TMI Blog2010 (10) TMI 1202X X X X Extracts X X X X X X X X Extracts X X X X ..... n quantified at Nil as brought forward losses equivalent to ₹ 34,33,403/- was set off. 2.3 Disallowance of bad debts claim of ₹ 2,94,972/-. 3. It came to be noticed during the assessment proceedings by the AO that, the appellant had written off a total balance of ₹ 9,02,581/- as bad debts. This comprised a sum of ₹ 2,94,972/- of deposits written off. The AO further found that the said deposit of ₹ 2,49,972/- was in the nature of capital advance i.e. security deposit and therefore, the AO concluded that it was not an expenditure to be allowed as bad debts and accordingly he disallowed it and added to the total income. 4. During the appellate proceedings, the AR made a submission dated 15.1.09 as under: Bad Debts written off amounting to ₹ 2,94,972/- The above refers to deposits with parties written off in our books as they are irrecoverable. Please find enclosed copy of ledger account of deposits for your reference. Case laws reference Claim of Bad debt cannot be disallowed on the ground that assessee was not engaged in money-lending activities. Dy CIT vs SREI International Finance Ltd (2006) 10 SOT 722 (Del). The writ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the appellant s case. I am, therefore not in agreement with the contention of the appellant. The law provides that for claim of deduction in computing the total income, the trade debts have to become bad. Therefore, I hold that the appellant is not entitled for claim of deduction of bad debts of the security deposit. 8. The ld counsel Shri R.S. Choksi gave written submissions besides arguing his case before the Tribunal. From the particulars of the security deposits at page 1 of the written submissions, we find that thesecurity deposits given to ONGC were adjusted against the claim of ONGC in the account of the assessee for delayed deliveries and other commercial defects. Actually it is not writing off of security deposit as irrecoverable but claiming deduction in respect of penalties levied by ONGC for delayed deliveries and other commercial defects in respect of the project executed by the assessee to ONGC. Therefore the claim of deduction for damages for delayed deliveries and other commercial defects are allowable as business loss and therefore the security deposit adjusted by ONGC to the extent of ₹ 2,94,972/- is an allowable deduction. 9. Further the sum of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other liabilities. In this first 5 years of the operation of the company VDH Singapore has appointed technical persons in this company. Thereafter because of some problems have withdrawn those people and stop taking interest in the working of the company. This amount remained in the Balance Sheet as amount payable to them. 11. The AO concluded that the recipients were not at all interested in getting the amount and also which is more than 3 years old cannot be claimed in the court of law by the recipient due to limitation. In the circumstances the aggregate amount of ₹ 27,99,922 pertaining to royalty and technical fees payable to VDH Europe was added back to the total income of the assessee u/s.41(1). Aggrieved the assessee was on appeal before the CIT(A) and submitted as under: VDH Europe B.V. is a wholly owned subsidiary company of VDH Singapore. VDH Singapore are pioneer in reconditioning, refurbishing activities in 1989. In order to set up a plant for reconditioning, refurbishing they approach UB Group for forming a joint venture company named United Van Der Horst Ltd since the UB Group engaged mainly in alcohol products like Beer r, Whisky agree to take techn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ese submissions have been perused and considered. The AR has quoted various decisions in support of his arguments. In the decisions, the respective courts have held that royalty / payment for technical know how are to be allowed as revenue expenditure. These decisions, therefore, are not relevant to the facts of the case. Here, in this case of the appellant, the material issue is whether the liabilities which are existing for more than 10 years can be treated as liabilities ceased to exist. In the instant case: i) The liabilities are more than 10 years old. ii) The appellant has not proved that the creditors are pursuing for recovery; and iii) The liabilities are payable to parties outside India. Moreover, the appellant company themselves in AY 06-07 have written off the said bad debts and offered it as income u/s.41(1) of the IT Act. This also goes to prove that the liability did not exist even as on 31.3.03. I, accordingly, hold that the action of the AO is written the purview of law and does not warrant interference of the undersigned. The addition, is therefore, confirmed and the ground of appeal is dismissed. 13. Aggrieved the assessee is on ..... X X X X Extracts X X X X X X X X Extracts X X X X
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