TaxTMI 
TaxTMI 
1978 (9) TMI 77
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the interest at 12 per cent on the balance. The balance-sheet also showed a sum of Rs. 30,000 having been given as a loan to Shri K.S. Mehta. Since interest had not been charged on this amount also, the ITO disallowed the interest at 12 percent. The total disallowance came to Rs. 18,719. 3. In asst. yr. 1975-76, the ITO similarly disallowed the interest on advances paid to HUF at 12 per cent amounting to Rs. 17,608 and in respect of advances to Shri K.S. Mehta Rs. 3,600. 4. The assessee came in appeal before the AAC and challenged the disallowance. Before the AAC the ITP appearing for the as analysed the capital fund comprising the firm's own moneys and borrowed moneys and pointed out that the appellant's own funds or those of connec....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s in appeal before us. We have heard the learned Departmental representative and the counsel for the assessee. Ground No. 2 of the appeal memorandum challenges the finding of the AAC that the disallowance cannot be upheld because the ITO has not established a direct correlation as between the borrowed funds and advances so as to demonstrate positively that the borrowed funds alone had in fact been diverted towards the non-interest bearing advances. Ground No. 3 says that the AAC should have appreciated the fact that the ITO was justified in disallowing the interest on presumption basis as the appellant's own funds or non-interest bearing credits were inadequate for diverting towards non-interest bearing advances. Basically, there is no meri....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hen interest is not charged on funds lent, there is no question of disallowing any in can be disallowed only to the extent that the firm pays interest and the ITO's order only mentions that the firm pays interest on borrowed funds, but does not say anything further. Ground No. 3 in the Departmental appeal is also not based on facts because it says that the appellant's own funds or non-interest hearing credits were inadequate for diverting towards non-interest bearing advances. No facts were placed before us in this regard. In para 4 of his order, the learned AAC has given facts and figures to show that there were net credit balances in the accounts of the partners and in the accounts of the members of the HUF and to Shri Mehta without inter....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r of creditors and their claims, the ITO observed that the debt had become bad even in 1970 itself. The assessee should therefore have written it off in the relevant accounting year. Alternatively if the assessee argues that out of the paltry assets he could recover the bad debt from the receiver which till to date has not been done than this is not the year in which it has become bad and it should be continued till it is finally settled. In either case, the bad debt could not be allowed in this year. 7. This order was challenged before the AAC It was urged before him that of whom viz., Shri V.T. Ponnuswamy had alone been declared insolvent so that they attempted further to make recovery from the other partner. They were also expecting f....