9911796707
TMI Blog1987 (11) TMI 108X X X X Extracts X X X X X X X X Extracts X X X X ..... gineering Works Ltd. (in short, the KEW) are managed by the same group to people controlling the two companies. Before the ITO the assessee claimed deduction of bad debt amounting to Rs. 9,73,772 being the amount outstanding in the accounts of M/s KEW up to the end of 31-3-1981 as follows : Bad debt pertaining to Period of transaction Amount Rs. Passage A/c. 11-4-78 to 8-5-79 22,709.03 Foundry Chemicals A/c. 27 8-8-78 to 16-5-79 &nb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t it was not functioning as a company at all. Further more, it was amply clear that there was no prospects at all for realising the dues in view of the utterly hopeless financial position of the company and the gross uncertainties of even the priority creditors being paid their dues"; that the debtor-company did not prepare any audited accounts subsequent to the period ending 31st March, 1977; that by a letter dated 10th April, 1980 the Chairman of the Allahabad Bank stated that the company's net worth of M/s KEW came to a negative figure and that the total outstanding liabilities exceeded Rs. 10 crores. In fact, in the said letter the bank suggested the assessee "to transfer shares belonging to your group at Re. 1 per lot"; that the Calcutta High Court directed the winding up of M/s KEW by an order dated 15-12-1980; that the transactions in respect of M/ s KEW shares were suspended as per the Calcutta stock Exchange quotations dated 28-2-1981 and 8-5-1981 and that as per the Press report appearing in the Business Standard, dated 24th August, 1983, the Bihar Government had already taken over the entire unit of M/s KEW. In the said letter it was further pointed out that from another ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce of the Allahabad Bank's desire to purchase the entire lot of share so the assessee's group for Re. 1, the assessee sold that share M/s KEW at a much higher price of Rs. 71,706 which implied that the financial position of the debtor-company was not so bleak as was being made out by the assessee; (e) that in pursuance of the High Court's order dated 15-12-1980 an official liquidator was appointed, who "has not given his findings nor has he passed any order to that effect"; (f) that there were no materials before the Board of Directors as on 12-5-1981 when it passed the resolution writing off the amount due from M/s KEW of Rs. 9,73,722; and (g) that on the ratio of the Calcutta High Court decision in the case of V. N. Rajan & Co. v. CIT [1983] 142 ITR 545, the assessee was not entitled to the deduction claimed as a bad debt in terms of section 36(1)(vii). 4. The CIT (A) held that from the discussion made by the IAC u/s 144B (4) it was evident that the debt arose out of transaction entered into by the assessee with the debtor-company during the course of its day-to-day business; that the amount claimed had been taken into account in computing the assessee's income in the earli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eceived the assent of the President of India on 29-7-1983 that the entire compensation payable for taking over the management of the said debtor-company was fixed at Rs. 4 crores and that the liabilities of the debtor-company had not been taken over in terms of the said enactment. It has further been pointed out that in terms of the priorities laid down in the said Act for payment of the compensation sum so fixed secured loans from the nationalised banks and secured loans from All India and State Financial institutions have been categorised as No. 2 in the list of priorities and trade and other creditors for the period prior to the take over of the undertakings has been relegated to the last category, i.e., category No. 4 in order of priorities. Out attention was drawn to the assessee's letter to the IAC dated 18-9-1984 wherein was mentioned that the Allahabad Bank on 27-2-1980 filed a suit in the Calcutta High Court (Suit No. 157 of 1980) against the debtor-company for realisation of their secured dues aggregating to Rs. 7.49 crores. It has been pointed out in the said letter that the Hon'ble high Court by an order dated 27-2-1980 restrained the debtor-company from transferring, d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng against M/s. KEW of over Rs. 7.49 crores. The Hon'ble Calcutta High Court in the case of V. N. Rajan & Co. laid down the principles applicable in the granting of allowance envisaged in section 36(1)(vii) which are : (a) that the facts and circumstances of each case have to be considered in judging whether a particular debt could be considered to be a debt or not; (b) that the question of its allowance must be looked at from the practical point of view, i.e., from the business point of view even though the owns is on the assessee to establish that the debt has become bad in the relevant accounting year. In laying down the aforesaid principles their Lordships considered the Bombay High Court decision in the case of Jethabhai Hirji and Jethabhai Ramdas v. CIT (1979) 120 ITR 792. In our opinion, the directors on the basis of the materials available before them took a practical approach in deciding to write off the debts outstanding against M/s. KEW of Rs. 9,73,772. We would, accordingly, uphold the CIT (A)'s order in this regard. 7. The facts relating to the second ground are that the assessee advanced interest-bearing loans aggregating to Rs. 15 lacs during the relevant previous ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct and with the ultimate object of reaching an amicable settlement and ensuring speedy recovery of the net dues from The Dal Jute it was unanimously agreed that the following debit notes from The Dal Jute and the company's credit notes as per details given hereunder be and are hereby accepted. In this connection, it was further resolved to authorise the Chairman to reach a final settlement with The Dal Jute incorporating, inter alia, the various debit/credit notes as detailed below and any other matter of claim that may arise during the course of negotiations. Mr. K. L. Dua, Executive Vice-President, and Mr. M. L. Chadha, Secretary of the company, were also severally authorised to sign such papers, documents etc. as may be necessary in this connection..........In connection with the aforesaid, it was further resolved as under : (B) To treat the loan of Rs. 15.00 lakhs given to The Dal Jute as interest-free loan from the date the loan was first given to The Dal Jute until the date of repayment notwithstanding what has been recorded in item No. B of the Board meeting held on 7-7-1980 and item No. 13 of the Board meeting held on 21-8-1980." In the printed balance-sheet the said loa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ire business transaction and, therefore, the surrendering of the interest amount must be held to relate back to the accounting year in question and not to the subsequent accounting year. 9. After hearing the departmental representative we are of the opinion that there was an accrual of interest income on the loans advanced by the assessee to M/s. Dalhosie Jute Co. on the basis of the two resolutions passed by the Board of Directors in their meeting held on 7-7-1980 and 21-8-1980 respectively. The subsequent action by the company in remitting the interest that was already charged as per the aforesaid two resolutions of the Directors was completely an independent action taken on the basis of the resolution passed in the meeting of the Board of Directors held on 12-5-1981. There is no dovetailing of the said two independent actions taken by the assessee, i.e. (i) for charging of interest, and (ii) its subsequent action in waiving interest so charged on the strength of the resolution passed by the Board of Directors after the end of the accounting year. The Calcutta High Court decision in the case of North West Coal Ltd. at p. 431 is distinguishable on facts with the present case as w ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
