TMI Blog2005 (7) TMI 291X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee-company to its subsidiary companies." 2. The assessee declared a loss of Rs. 5,74,09,380 in its return filed on 30-11-1998 which is consisted of (i) unabsorbed depreciation of Rs. 2,24,89,038, (ii) business loss of Rs. 3,49,20,342. The return was processed under section 143(1)(a) accepting the returned loss on 4-5-1999. Notice under section 143(2) was issued to the assessee on 5-5-1999 along with detailed questionnaire in response to which the assessee/authorized representative attended the assessment proceedings on various occasions. The assessee also filed a written reply. 3. The assessee is manufacturer of power cables claimed amount of Rs. 2,37,43,429 as bad debts. During assessment proceedings the assessee was asked to justify and to produce the evidence to prove that the debts have indeed gone bad and irrecoverable. The assessee in its reply claimed, "that the only requirement of law was that bad debts were allowable in the year in which the amount was written off. The amount has been written off in the current year and the bad debts were duly as proved by the Board of the Company". The assessee further claimed that the bad debts pertain to Government partie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompanies. Therefore, there is no question of the debtor going insolvent or being unable to pay. (ii) The assessee has merely stated that it can produce evidence regarding in the irrecoverability. However, in spite of the fact that the assessee was asked to specifically to do so the evidence had not been brought forth. (iii) The assessee stated that most of these debts pertained to LD's on late delivery of material. This aspect has to be proven by the assessee by providing copies of the contract, specific material which was delivered late and the specific clauses under which this payment has been denied to the assessee. Further, if there was a specific clause in the contract then there was no question having a claim so long. The assessee should have claimed this amount in the year under which it fulfilled the contract. These aspects have not been discussed by the assessee in any of its reply and no evidence has been brought forth. (iv) The assessee has stated in its reply that most of the amounts pertained to late delivery of material. However what about the other amounts apart from these which have been claimed as bad - debts. The assessee has chosen not to provide any of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... genuineness of the claim of assessee is not in doubt and there is no chance for the assessee to receive the amount. The major thirst before us by the assessee is that the assessee is not required to establish that debts had become bad in previous years and mere writing off is sufficient but it is not so. The assessee as per this decision of the Hon'ble Court also has to prove the genuineness of the claim and also that there is no chance to recover the amount. 10. In the present case undisputedly the debtors are Government agencies/Board and the assessee has not stopped business with these parties. One cannot believe that any debt can be said to have gone bad. The assessee-company was continuously found engaged in the business transaction with such parties in future also. There is a specific finding that receipts are coming from those parties for other transactions and the assessee wants to show from the same parties the amount/debts as irrecoverable. This is not the intention of the Legislature as per section 36(1)(vii) of the Act. Because the assessee was free to denounce relation with these parties but that was not done by the assessee. As the action of the assessee has to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udgment is based should show that debt was not realisable for some fault on the part of the debtor or some supervening impossibility on the part of the debtor to pay, but not because of the possible difficulties or hurdles, the assessee might have incur to compel the recalcitrant debtor to pay. The assessee for his convenience might decide that the debtor was too small and it was not worthwhile to pursue the debtor but that judgment would not be an honest judgment which would establish that the debt had become a bad debt or worthless debt. The facts on which the judgment has to be taken by the assessee should reveal the irrecoverability of the debt from the angle of the debtor and not on the basis of the ability of the assessee to recover the same. Bad debt is claimed as an allowance by the assessee and, therefore, the burden is on him to show that he had not reasonable expectations of recovery it at the time he wrote it off or that there is no ray of hope at all on which he could rely upon to recover the amount from the debtor. For this purpose we are fortified by the judicial pronouncements: Jadavji Narsidas Co. v. CIT [1963] 47 ITR 411 (Born.) L. Bani Mal Dalal v. CIT [194 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... low different system of accounting, same cannot be rejected as the assessee is following from past so many years consistently and had been accepted by the department. We have not found any mistake in the order of the learned CIT(A) in directing the Assessing Officer to delete the impugned addition. This ground of the revenue is having no merit, the same is dismissed. 14. The next ground raised by the revenue pertains to deleting the addition of Rs. 28,57,897 on account of interest-free loans advanced by the assessee to its subsidiary companies. The revenue has relied upon the decision in the case of Biyani Chambal Ka Mahabhandar v. ITO [IT Appeal No. 373 (Chd.) of 2003] wherein it was concluded that the assessee is paying interest on borrowed capital and also paying interest on capital of the partners, but having given interest-free loan to a constituent of HUF partner pro rata was rightly disallowed by the Assessing Officer. The issue has been dealt with at page 4, para 5 of the assessment order. The assessee claimed a deduction of Rs. 8,06,36,000 in the return on account of interest paid/payable on loans. The Assessing Officer found that the interest bearing loans were diverted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on'ble Tribunal has further held that as own funds of the appellant-company in the shape of reserve and surplus were more than the interest-free loans advanced, no interest or interest free-loans can be added back to the income. In view of the orders of my predecessors and the order of the ITAT Chandigarh Bench, Chandigarh in the case of appellant itself in assessment year 1991-92, there being no fresh loans during the year and the total interest-free loans being to the extent of Rs. 81,01,000 as against the reserve and surplus of Rs. 24,26,38,000 I hold that no interest on interest free loans is disallowable and, therefore, delete the addition of Rs. 14,90,678 made by the Assessing Officer: 15. In view of these facts and respectfully following the decision of the Co-ordinate Bench we have not found any mistake in the order of the learned CIT(A). The same is upheld specially when the revenue has not controverted the fact as we have discussed in the above paras and also no contrary decision was produced before us from the higher forum meaning thereby that the same was accepted by the department. In view of these facts, on this issue the order of the learned CIT(A) is upheld. In vi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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