TMI Blog2013 (1) TMI 600X X X X Extracts X X X X X X X X Extracts X X X X ..... een proved as bad debt. Following the decision in case of Sirpur Paper Mills (1971 (12) TMI 37 - ANDHRA PRADESH HIGH COURT) that only the debt which constitutes trade debt could be claimed as bad debt if it is irrecoverable. In the present case it is observed by the lower authorities that the debts which were written off were not trade debts as seen. In favour of revenue Disallowance of advances given to employees written off - tour advance – Held that:- If it is an expenditure incurred in respect of its business, it should have been claimed during the relevant assessment year and if it is a debt it should have been advanced in respect of trade or business of the assessee and it should have gone to computation of income of the assessee in the previous year in which the amount of such debt or part thereof is written off or of an earlier previous year or represents money lent in ordinary course of business The assessee is not able to lead any evidence how it has gone into computation of income of the assessee in the assessment year under consideration or in any other assessment year. Being so, we are of the opinion that findings of the lower authorities in disallowing the claim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... noticed that the assessee has paid huge amount of interest on the loans/borrowed funds taken by it from banks/financial institutions. However, the assessee has not charged any interest on the above advances/loans given to its sister concerns. In response to query raised by the Assessing Officer as to why for not charging interest on the above advances, proportionate interest out of the interest paid to financial institutions should not be disallowed, the assessee has submitted that advances were made to the group companies out of the revenue generated from operation of the business and hence, no disallowance can be made out of the interest paid by it. However, the Assessing Officer overruled such contention of the assessee. He noted that the assessee has incurred excess interest on account of business of group companies. He observed that had the assessee charged interest on such advances given to its group companies, who fall under the purview of section 40A(2)(b) of the Act, its own liability under interest would have been reduced. With these observations, he computed the chargeable interest @ 12% on the above amount advanced to the sister concerns at Rs. 2,76,68,393, and disallo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Ltd. v. CIT (Appeals) [2007] 288 ITR 1. 8. The AR further submitted that the CIT(A) ought to have seen that borrowed funds were not utilised by the assessee for advancing monies to its group companies and the monies advances were from out of the monies generated from the operations of its business and no additional borrowings were made to finance such advances and in fact the assessee repaid part of term loans raised in earlier years and, therefore, no interest can be disallowed. The CIT(A) ought to have seen that as per the details of secured/unsecured loans in the Balance Sheet of the assessee-company as on 31.3.2005, there was decrease in borrowings and thus no part of the borrowing can be said to have been utilised for advancing monies to the group companies by the assessee during this assessment year. The CIT(A) ought to have seen that the amounts were advanced to its sister companies only from out of its own funds only and not from out of borrowed funds and the funds advanced due to commercial expediency and hence there is no justification in disallowing proportionate interest from out of the interest paid by the assessee in view of the decision of the Supreme Court in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terest on commercial expediency as prevailing in the earlier year. The assessee before us made contradictory arguments that it has offered the interest on these advances in subsequent years, being so it cannot be brought into tax in assessment year under consideration. In our opinion, one has to see the method of accounting employed by the assessee. The assessee being following mercantile system of accounting, it has to be accounted on accrual basis. On the other hand, if it is following cash system of accounting, it can be accounted on cash basis. In the present case, the assessee is following mercantile system as such interest has to be accounted on accrual basis. If there is a mutual transaction between the assessee and the sister concerns to whom the assessee made interest free advances then it has to be considered as advances made by the assessee on account of commercial expediency. Simply it cannot be accepted that this issue is covered by the earlier order of the Tribunal unless the facts in the present assessment year are similar to earlier year as considered by the Tribunal. Being so, the Assessing Officer is required to examine whether there is mutual transaction betwee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oup the advances. He further noted that most of the parties are well known concerns. With these reasons, he held that the claim of the assessee for deduction of the amount of Rs. 5,21,62,330 cannot be allowed. Thus, he disallowed the said amount. 13. The learned AR submitted that the said amount of Rs. 5,21,62,330 were given as advances to various parties, either for materials or for rendering services. The parties have failed to supply goods/ render services and the advance amount could not be recovered from them as the whereabouts of some of the parties are not known and some parties have refused to return the advances. In these circumstances, the assessee wrote off the advances. The Assessing Officer is not justified in disallowing the said amount. In this regard, the AR relied on the decisions in CIT v. Morgan Securities Credits (P.) Ltd. [2007] 292 ITR 339, CIT v. Autometers Ltd. [2007] 292 ITR 345, and CIT v. Anjani Kumar Co. Ltd. [2003] 259 ITR 114. The AR further relied on the order of the Tribunal in the case of Dy. CIT v. Edelweiss Capital Ltd., Mumbai [ITA No. 3971/Mum/2009, dated 15th February, 2011] wherein held that amount written off as irrecoverable represents