TMI Blog2011 (4) TMI 1325X X X X Extracts X X X X X X X X Extracts X X X X ..... essment proceedings, it was found by the AO that the assessee company had debited a sum of ₹ 3,72,30,826/- on account of bad debts written off during the year as compared to the preceding year figure of ₹ 32,540/-. The AO asked the assessee to furnish party-wise details of the bad debts written off and also to furnish the detail of the year in which the corresponding income was offered for taxation. In reply, the assessee submitted a list of the persons in respect of whom such claims were written off. From the perusal of the details furnished by the assessee, it was seen that it contained advances to staff of ₹ 15,34,840/-, advances to retainers of ₹ 8,83,317/- and advances to suppliers and advances for capital goods of ₹ 88,87,159/- aggregating to ₹ 1,13,05,316/- apart from bills recoverable. The assessee was asked to justify its claim with respect to the advances written off which has been claimed as bad debts in view of provision of Section 36(2)(i). In response, the assessee filed its submissions dated 30.01.06 stating that out of a total claim of ₹ 3.72 crores, a sum of ₹ 51,13,812/- being the amount not directly related to asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iven to suppliers. There is no denying the fact that all such payments were made wholly and exclusively for the purpose of carrying on the business of the appellant. The appellant is engaged in the business of liquor manufacturing and sales. Keeping in view the peculiarity of the business, the amounts written off as bad debt, appear to be genuine. In the facts and circumstances of the case, the disallowance made by the AO is deleted. In view of the case laws cited above, all such expenditure do fall within the purview of section 37(1) of the Income Tax Act. Relief granted to the tune of ₹ 1,13,05,316/-. 8. We have heard both the parties and perused the material on record. 9. In the present case, the AO disallowed the sum of ₹ 1,13,05,316/- by observing that these amounts were not considered as income in earlier years or in current year and hence cannot be allowed as bad debts within the meaning of Section 36(2)(i). However, the learned CIT(A) has allowed assessee s claim in the light of the provisions of Section 37(1) of the Act. The CIT(A) has stated that there is no denying the fact that all such payments were made wholly and exclusively for the purpose of carr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sent case. We order accordingly. 10. Ground No.2 raised by the Revenue is as under:- On the facts and in the circumstances of the case, the ld.CIT(A) has erred in deleting the addition of ₹ 1,59,28,955/- made by the AO on account of the interest and financial charges. 11. In the course of assessment proceedings, it was found by the AO that assessee had debited a sum of ₹ 1,59,28,955/- on account of interest and financial charges as compared to preceding year s figure of ₹ 1,53,99,329/-. The AO stated that the increase in the assessee s interest liability was indeed intriguing as the assessee had sold of its distillery business to its subsidiary company w.e.f. 5.12.2002 and in that view of the matter, the liability to pay interest should have been reduced considerably in view of assessee earning a capital gain of over ₹ 4 crores from the transfer of its distillery business. The AO further noted that the assessee s investment had increased from ₹ 37,56,190/- to ₹ 5,85,45,179/- which included 20,00,000 equity shares of Narang Distillery Ltd., the same subsidiary company to whom the assessee company had sold its distillery business. The AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iness till AY 2003-04. He further pointed out that the assessee had borrowed the money in the earlier years and interest of ₹ 1,53,99,329/- was claimed in the preceding year and sum of ₹ 1,59,28,955/- has been claimed in the current year. He, therefore, submitted that the amount borrowed in the earlier years had no nexus with the assessee s transfer of its unit to Narang Distillery Ltd. or Narang Breweries Ltd. He further submitted that the interest and financial charges amounting to ₹ 1,59,28,955/- were incurred wholly and exclusively for the purpose of business. He further submitted that the AO s allegation that transaction of sale of business is a colourable device is not based on any evidences but without any basis and it is only the AO s opinion based on surmises and conjectures. He further pointed out that assessee hived off its distillery unit only on 5.12.2002 and therefore, interest for 8 months had no nexus to the assessee s transfer of distillery business on 5.12.2002. 14. All these submissions of the assessee as well as AO s order were considered by the CIT(A) and after considering the same, the CIT(A) deleted the addition by giving the following fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s was adjusted for on account payments. The assessee has claimed the interest on the loans and borrowings taken earlier for the purpose of business. The interest has been claimed and allowed in the earlier years. The AO has also failed to appreciate the fact that the business of the assessee relating to distillery was hived off only on 5.12.2002 i.e. after running the business for more than 8 months. Therefore, disallowing the interest expenditure incurred during the said period of 8 months is not at all justified. It is not the case of the AO that the loan borrowed for the purpose of business has been diverted for non-business purpose during the year under consideration. The reasons given by the AO in disallowing the interest expenses is totally irrelevant inasmuch as the sale of assessee s distillery business has nothing to do with the interest paid on borrowed money taken in earlier years. In this view of the matter, we are therefore in full agreement with the CIT(A) in deleting the addition. Thus, ground No.2 raised by the Revenue is rejected. 18. Ground No.3 is as under:- On the facts and in the circumstances of the case, the ld.CIT(A) has erred in deleting the addition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g, the assessee has relied upon the decision of ITAT Mumbai in the case of J.R.Diamonds Ltd. Vs. ACIT 70 ITD 42. In that case, it was found by the Tribunal that the assessee at the instance and consent of the employees paid gratuity amounts due to the employees to the transferee unit for the benefit of the employees. However, in the present case, no such details have been produced before us and it is not clear as to whether the gratuity payable by the assessee to the employees was transferred to the transferee at the consent of the employees and whether the employees had admitted the receipt of the payment. It is also not clear whether the various employees of the assessee were actually stood retired on the day when the assessee transferred its unit to the transferee or whether the payment was made in the nature of retrenchment compensation. The learned CIT(A) has deleted the addition by passing a very short and summary order without bringing on record all the facts of the case and the agreement entered into by the assessee with the employees. The various decisions relied upon by the assessee were rendered in the context of facts of those cases. Moreover, the learned CIT(A) has f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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