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2016 (4) TMI 477 - ITAT AHMEDABAD

2016 (4) TMI 477 - ITAT AHMEDABAD - TMI - Addition on account of interest income not offered to tax - CIT(A) deleted the addition - Held that:- We find that the CIT(A) has followed real income principal as per various decisions holding that no interest accrues when the principal amount of loan itself becomes doubtful. The Revenue neither points out any illegality therein nor does it take us to any evidence rebutting factual finding that the assessee’s loan in question has not become doubtful. We .....

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or any earlier prevision or that representing the money lent in the ordinary course of business of banking or money lending being carried on by the assessee. There is no such condition in case of money lending/finance business as propagated by the Assessing Officer that only interest income not recoverable and written off is to be allowed as bad debt deductions. We find no reason to interfere with the CIT(A)’s findings under challenge. This ground is decided in assessee’s favour. - Decided again .....

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gned interest disallowances for this time period as ₹ 3,47,197/-. This crucial finding has gone un-rebutted in the course of hearing before us. We reject Revenue’s argument on this score. - Decided against revenue - ITA No. 275 /Ahd/2013 - Dated:- 11-3-2016 - Shri Pramod Kumar, Accountant Member and Shri S. S. Godara, Judicial Member For The Revenue : Shri Lala Philips, Sr. D.R. For The Assessee : Shri S.N. Divetia, A.R. ORDER PER : S. S. GODARA, JUDICIAL MEMBER:- This Revenue s appeal for .....

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to ₹ 2,65,87,917/- in his proprietary concern M/s. Rajeev Enterprises. He pleaded that these advances had become sticky and stagnant. And that although he was debiting the interest during the year, no interest was debited to avoid huge amount of write off in the coming year. The Assessing Officer in assessment order dated 29-12-2011 rejected this explanation inter alia by observing that assessee followed mercantile system of accounting on accrual basis and it ought to have declared its in .....

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ant is following mercantile system of accounting and has been debiting interest income receivable from A.N. Builders on accrual basis over the years, hence, the appellant has to show the income during the current year also. 4.1 The above contention of the Assessing Officer is not correct. No income has resulted when the loan itself becomes doubtful. In such a situation when the loan itself is doubtful, the interest cannot be said to be accrued. The Hon'ble Madras High Court in the case of CI .....

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en accrued nor received. The SLP was filed against this decisions of the Hon'ble Punjab and Haryana High Court, has been dismissed by the Hon'ble Supreme Court. The same is reported in 144 ITR (SC)50(SC) 4.2 In view of the fact that when the loan given by the appellant to A.N. Builders itself had become doubtful the interest thereon could not be said to have accrued to the appellant. In view of the above, the Assessing Officer was not justified in making addition of ₹ 31,90,550/-. .....

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This first substantive ground fails. 5. The Revenue s second substantive ground seeks to revive bad debt disallowance of ₹ 26,74,708/-. The assessee had written off bad debts of ₹ 29,96,552/-. He would file ledger account of debtors M/s. Gujarat Psylium Corporation and Vanguard Marketing to the tune of ₹ 25,24,444/- and ₹ 4,48,108/- as deposits and advances. There is no dispute that its ledger accounts of the aforesaid parties had written off both principal and interest .....

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essing Officer has not doubted the fact that the entire amount of ₹ 25,24,444/- in the case of Gujarat Psylium Corporation and ₹ 4,48,108/- in the case of Vanguard Marketing had been written off. The Assessing Officer has only observed that the interest receivable of ₹ 48,129/- in the case of Vanguard Marketing and ₹ 2,73,715/-in the case of Gujarat Psylium Corporation are allowed to be written off as bad debt. He has observed that the principal amount cannot be allowed t .....

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s were not given in the normal course of business. Once it is found that the advance given are for business purpose then their write off is allowable as business loss. 6.1 In view of the above, the Assessing Officer was not justified in disallowing the sum of ₹ 26,74,708/- on account of the fact that it was a principal amount which had been written off. The addition of ₹ 26,74,708/- made by the Assessing Officer is, hence deleted. 7. Heard both sides. There is no dispute that the ass .....

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case of money lending/finance business as propagated by the Assessing Officer that only interest income not recoverable and written off is to be allowed as bad debt deductions. We find no reason to interfere with the CIT(A) s findings under challenge. This ground is decided in assessee s favour. 8. This leaves us with Revenue s third and final substantive seeking to restore interest disallowance of ₹ 1,29,43,122/- made on account of interest expenditure not incurred for the purpose of the .....

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impugned investments thereby diverting interest bearing funds. 9. The assessee has succeeded in the lower appellate proceedings as under:- 8. I have gone through the assessment order and submission of the A.R. of the appellant carefully. It is seen that the Assessing Officer has not made detailed examination of the facts in the case of the assessee before the disallowing the claim of interest u/s.36(1)(iii) of the I.T. Act. The Assessing Officer has observed the figures of the balance sheet to .....

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is correct, however, the Assessing Officer could not have been disallowed any amount of interest in respect of loans and advances given to the extent of ₹ 10.42 Crores because the appellant was charging interest on these advances. Further, the deposits given were for the purpose of securing lands etc. which were for the business purpose of the appellant. In view of the above, the Assessing Officer could not have been disallowed any interest on account of borrowed monies being invested in d .....

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I.T. Act. 8.3 The appellant was asked to furnish the details of investments made in shares. Vide his reply filed on 20.11.2012, the appellant has filed details of investment in RJD Integrated Textile Park Ltd. which shows that the opening balance of investment was ₹ 2,42,500/- the sum of ₹ 1 Crore was invested on 23.02.2009, a sum of ₹ 5 lacs was invested on 25.02.200 and ₹ 6 Crore was invested on 27.02.2009. In view of the facts that the opening balance of investment of .....

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