t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent Undertakings, have refused to return the advances. As stated above, various amounts shown against different parties, do not constitute trade debt, and unless it is a trade debt, the same cannot be allowed deduction, following ratio of decision of Hon'ble Andhra Pradesh High Court in CIT v. Sirpur Paper Mills [1983] 144 ITR 393. In this context, it is pertinent to reproduce the observations made by the Hon'ble High Court in the said decision: "In A. E. Thomas Co. Ltd. v. CIT [1963] 48 ITR (SC) 67; it was pointed out that a loan to be treated as a debt and the same to be allowed as a deduction under s. 10(2)(xv) of the Act, it should be a debt which, if good, would have swelled the taxable profits of the assessee. In this case it is obviously not a debt of that type as the recovery of that debt would not in any way go to swell the taxable profits of the assessee. Therefore, it is not a trade debt or a business debt as such and no deduction can be claimed with regard to the same." 16. The DR further submitted that the said amounts towards advances made to different parties cannot be allowed deduction as trading loss. In this regard, he placed reliance on the decisions in Gre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... annot be in such manner questioned and no demonstrative or infallible proof of bad debt having become bad is required, and commercial expediency is to be seen from the point of view of the assessee, depending on the nature of transaction, capacity of debtor, etc., but qua entry, semblance of genuineness has to be there and the same should not be mere paper work. All the citations put before us by the assessee's counsel wherein genuineness of the entries was never doubted therein, wherein in case any specific doubt has been expressed by the lower authorities regarding genuineness thereby required to furnish by the assessee i.e., (a) complete name and address of the persons, (b) ledger accounts of these persons and (c) efforts made to realised the dues. It is a fact that queries by the Assessing Officer were not properly addressed by the assessee and requisite information was not furnished. The only plea made by the assessee is that the debt has been written off in the books of account and no further proof is required. U/s. 143(2) of the Act the Assessing Officer is empowered to require the assessee to produce the evidence in support of the return, as such where the assessee has clai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of Sirpur Paper Mills (supra) only the debt which constitutes trade debt could be claimed as bad debt if it is irrecoverable. In the present case it is observed by the lower authorities that the debts which were written off were not trade debts as seen from para 13.2 of the CIT(A) order. Accordingly, we confirm the order of the CIT(A) on this issue. 19. The next ground in this appeal is with regard to sustaining disallowance of Rs. 24,75,026 towards advances given to employees. Brief facts of the issue are that the assessee challenged disallowance of tour advance to staff written off. As noted by the Assessing Officer, the assessee has written off staff advance of Rs. 24,75,025. In response to query raised by the Assessing Officer for explaining such claim, the assessee has submitted that the same represents tour/staff advances/imprest advances given to various field staff and marketing personnel for business tour and for meeting expenses. The assessee further submitted that many of the staff members did not render accounts for advance availed by them and many of them have left the company. The assessee has claimed that the amounts could not be recovered from them and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee company. Thus, admittedly, the said amounts were not in the nature of debts and hence, as rightly stated by the Assessing Officer, the same cannot be considered as bad debts. From the list of such advances written off, furnished before the CIT(A), it can be seen that a sum of Rs. 1,65,912 is shown against Sri S. Kishore Kumar. It has not been explained as to when and for which purpose such huge amount has been given to that employee. A sum of Rs. 6,37,100 is shown as sundry advance - staff. It has not been explained as to who were those persons and when the said amount was advanced. Similarly, though a sum of Rs. 6,14,733 is shown under imprest for field staff, details thereof have not been furnished. Further, a sum of Rs. 3,35,452 is shown against resigned employees salary advances. It has not been clarified as to when and who are those employees to whom amounts had been advanced. Further, as rightly pointed out by the Assessing Officer, the assessee could have recovered the advance amounts from their PF and other dues payable by the company. Under these circumstances, the entire claim of Rs. 24,75,026 made by the assessee towards tour advance to staff written off, is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... res 18.7.2005 708986 5 crores 15 crores 28. The above amount is received by cheque from Sri V.C. Nannapaneni, Chairman who is Managing Director of the company. The assessee was asked to furnish details of source of this fund. However, the assessee failed to produce the details. Hence the addition is made by the Assessing Officer. On appeal, the CIT(A) deleted the same observing that the amount was received from Mr. V.C. Nannapaneni, CMD of that company. The sources of this fund was by sale of shares and he has received the money from M/s. Navayuga Engineering towards sale of shares and he declared the capital gain of Rs. 59.92 crores on sale of shares and paid tax of Rs. 11.9 crores and he found from the bank account of the ICICI Bank, the transaction is correct and deleted the addition. Against this the Revenue is in appeal before us. 29. We have heard both the parties and perused the material on record. The Assessing Officer called for information at the time of assessment. The assessee failed to produce the same. The Assessing Officer has no occasion to examine the evidence produced before the CIT(A) by the assessee. The CIT(A) oug ..... X X X X Extracts X X X X X X X X Extracts X X X X
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