TaxTMI 
TaxTMI 
2017 (12) TMI 1119
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.... documents and evidences, books of account, ledger, cash book, purchase and sale register and bank statements etc. The AO found that the assessee claimed expenditure under the head "bad debt written off" to an extent of Rs. 2,59,67,905/- in its Profit & Loss account and requested the assessee to furnish the details of said expenditure. The assessee filed a letter dt. 21-05-2012 stating that it had given loan to Mr. Kalpesh Navin Chandra Daftari in short 'K.D hereinafter @ 18% interest p.a and the said person turned out to be a scrupulous and fraudulent element, which resulted in bad debt of Rs. 2,59,67,905/- for non recovery of the same. 4. On examination of ledger account of Mr. K.D, the AO found that the payments totaling to Rs. 9,67,00,000/- were made to Vani Exports between 12-03-2010 to 31-03-2010 and assessee received payments to an extent of Rs. 7,07,32,095/- from M/s. Shivangi Enterprises. The AO doubted the export transaction that it happened in the short span of 07 days and asked the assessee vide a letter dt. 06-12-2012 whether any legal step has been taken to realize the debt and to give names of all companies or firms, in which Mr. K.D was major shareholder. The ass....
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.... received payment of Rs. 7,07,32,0951- from Shivangi Enterprises from the period of 25-03-2010 to 31-03-2010 (6 days). Please explain the nexus of Mr. Kalpesh Navin Chandra Daftari with the above two concerns. B ) It was also noticed by the undersigned that the assesse company had given loan which is a capital assets to Mr. Kalpesh Navin Chandra Daftari and at the end of the financial year the amount of Rs. 2,59,67,905/- which was due from him had been written off as bad debt. But the amount of Rs. 2,59,67,9051- which has been written off as Bad Debt has never been offered for taxation in the earlier year. You are therefore requested to explain as to how an amount which has never been credited in the Profit & Loss Account in any year can be debited in the P& L Account as Bad Debt. C) It is also observed from the ledger account of Mr. Kalpesh Navin Chandra Daftari that transaction with him started on 12-03-2010 and even after receiving Rs. 4,90,00,000/- on 31-03-2010 from that person, how can the balance amount be written off as Bad Debt from the books ? you are requested to explain the reason for doing so. D) You have also stated vide letter dated 17-12-2012 that no legal ....
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....al year in which it was given in spite of receiving the payment of Rs. 4,90,00,000/- on 31-03-2010 . During the course of the scrutiny proceeding the assesse was unable to explain the nexus between Shri Kalpesh Daftari and the two companies named Vani Exports and Shivangi Enterprises who received and paid the loans respectively. Further to write off a debt, there should be an existing debt , but in this case no such loan to Shri Kalpesh Daftari has been reflected in the Balance sheet of the assesse company as on 31-03- 2010. The assesse was also unable to furnish the I.T. details such as , I.T. return filing details, and details of the business activities of Shri Kalpesh Daftari , Vani Exports and Shivangi Enterprises, hence the genuineness of the loan transaction is doubtful and unverifiable due to assessee's inability to furnish the above details. 3.6. In view of the all the above facts, the explanation of the asses se is not at all tenable and the asses se has failed to establish the fact that the loan has become a bad debt in the relevant financial year. Therefore the claim of the assesse is rejected and the entire amount of Rs. 2,59,67,905/- debited in Profit & Lo....
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....rd of Directors of the appellant company considered it prudent to pass a resolution on 30.08.2010 giving approval to the write off. The relevant extracts from the Board resolution is as below:- "The Chairman placed before the meeting the Fifteenth Annual Account of the Company for the year ended 31st March, 2010. The Board hereby approves the following write off in accounts for the year: (a) Bad Debts Rs, 2,59,67,905/- (b) Deferred Revenue Expenses of Rs. 11,300/-. Therefore a general discussion took place on the accounts and the Board unanimously: "RESOLVED that the write off of Bad Debts of Rs. 2,59,67,905/- and Deferred Revenue Expenses of Rs. 11,300/- into the Profit & Loss Account for the year ended 31st March, 2010 be and is hereby approved. " The A.O. has argued that unless the debt is taken into account in computing the income of the appellant for the previous year, it cannot be allowed as a deduction for bad debt. The A.O. has failed to recognize that the primary business of the appellant company is money lending and in such cases the only requirement is that the money should have been lent in the normal course of business. It has been h....
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....Taxman 391 (SC)]. In my opinion, one very important issue is to consider and ascertain /whether the loan was given in the normal course of business of the appellant. This aspect has been overlooked by the A.O. while considering the merits of allowability of bad debts. It has been held in various judicial pronouncements that the loans must be given in the normal course of business. I will, therefore, also examine on this aspect while deciding the case of the appellant. The appellant is a NBFC and its main business is giving loans and advances and making investments in shares. I have examined the balance sheet of the appellant company for the year ending on 31.03.2010. I find that loans and advances during the year amount to Rs. 59.45 crores and investments in shares amount to Rs. 26.72 crores. Clearly from the balance sheet of the company, giving loans and advances appears to be the main business activity. Similarly, in the P & L A/e. for the year ending on 31.03.2010, income from financial activities has the lion's share at Rs. 4,35,79,437/-. Therefore, whether we consider the quantum of fund deployed for an activity or the income from that activity, it becomes apparent that gi....
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....r Mr. K.D. the appellant. Such documentary evidence in the form of letter of recommendation from Mr. Pankaj Vora about Mr. K.D. addressed to the appellant has been placed on record. In nutshell, the appellant was in a sustained business of advancing loans and substantial part of its business was giving loans to parties at Mumbai. One such party to whom loan was given during A.Y.2010-11 was the loan defaulter Mr. K.D. who was recommended by an old client of the appellant Mr. Pankaj Vora with whom the appellant had long business relationship. Therefore, I will conclude that the appellant had given loan to Mr. K.D. in the ordinary course of business. The Hon'ble Supreme Court in the case of Indian Alumunium Co. Ltd. Vs. CIT 79 ITR 514 has held that the debt to be written off should directly spring from the carrying on of a business or trade and should be incidental to it. In the case of the appellant, money lending is the main business activity and it is on account of money lent to Mr. K.D. that the bad debt has arisen. I, therefore, hold that the appellant had advanced loan to Mr. K.D.in the ordinary course of his business. The action of the A.O. to disallow bad debt amounting to....