the assets of the company amounted to Rs. 2.48 crores and the debit balance of profit and loss account amounted to Rs. 1.02 crores leaving a balance of Rs. 1.45 crores as assets. As against this, the secured loans, etc. were of the order of Rs. 1.85 crores. The excess of the liabilities over assets was Rs. 39,40 lakhs. The compensation was a mere Rs. 44 lakhs and the secured creditors themselves might not get even 50% of their outstanding from such compensation. The mills were not left with any other assets to pay off the debts. The assessee has written off the loan as bad after getting advice from the Cotton Mills Ltd. on 10th Oct., 1974. In this connection we may mention tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... debts are legacies of years that has gone before, but they become bad debts which have to be wiped out in a particular year when all hopes about their recovery are gone. In this connection it is also worth noting the case of B.C.B.A. (Punjab) Ltd. vs. CIT (1937) 5 ITR 279 (Lah); Raja Bahadur Mukundlal Bansilal vs. CIT (1952) 22 ITR 94 (Bom) and Jadhavji Narsidas Co. vs. CIT (1963) 47 ITR 411 (Bom) wherein their Lordships have held that so long as there is any ray of hope left to recover a debt, however, dim it may be, and so long as a debt is in the process of realisation, it cannot be said that the debt has become irrecoverable. Therefore, in the facts and circumstances stated above, we hold that the case relied on by the Departmental R ..... X X X X Extracts X X X X X X X X Extracts X X X X
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