TaxTMI 
TaxTMI 
2007 (9) TMI 300
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.... the AO in paras 4.2 and 4.3 of the assessment order dt. 31st March, 2003 which are reproduced below: "4.2 As per the submissions filed by the assessee on 29th May. 1995 an agreement was entered for bill discounting facility of Rs. 26,20.000 with SFL and SFL issued PDC No. 308024 dt. 1st Sept., 1995 for Rs. 26,20,000 drawn on Bank of Bahrain and Kuwait BSC Mumbai towards repayment of the monies against bill discounting facility in response thereto, Space Financial Services (SFS) issued 3 cheques aggregating Rs. 25,06,315 towards the bill discounting facility. The amount of Rs. 25,06,315 was arrived at after deducting Rs. 1,13,685 from Rs. 26,20,000 @ 18 per cent per annum towards interest for the period of 90 days. On 15th Feb., 1996 SFS deposited the abovementioned cheques for Rs. 26,20,000 with its bankers which were returned unpaid for the reason 'not arranged for'. Subsequently, legal notices were issued to SFL and its directors demanding payments but in vain. Finally, a criminal complaint under s. 138 r/w s. 141 of the Negotiable Instruments Act was filed in the Court of Addl. Chief Metropolitan Magistrate, 37th Court, Esplanade, Mumbai and is still pending trial. 4.3 Thus, ....
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....difficulty, they requested the assessee for grant of some more time to repay the loan amount. Accordingly, MoU was signed on 11th March, 1996 wherein ATSIL admitted that the overdue interest of Rs. 16.50 lacs would be paid in three installments i.e. Rs. 5,00,000 by 15th March. 1996, Rs. 5,00,000 by 15th April, 1996 and Rs. 6,50,000 by 15th May. 1996. However, ATSIL paid only the first installment of Rs. 5,00,000 and failed to pay the other amounts towards interest and principal as agreed. Thus, on 15th May, 1996 SFS deposited both the cheques amounting to Rs. 1.50 crores issued by ATSIL with its bankers, Global Trust Bank Ltd. Nariman Point, Mumbai for encashment and both the cheques were returned unpaid by the bankers of ATSIL for the reason "Funds Insufficient" 4.7 Subsequently, legal notices were sent to ATSIL and its directors demanding full payment but in vain. Thus, criminal complaint No. 323/S/1996 under s. 138 r/w s. 141 of the Negotiable Instruments Act r/w. s. 420 of the IPC was filed in the Court of Addl. Chief Metropolitan Magistrate, 37th Court, Esplanade, Mumbai. The proceedings in the matter have been stayed by the Hon'ble High Court of Mumbai under Writ Petn. No. 2....
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....O and held for the reasons discussed in paras 4-9 of his order, that the assessee had not exploited all possible means for the recovery of the debts and since the recovery proceedings were still under consideration of the Courts, the view taken by the AO disallowing the claim of bad debts was correct and the appeal of the assessee on this issue was liable to be dismissed. 7. During the course of hearing before us the learned counsel of the assessee submitted that (1) the lower authorities had ignored the explanation and evidence submitted by the assessee in support of its contention, (2) the debts written off during the year under consideration were bad debts and could not be recovered, (3) the learned CIT(A) erred in upholding the view of the AO that the assessee had not exhausted all remedies and it was premature to write off the debts, (4) the assessee had filed evidence in support of its claim, (5) the assessee had taken all steps to recover the debts and the amount was written oil only when there was no possibility of any recovery, (6) no recovery has been made till date and the claim of the assessee was liable to be allowed. 8. The submissions taken before the lower authori....
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....e view of the AO that the debts were written off premature, was not correct and the debts have, in fact, become bad because the parties are not in a position to repay the debts. 10. The assessee relied on the decision in the case of A.W. Figgis & Co. (P) Ltd. v. CIT [2002] 172 CTR (Cal) 635 [2002] 254 ITR 63 (Cal) in support of its contention that looking to the reality of the situation, there was no possibility of recovery and the claim should be allowed. 11. The learned counsel of the assessee during the course of hearing also contended that there was a change in law w.e.f. 1st April, 1989 and in view of this amendment the claim of bad debt was to be allowed in the year in which the same was written off and the AO was not entitled to disallow the claim of the assessee on the ground that it was premature. The learned counsel of the assessee also relied on the following decisions : (1) Maganlal Brother (P) Ltd. v. ITO [1982] 14 TTJ (Bom) 57; (2) Shoban Lal Jain v. Asstt. CIT [2003] 79 TTJ (Del) 446; (3) Swastik Asbestos Products Ltd. v. Dy. CIT [2004] 89 TTJ (Pune) 393; (4) CIT v. Girish Bhagwat Prasad [1999] 152 CTR (Guj) 199 : [2002] 256 ITR 772 (Guj). 12. The learned Depa....
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....n off the amount in view of the fact that the financial position of the aforestated two parties was very bad and there was no hope of recovery despite legal suit pending against them. We are, therefore, of the opinion that even if the assessee could have provided for the penal interest, the same was liable to be written off as irrecoverable. In our considered opinion, since the principal itself was not likely to be recovered the question of providing for penal interest did not arise and, therefore, the lower authorities were not correct in making addition of Rs. 3,41,400 on account of penal interest on accrual basis. The decision of the learned CIT(A) on this issue cannot, therefore, be sustained. The addition is deleted. This ground of appeal is allowed. 17. The fourth ground of appeal is against the confirmation of disallowance of Rs. 1,50,000 out of the total Court fees paid by the assessee for pursuing civil proceedings for the recovery of bad debts despite the fact that the same had been incurred wholly and exclusively for the purpose of the business of the assessee. The learned counsel claimed that the lower authorities did not appreciate the fact that the expenditure was in....