TMI Blog2017 (9) TMI 460X X X X Extracts X X X X X X X X Extracts X X X X ..... to A.Y. 2010-11. The assessee has raised the following grounds of appeal :- 1. The learned CIT Appeals seriously erred by making a disallowance of ₹ 19,72,993/- being bad debts of M/s. Alwar Farmers Machinery House Pvt. Ltd. debited to profit loss account without considering the facts of the case and without any justification and cogent reason and on wrong allegation and false ground. 2. The learned CIT Appeals seriously erred by not considering that this account is old and there was no possibility of recovery of any amount from them. Further in view of section 36(1)(vii) of I.T. Act 1961 any bad debt which is written off as irrecoverable in the accounts of the assessee in the previous year is allowable as expenses and even assessee fulfill the condition of Sec. 36(2) of Income Tax Act, 1961. 3. The learned CIT Appeals seriously erred by not considering that amount of ₹ 18,40,000/- given as advance to M/s. Alwar Farmers Machinery House Pvt. Ltd. for business purpose and not considered the statement recorded of Sh. Pramod Gupta who confirm that this advance is given for business purposes. 4. The learned CIT Appeals seriously erred by disallowing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 72,993/- as bad debt being the advance made to M/s. Alwar Farmers Machinery House Pvt. Ltd. 3.1. The ld. Counsel for the assessee vehemently argued that the authorities below were not justified in disallowing the claim of the assessee. He reiterated the submissions as made in the written brief. The written submissions of the assessee are as under :- Both the lower authorities have not allowed the claim of the assessee on the presumption that the transaction of giving advance by the assessee to M/s. Alwar Farmers Machinery House Pvt. Ltd. is a collusive/sham/colourable device for avoidance of payment of taxes. A transaction can be said to be collusive/sham/colourable when it is not real/genuine transaction. In the present case assessee advanced ₹ 18,40,000/- to M/s. Alwar Farmers Machinery House Pvt. Ltd. on 12.10.2006/ the advance was given for setting up a service station. At the time when the advance was given, it cannot be presumed by any stretch of imagination that after four years, the assessee as an arrangement to avoid payment of taxes, would write off the amount and claim the same as bad debt. The burden to proof that a transaction is collusive/sham i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld. CIT (A) has decided the issue by observing as under :- 4.3. I have perused the assessment order as well as submissions made by the appellant and find that an addition of ₹ 19,72,993/- has been made by the AO on account of claim of bad debts made by the company. AO has given detailed reasons and conducted extensive enquiries before making the disallowance on this ground. The facts and details of the grounds for making the disallowance are discussed by the AO from page 2 to page 25 of the assessment order, which have been reproduced above for the sake of convenience. 4.4. The appellant has stated that it is an authorized dealer of Tata Motors Ltd. for heavy commercial vehicles like Truck, Trailor etc. of Alwar, Bharatpur, Dholpur, Karoli Sawaimadhopur District. The total turnover of the company was ₹ 131.40 crore during this financial year. The company is having dealings with M/s. Alwar Farmers machinery House Pvt. Ltd. and sold goods of ₹ 22162 and advanced to them ₹ 1840000 to acquire service facility for our vehicles which are sold by us in FY 2006-07. 4.5. the appellant has stated that an amount of ₹ 18,40,000/- was given a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... another group concern of the same family i.e. M/s. Apoorva Automobiles ( a partnership firm consisting of same persons). The funds have been utilized by M/s. Apoorva Automobiles to pay its dues overdrawn from its bank. 4.8. I have carefully examined the material placed on record and find that AO had collected the information from the ROC office at Jaipur and a startling revelation was made that the debtor company M/s. Alwar Farmers Machinery House Pvt. Ltd. had not become insolvent but had rather applied for winding up of the company by filing an application with the ROC under the Simplified Exist Scheme. The documents received from the ROC office clearly reveal that the appellant i.e. M/s. Matsys Automobiles Pvt. Ltd. has filed an affidavit stating that debt of ₹ 19,72,993/- due from M/s. Alwar Farmers Machinery House Pvt. Ltd. has been waived off. The application for winding up filed by M/s. Alwar Farmers Machinery House Pvt. Ltd. before the ROC is a voluntary action and can not be classified as a company becoming insolvent. Therefore, there is no question left for making a claim of the debt having become bad. This action of claim of bad debts is only aimed at defeati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ends, warrants etc. have to be sent and the relationship remains a continuing one. The final conclusion must be pragmatic and practical, which takes into account holistic view of the entire evidence . 4.12. In this case, it is not the case of the appellant that the shareholders and the directors of the appellant company and the recipient company are not known to each other and do not belong to the families which are closely related to each other. Therefore, the filing of an affidavit by the director of the appellant company before the ROC that the debt due from M/s. Alwar Farmers Machinery House Pvt. Ltd. has been waived off and thereafter making a claim for bad debts is nothing but a tool to avoid the payment of taxes. AO has conducted elaborate enquiries at the stage of assessment and proved beyond doubt that intention of the appellant and the debtor company had never been to do the transaction as has been stated in the agreement and it stands substantiated from the purpose for which the funds have been utilized. 4.13. In view of the above discussion, I confirm the addition of ₹ 19,72,993/- made by the AO under this head. The ld. Counsel for the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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