TaxTMI 
TaxTMI 
2014 (9) TMI 349
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....when their copy of accounts were filed in the paper book dated 28.06.2011. 2a) That the Ld. CIT(A) wrongly confirmed the addition of interest, not charged on bad debts at Rs. 17,53,162/- and Rs. 22,912/- i.e. S.no. Interest not charged from Principle Interest not charged 1. Ashwani Kumar 41,28,211 17,53,162 2. J.K.Structural 1,90,940 22,913 3. Bittu Ram 26,400 ----- 4. Advance for car of booking 7,210 ----- 5. Total 43,52,762 17,76,074 2e) As per ground no. 2a & 2d That the Ld. CIT(A) wrongly confirmed the consistent method of accounting adopted by the appellant (wrongly confirmed by CIT(A) and charged interest at Rs. 3,67,810/- (Rs.20,43,390 @ 18%) on 13 bad and doubtful debts. Interest on bad debts Rs.17,76,074/- Interest on bad and doubtful debts Rs. 3,67,810/- Total: Rs.21,43,884/- 4a) That the Ld. CIT(A) wrongly confirmed the addition at Rs. 2,568/- as 1/10 of vehicle expenses on presumption basis and without any evidence. &....
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....whose case assessee has written off bad debts to the tune of Rs. 41,28,211/-, interest till 31.03.2001 works out to Rs. 17,53,162/- which has also not been charged. This interest is also disallowed from the interest paid by the assessee. Similarly, the assessee has not charged any interest from M/s. JK Structural rolling shuttles and body Gangyal to the tune of Rs. 22,912/- On the same reason this amount is also disallowed from the interest payment made by the assessee. Bad Debts In the profit and loss account the assessee has debited a sum of Rs. 43,52,762/- as bad debts in respect of the following persons: i) Sh. Ashwani Kumar S/o Sh. Kewal Krishan 41,28,211 ii) M/s. J.K. Structural Rolling Shuttles and body 1,90,940 iii) Sh. Bittu Ram Vehicle No.JKR 5639 26,400 iv) Advance given on booking on car 7,210 Total: 43,52,761 Assessee was required to explain the reason how the debts became bad and what steps were taken by him to lodge the claim for recovery of debts. He was also asked to explain as when the amount was in debt an....
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....amount claimed cannot be allowed as bad debts and added back to the total income of the assessee." 4. The observations of the Ld. CIT(A) are contained at pages 25 to 29 of the order, which are being reproduced for the sake of convenience as under: "4.1. I have considered the assessment order and the submission made by the appellant. It is seen that with regard to the outstanding balance amounting to Rs. 41,28,211/- in the name of Sh. Ashwani Kumar claimed as bad debt, the appellant has claimed that the said amount is the balance of loan which is irrecoverable from the borrower and accordingly the said amount is claimed as bad debt in the year under consideration. Further appellant has argued that the only condition for claiming bad debt after the amendment of relevant provisions w.e.f. 1989 and board circular is that the bad debt must be written off during the year and efforts of recovery of bad debt are immaterial. The appellant, neither during the course of assessment nor during the appellate proceedings, produced the loan agreement mad with Sh. Ashwani Kumar. The appellant even failed to pro....
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....any such debt or part of debt may be deducted if it has already been written off as irrecoverable in the accounts of an earlier previous year [(being a previous year relevant to the assessment year commencing on the 1st day of April, 1988, or any earlier assessment year)], but the [Assessing] Officer had not allowed it to be deducted on the ground that it had not been established to have become a bad debt in that year; (iv) where any such debt or part of debt is written off as irrecoverable in the accounts of the previous year [(being a previous year relevant to the assessment year commencing on the 1st day of April, 1988, or any earlier assessment year)] and the [Assessing] Officer is satisfied that such debt or part became a bad debt in any earlier previous year not falling beyond a period of four previous years immediately preceding the previous year in which such debt or part is written off, the provisions of sub-section (6) of section 155 shall apply; [(v) where such debt or part of debt relates to advances made by an assessee to which clause (viia) of sub-section (1) applies, no such d....
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.... & L account a sum of Rs. 43,52,762/-. This suggests that the debts doubtful of recovery were inflated at the will of the assessee. Regarding other debts written off of M/s. J.K. Structural (Rs.1,90,,940/-), Bittu Ram Vehicle 7,210/-, the appellant could not give loan agreement or supporting papers to establish that these were advanced in an ordinary course of business. In view of the present legal position and above discussed facts, the addition of Rs. 43,52,761/- (Rs.4128211/- + 190940 + 36400 + 7210) made by the AO is confirmed. 4.2. The AO has disallowed an interest of Rs. 21,43,884/- out of total interest paid for Rs. 61,29,866/- for the reason that the appellant has not charged interest and credited to its income on certain loans which were doubtful for recovery. The appellant derives income by advancing loans and also interest on hire purchase. It also accepts deposits from general public and pay interest thereon. The auditors has remarked in the notes to account "That the accounts have been prepared in accordance with general accepted accounting principle and based on mercantile system of accounting except interest on debt conside....
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....for the assessee, Mr. Tarun Bansal alongwith Sh. S.K. Bansal appeared and argued that after the amendment in the Act w.e.f. 01.04.1989 bad debt has to be allowed once it is written off as irrecoverable in the accounts of the assessee. He referred to Circular No.551 dated 23rd January, 1990 of CBDT available at PB 9A, reported in 183 ITR (St.) 37 in this regard. He further argued that the assessee has filed copy of account since beginning till the end of the impugned year and the persons to whom loans have been advanced have already been accounted for in the books of account. The books of account are audited and in the case of Sh. Ashwani Kumar, the bad debt has been settled. The money has been lent in the ordinary course of business. The loanee, Sh. Ashwani Kumar is assessed to tax, which can be verified from the earlier record of the department. In the facts and circumstances, the ld. counsel for the assessee argued that the appeal of the assessee may be allowed. He further argued that interest provision is consequential. 6. The Ld. DR, Mr. Tarsem Lal, relied upon the orders of the authorities below. 7. We have heard the rival contentions and perused the facts of the case. T....