TMI Blog1990 (11) TMI 348X X X X Extracts X X X X X X X X Extracts X X X X ..... 80 as required under s. 36(2)(i) of the IT Act, 1961 ?" 2. Shortly stated the facts are the assessee, a banking company, claimed the following bad debts: (i) Rs. 13,83,000 due by Ahmedabad Laxmi Cotton Mills Ltd. (ii) Rs. 8,14,547 due by India Paper Pulp Co. Ltd. 3. The IAC (Asst.) noticed that the assessee did not square up the accounts and debtors by crediting the said amounts to their accounts and instead the assessee credited the said amounts of debts to the "Bad Debts Suspense Account" and debited to the profit loss account. This according to the IAC (Asst.) did not amount to writing off in the accounts of the assessee for the previous year within the meaning of s. 36(2)(i) of the Act. He also noticed that the approval of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the approval of the Gujarat High Court, got the permission to get the possession of Ahmedabad Laxmi Cotton Mills Co. Ltd. One of the clauses of the scheme of merger of the debtor-company with Arvind Mills Ltd. is that no interest would be payable to the assessee-bank for the period from the date of closure of the debtor company, i.e., from 12th August, 1977 to the date on which the scheme became finally operative. The scheme became operative from 18th January, 1978. 8. In these circumstances and with a view to reopening the closed mill and thereby securing the principal to the extent of rupees two and half crores, the bank had to agree to the proposal of the company and accordingly had to write off from the accounts of 1978 a sum of Rs. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion with the sum of Rs. 8,14,518 the concerned officer of the bank placed before the board of directors a note with the following recommendation : "Recommendation; In view of the foregoing, we recommend that an amount of Rs. 8,14,547.51 be written off from our profit loss a/c for the year 1978. If our recommendation is approved, the Board may kindly adopt the following resolution: Resolved that the recommendation of the Dy. Chief Officer (R C) in his note dt. 15th March, 1979 for writing off an amount of Rs. 8,14,547.51 from 1978 account on account of write back of interest charged in the account of India Paper Pulp Co. Ltd. caused by restructuring of different accounts and charging of concessional rates of interest with retrospec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore, held that the aforesaid two amounts should be allowed as had debts. 14. Our attention has been drawn to the decision of the Gujarat High Court in the case of CIT vs. Karamchand Premchand Ltd. (1985) 152 ITR 94 (Guj). In that case the assessee-company claimed deduction of an amount paid as remuneration to three of its directors. The directors had been rendering extra services for a long time but had not received any remuneration. At a general meeting held in September, 1967 the shareholders of the assessee-company passed a resolution authorising remuneration to the directors. Subsequently, the resolution was amended in January, 1968 and it was decided to pay an amount of Rs. 5,14,157 by way of remuneration to the aforesaid three dir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the amounts in dispute which was forwarded to the board of directors for approval. The board of directors accepted and approved the recommendation and adopted resolution to that effect. In view of the process involved in the preparation of accounts, until the recommendation is accepted and resolution passed by the directors, the accounts do not become final. In such a case the approval of the board of directors could not have been obtained before the close of the accounting year. It is only when such resolution is passed the accounts become final. The resolution approving and accepting the recommendation relating to the treatment of certain items, must be related back to the date upto which the accounts are finalised and such determinatio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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