TaxTMI 
TaxTMI 
2015 (10) TMI 2370
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....ness of hire purchase financing as a non-banking finance company. The income of the assessee mainly consisted of hire purchase management fees and interest on advances / loans provided for hire purchase. During the course of its business, the assessee had advanced monies under hire purchase scheme to Poddar & Associates ; Chandra Sekhar Upadhyay and Shri.Swapan Kanti Dey, among others, who defaulted in payment of instalments. The assessee after taking all reasonable steps for recovery of the dues treated the recoverability of the dues from the aforesaid parties as doubtful to the tune of Rs. 11,08,326/- comprising of Poddar & Associates (Rs. 9,69,175/-) ; Shri.Swapan Kanti Dey (Rs. 1,02,776/-) and Shri. Chandra Sekhar Upadhyay (Rs. 36,375/-) and accordingly proceeded to write off the same in its books of accounts in accordance with prudential norms prescribed by Reserve Bank of India (RBI) by crediting to the concerned parties account. But in the profit and loss account, the assessee had erroneously mentioned the same as provision as per RBI norms instead of actual write off of dues. Accordingly, the Learned AO held that provision as per RBI norms is not permissible as deduction in....
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....ed to the concerned parties account. Moreover, the assessee is engaged in the business of money lending under hire purchase scheme and this is evident from the fact of showing the instalments receivable from various parties as a current asset (stock in trade). He further argued that the assessee had taken enough steps for recovery of the dues and all its efforts were in vain and for this purpose, he took us to the various pages of the paper book containing pages 1 - 45 comprising of audited annual accounts for the year ended 31st March 2003 ; copy of loan agreements entered into with three parties ; advocate legal notice issued u/s 138 of Negotiable Instruments Act for cheque bouncing case when the cheque issued by party for one time settlement figure of Rs. 5,74,000/- also got bounced and status of court case of one of the parties M/s Poddar & Associates . He further argued that the concerned party had fled away with the equipment given on hire purchase and he could not be traced even for execution of the court proceedings and the police had reported that the court summons could not be served as the summonee could not be found in the given address and thereafter the Magistrate had....
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.... hold that the transactions were not in the course of the business. There was no bar in law for financing the subsidiary company. The income received by the assessee from the subsidiary company by way of interest was subjected to tax and the advance made by the assessee to that company was also subjected to tax. At the time of writing off the debt, the subsidiary company had accumulated huge losses. The assessee also suffered a loss while selling the shares of the subsidiary company which resulted in the subsidiary company ceasing to be the subsidiary of the assessee. Therefore, in the circumstances the money advanced by the assessee had become irrecoverable and was given during the course of the business. What was not paid by the subsidiary company was only the interest and there was no principal amount due at the time of advancing the amount thereafter. The advances made by the assessee were also utilized by the subsidiary company for the purpose for which they were obtained which was to run the foundry. This would also indicate that the amount had been given out of commercial expediency as well. Both the Commissioner (Appeals) as well as the Tribunal had considered the materials....
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....sion and by considering the totality of the facts and circumstances of the case, there was no reason to interfere with the impugned order passed by the Tribunal. [Para 14]" Dy. CIT vs Oman International Bank Saog in ITA No. 7431 (Mum) of 1997 dated 17.5.2006 for Asst Year 1994-95 passed by Mumbai Tribunal Special Bench. "Held the Direct Tax Laws (Amendment) Act, 1987 with effect from assessment year 1989-90 has liberalized the requirement of writing off of debts by an assessee by altogether doing away with the condition precedent of the satisfaction of the AO in writing off a bad debt, which used to lead to enormous litigations. The amendment provisions provide that a claim of bad debt will be allowed in the year in which such bad debt has been written off as irrecoverable in the accounts of the assessee for the previous year [para 30]. In pre-amended provision the assessee was required to establish that the debt in question has become bad in the previous year. In the post-amended period it is sufficient if the bad debt or part thereof is written off as irrecoverably in the accounts of the assessee. The law has done away with the onerous obligation on the part of the....