TaxTMI 
TaxTMI 
TaxTMI 
2016 (9) TMI 653
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....CIT(A) has wrongly concluded that the payment of the impugned interest is for an act prohibited by the law and the appellant has violated the specific provisions of the relevant act whereas there is no violation whatsoever on the part of the appellant company. 3(a) The Ld. CIT(A) has erred in confirming the disallowance of a sum of Rs. 1967079/- debited to the Profit & Loss Account under the head 'old stock written off' and a sum of Rs. 5076944/- debited under the head 'irrevocable balances written off' on the grounds that the appellant company has not carried out any business during the year. (b) The Ld. CIT(A) has failed to appreciate that even if no purchase I sale has been made during the year but the appellant company during the year under assessment was in the process of settling its liabilities and realizing its assets and therefore it cannot be held that the appellant company has not carried out any business during the year. (c) The Ld. CIT(A) has failed to appreciate that the Ld. AO has duly accepted that the appellant was carrying out business during the year as he has allowed deduction for expenses on account of salary paid and also other adminis....
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....4.1 Aggrieved by the disallowance of claim, the assessee preferred appeal before Ld. CIT(A). Before Ld. CIT(A), it was contended that the assessee had received loans from IFCI Ltd. in earlier years of the principal sum amounting to Rs. 39.40 crores, on which interest of Rs. 39.65 crores was outstanding as on 31.03.2006. The assessee submitted that due to poor financial condition of the company, it was not able to repay the loan and interest thereon the assessee entered into an agreement dated 25.08.2006 for settlement with IFCI Ltd. On negotiation with IFCI Ltd., the liability was settled for Rs. 16.50 crores. The assessee submitted that the said payment was to be disbursed to IFCI Ltd. on the agreed terms as under: i) 25% of the above amount on or before 30.9.2006; ii) 25% of the above amount on or before 31.12.2006; iii) balance within a period of 6 months from the date of this letter. 4.2 It has been submitted by the assessee that it had paid an amount of Rs. 8.5 lacs before 31.12.2006 and balance of Rs. 8.5 lacs was paid on 15.02.2007. The assessee has paid interest @ 12.50% from 01.01.2007 till 15.02.2007 as per the terms of agreement entered into between the assessee a....
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.... year in which the amount of bad debt is written off or of an earlier previous year, Which is written off as irrecoverable in the accounts of the assessee for the previous year and the business should be carried on in the relevant period. The addition made by the Assessing Officer is, therefore, upheld." 5.2 Aggrieved by the order of Ld. CIT(A) the assessee is in appeal before us. 5.3 Ld. A.R. submitted that he assessee is engaged in the business of manufacturing Ferro alloys etc and the manufacturing unit of the assessee was situate at Palakkad, Kerala. It has been submitted by the Ld. A.R. that the assessee was running its manufacturing unit through the power supplied by Kerala State Electricity Board (KSEB) and it was having an agreement for purchase of power with KSEB at subsidized rates. Ld. A.R. submitted that due to some dispute and disagreement with KSEB, it refused to supply power to the assessee at subsidized rates and alsorefused to supply power to the assessee at subsidized rates as a result of which, the company had to stop production temporarily and the manufacturing activities were discontinued. The employees of the manufacturing unit went on strike and the unit w....
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....d all its assets on 'as is where is' basis to M/s. IFCI Ltd. 7. We have perused the details filed before us and the arguments advanced by both the parties. On perusal of the statement of account of the assessee for the year under consideration, it is found that the assessee has incurred expenses for maintaining office premises as well as paid salary and other miscellaneous expense relating to the administration of the business. It cannot be said that the business activities were completely shut down after the lock out that took place at the manufacturing unit in Kerala. It is observed that the reason for not continuing the manufacturing activities was due to power supply being cut by KSEB. Further, there is no material to suggest that the manufacturing operation of the assessee were in a stage of more than that of suspension. 7.1 Section 36(1)(vii) and 36(2) of the Act require the assessee to write off the bad debts which are irrecoverable and that it has been considered as income in any of the previous year if it relates to such previous year. The Assessing Officer cannot insist the assessee to prove the authenticity of circumstances leading to write off the bad debts. Reliance ....
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....w. 8.2 Ld. A.R. submitted that due to heavy losses suffered by the assessee, it was declared sick and had undergone financial difficulties. Ld. A.R. submitted that the amount so transferred to the capital reserve account, did not represent cessation of liability as out of the total principal amount of Rs. 39.49 crores Rs. 16.50 crores were paid. Ld. A.R. submitted that it was only the balance sum of Rs. 22.90 crores that was transferred to the capital reserve being a capital receipt. As there was no remission by any creditor, therefore the provisions of Section 41 were not applicable. Ld. A.R. placed reliance upon the decision of Hon'ble Delhi High Court in the case of Roll Attainers Ltd. Vs CIT reported in 339 ITR 54. 8.3 On the contrary, Ld. D.R. submitted that the said loan was taken from M/s. IFCI Ltd., for the purpose of setting up of manufacturing plant in Kerala. He submitted that the claim of the assessee cannot be allowed as there is no acquisition of any fixed asset by the assessee. Ld. D.R. emphasized that the loan was taken for trading purposes and thus should not be allowed by placing reliance upon the decision in the case of CIT Vs T V Sundaram Ayangar Sons repo....
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....flected in balance sheet and not in P & L account. 8.9 In the facts of Sundram Ayanger case (supra), the assessee therein had received deposits from its customers. In the course of trading transactions which was not claimed by the customers and it was held that such claim balance represent income of the assessee therein. But, in the facts of the present case, the loan received by the assessee was for the purchase of capital asset. Ld. A.O. has also placed reliance upon the decision of CIT Vs V S Adies Advertisers Pvt. Ltd. reported in 255 ITR 510. A perusal of this judgment, it is observed that the assessee therein had written off claim and credited balances of the supplies during the normal course of its business operation and such credit balance represents money arrived out of normal trade transaction. The facts of this case are also distinguishable for the reason that in the present case before us, the loan was taken by the assessee for carrying out its manufacturing activities at the unit set up in Palakkad, Kerala. Ld. A.R. has placed his reliance upon the decision of Hon'ble Jurisdictional High Court in the case of DCIT Vs Tosha International Ltd. reported in 116 TTJ 941....