TMI Blog2011 (1) TMI 1531X X X X Extracts X X X X X X X X Extracts X X X X ..... issue could not be raised before the CIT[A]. later on the issue could not be raised even before the Tribunal because papers were not available. When all papers became available, this ground has now been filed and he made a prayer that this ground may be admitted. 4. On the other hand, ld. DR submitted that this is purely a factual ground and does not raise any legal issue. The assessee has chosen not to file appeal on this issue earlier when original appeal was filed and, therefore, assessee cannot be allowed to raise this ground now as additional ground. In any case, no evidence regarding change of Chartered Accountant or non-availability of papers has been filed. 5. We have considered the rival submissions carefully and find force in the submissions of the ld. DR. The additional ground relates to one of the additions and if the same was not raised in the appeal before the CIT[A] or even in the original appeal filed before the Tribunal, then the only presumption would be that assessee has accepted that particular addition. In any case, there is nothing on record to show that there was a change in the Chartered Accountant or that all papers were not available. In this backgro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany and, therefore, assessee slowely sold its proprietary business assets to the private limited company. Then he referred to pages 23 to 25 of the paper book, which is a copy of the account of the assessee in the books of M/s. Mech Marine Engineers (P) Ltd. and pointed out that as on 1st April, 1999 there was a debit balance of Rs. .28,24,700/-. After that assessee on 1st April, 1999 itself sold various assets like, computer, machinery, vehicle, crane etc., to the private limited company worth Rs. .13,92,378/- against which assessee started receiving various payments and during the year assessee also transferred certain amounts to the company and certain other trading transactions. He further pointed out that closing balance in the account was only Rs. .25,10,155/-. Therefore, during the year no fresh loan has been raised and, in fact, all the transactions are trading transactions only and the same cannot be construed as loans. Therefore, section 2(22)(e) is not applicable. He also read the provision and pointed out that section starts with the word any payment by a company , which would mean payment during the year and not the opening balance. 10. He also referred to page 88 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee has sold various assets to M/s. Mech Marine Engineers (P) Ltd. and, therefore, on that date there was a debit balance against the company in the books of the assessee and there would be corresponding credit balance in the books of the company in the name of the assessee on account of such trading transactions. Only after these transactions, the assessee company has made certain payments but in turn assessee has also transferred certain money through other transactions and the net result of the account is that the outstanding loan at the beginning of the year which was at Rs. .28,24,700/- got reduced to Rs. .25,10,155/-. Therefore, it is clear that all the transactions are mainly trading transactions and in our view provisions of section 2(22)(e) are not applicable even if the money is received against the sale of assets or from other trading transactions. Accordingly, we set aside the order of the ld. CIT[A] and delete the addition on account of deemed dividend. 13. Ground Nos.2 3: After hearing both the parties, we find that during the assessment proceedings it was noticed by the AO that assessee had made a claim of bad debts amounting to Rs. .29,28,311/-. He further found ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k which is a summary of the transactions of proprietary concern and pointed out that during the year there was a turnover of Rs. .18,79,500/- on which after claiming the bad debt there was a loss of Rs. .21,23,077/-. He submitted that assessee had filed return in which income from salary from the company was declared along with the income from house property as well as loss of the proprietary concern and AO has also accepted the same. Therefore, it cannot be said that the proprietary business was closed. 16. As far as the discrepancies noticed by the AO are concerned, he argued that these differences were because the customers had not accepted certain bills and had also raised other disputes. Because of these differences etc., only the amounts had to be written off. He submitted that after the amendment to section 36 w.e.f. 1-4-1989 it is no more a requirement of the law that to prove that the debt has actually become bad and it is sufficient if the debt is written off. In this regard he relied on the decision of the Hon'ble Supreme Court in the case of CIT VS. TRF Ltd. (323 ITR 395). 17. On the other hand, ld. DR referred to the assessment order and pointed out that as p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Marine Engineers Pvt. Ltd. is being vested with all the right and also the duties and obligations connected with the takeover of the assets as the owner of the properties and M/s. Mech Marine Engineers (Prop. A. Mohanlal) will after the takeover will not have any rights therein and will not be responsible for any obligation or duty whatsoever. 19. The above terms clearly show that the company had mainly acquired the business and that too by acquiring certain assets, but the existing business was being carried on by the assessee itself because there is no reference to taking over the existing business. Further, there was a turnover of Rs. .18,79,500/- in the proprietary business and after claiming bad debts the assessee had declared loss of Rs. .21,23,077 and the return was filed accordingly. The AO has also considered these amounts which becomes clear from computation of the income at page 14 of the assessment order which is as under: Subject to the above, the total income of the assessee is computed as under: Income from salary as per statement Rs.65,000/- Income from House proper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ull credit to the price made by the proprietary business of the assessee and that is why assessee was forced to write off the same. In any case, the Hon'ble Supreme Court in the case of CIT vs. TRF Ltd. [supra] has held as under: After the amendment of section 36(1)(vii) of the Income Tax Act, 1961, with effect from April 1, 1989, in order to obtain a deduction in relation to bad debts, it is not necessary for the assessee to establish that the debt, in fact, has become irrecoverable: it is enough if the bad debt is written off as irrecoverable in the accounts of the assessee. The Supreme Court accordingly remanded the matter to the Assessing Officer to examine, solely to the extent of write off, whether the debt or part thereof was written off in accounts of the assessee. Therefore, in our view, the claim of bad debt is in order and, accordingly, we set aside the order of the Ld. CIT[A] and direct the AO to assess the claim of the bad debts. 21. In the result, assessee s appeal in I.T.A.No.676/M/10 is partly allowed. 22. I.T.A.No.740/M/10 A.Y 1999-2000: In this appeal, assessee has challenged the order of the Ld. CIT[A] for confirming the levy of penalty u/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. . 93,500/- 30. As far as first two additions i.e. bad debts and deemed dividend are concerned, we have already deleted these additions while adjudicating the assessee s appeal on quantum in I.T.A.No.676/M/07 for A.Y 2000-01 and, therefore, penalty would not survive in respect of these two items. The other two items on which penalty has been levied are on account of cessation of liability amounting to Rs. .2,99,495/- and undisclosed source from GESCO amounting to Rs. .93,500/-. 31. Both the parties were heard. 32. As far as cessation of liability is concerned, it seems assessee had agreed before the AO that these liabilities were not existing. However, the Ld.counsel of the assessee had pointed out that accounts of these parties were not written off and on books the liability was existing and assessee had been wrongly advised to surrender these items. Once the accounts were not written off, perhaps the addition itself could not have been made but since assessee had conceded that is why addition has been made. In our view, this is not a fit case for levy of penalty. 33. As far as second item in respect of undisclosed source from GESCO is conc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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