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2016 (4) TMI 1087 - ITAT VISAKHAPATNAM

2016 (4) TMI 1087 - ITAT VISAKHAPATNAM - TMI - Interest on sundry debtors - Held that:- The debtor went into liquidation and the matter is pending before the BIFR. On further verification of the details submitted by the assessee, we find that the lenders have taken the possession of the assets of the company and given notice for auction. Under these circumstances, the A.O. was incorrect in charging interest on the outstanding debtor balance, when recovery of principal is in doubtful. The Assessi .....

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nding loan amount is a stock in trade of assessee and assessee is in the business of money lending to charge interest on the outstanding balance by following the mercantile system of accounting. Though, assessee charged interest for the last financial year, he explained the reasons for not charging the interest for the current financial year under consideration. From the perusal of the facts, it appears that the reasons given by the assessee appears to be reasonable. Therefore, we are of the opi .....

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Rama Rao, AR ORDER PER G. MANJUNATHA, Accountant Member: This appeal filed by the Revenue is directed against the order of CIT(A), Guntur dated 8.2.2012 and it pertains to the assessment year 2008-09. 2. The brief facts of the case are that the assessee is a partnership firm, which is engaged in the business of trading in cotton, filed its return of income for the assessment year 2008-09 on 8.9.2008 declaring total loss of Rs. 5,11,538/-. The case was selected for scrutiny under CASS and accordi .....

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ebtor balance for the financial year 2006-07 relevant to assessment year 2007-08. However, the assessee has failed to charge any interest for the year under consideration, therefore, issued a show cause notice and asked to explain why interest shall not be charged for the current financial year. In response to show cause notice, the assessee filed its written submission and stated that the balance shown in the name of M/s. Kumar Kotex Limited was on account of supply of goods. The debtor owed mo .....

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essee further submitted that the debtor financial position was very weak and it is not in a position to pay the outstanding balance. Under these circumstances, charging interest on the outstanding amount is not correct. However, the Assessing Officer after considering the explanations furnished by the assessee held that the assessee has been actively in the trading activity with M/s. Kumar Kotex Ltd. by supplying goods for the last 6 years. Though the assessee has not received any amounts due fr .....

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ssessment order, the assessee preferred an appeal before the CIT(A). Before the CIT(A), the assessee reiterated the submissions made before the Assessing Officer. The assessee further submitted that the debtor company s financial position was very weak and it went to BIFR for liquidation. The bankers have taken the possession of the assets of the company. Therefore, we are not in a position to recover even principal outstanding from the debtor and hence, charging interest on the same does not se .....

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he debtor for making the payment. However, our effort proved to be futile, therefore, we stopped charging interest from the current financial year onwards. The CIT(A), after considering the submissions of the assessee deleted the additions made by the Assessing Officer. The CIT(A) held that it is a fact borne out of records that during the year under consideration, the debtor was under BIFR. The CIT(A) further held that as seen from the records, the financial position of the trade debtor has gon .....

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tstanding debtor balance. The Ld. D.R. further submitted that the assessee has not taken any steps to collect the amount due from the debtor and more over continued its business activity with the debtor, therefore, A.O. is rightly charged interest on the outstanding balance. The Ld. D.R. further submitted that the assessee itself, for the financial year 2006-07 has charged interest on the outstanding debtor balance, but failed to offer any reasons for not charging the interest for the current fi .....

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er was of the opinion that the assessee has not offered any reasons for not charging the interest on the outstanding debtor balance. The A.O. further held that even though, debtor not paid the amount for the past 6 years, the assessee continued to supply the goods and not made any efforts to recover the amount due from the debtors. Therefore, charged interest based on the assessee own admission for the earlier year. It was the contention of the assessee that the debtor s financial position is ve .....

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it does not have any practice of charging interest on the outstanding debtor balance. As a matter of fact, for the previous financial year, we charged interest to create pressure on the assessee to make the payment. However, we realized that our efforts proved to be futile, therefore, we stopped charging interest. 6. The assessee contended that the A.O. cannot charge interest on sundry debtors, as there was no such condition for charging interest. We find force in the arguments of the assessee .....

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nterest on sundry debtors is purely a mutual agreement between the assessee and debtors. The A.O. has not brought on record any evidence, to show that such agreement is existed between the parties to justify his action. 7. The assessee contends that the financial position of debtor is weak and its efforts are not yielded any results of recovery. On perusal of the records, we find that the debtor went into liquidation and the matter is pending before the BIFR. On further verification of the detai .....

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