Madhur Capital & Finance Ltd., Ahmedabad V. The Dy.CIT., Circle-4, Ahmedabad

CO 182/AHD/2007

• Counselvise Citation: [2010] 122 COUNSELVISE.COM (IT) 4768 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 11 month(s) 29 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 09-07-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 17-06-2010
• Assessment Year: 2002-2003
• Appeal Filed On: 11-07-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K M MAHESH
• Keywords: Bad and doubtful debts; Notional interest
• Section: 133(6); 145; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'C' [BEFORE S/SHRI D T GARASIA,JM & A N PAHUJA,AM] ITA NO.1603/AHD/2007 WITH CO NO. 182/AHD/2007 (ASSESSMENT YEAR:-2002-03) DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-4, AHMEDABAD V/S MADHUR CAPITAL & FINANCE LTD., MADHUR COMPLEX, STADIUM CIRCLE, NAVRANGPURA, AHMEDABAD [PAN: AABCM 3158 M] [APPELLANT] [RESPONDENT] REVENUE BY :- SHRI K M MAHESH, DR ASSESSEE BY:- SHRI S N SOPARKAR, AR O R D E R A N PAHUJA: THIS APPEAL BY THE REVENUE AND CROSS-OBJECTION[CO ] BY THE ASSESSEE AGAINST AN ORDER DATED 31-1-2007 OF THE LD. CIT(APPEALS)-VIII, AHMEDABAD, RAISE THE FOLLOWING G ROUNDS:- ITA NO.1603/AHD/2007 1. THE LD. CIT(A) ERRED IN LAW AND ON THE FACTS OF THE CASE IN DIRECTING THE AO TO DELETE THE DISALLOWANCE OF RS.24,00,000/- BEING BAD DEBTS WRITTEN OFF IN RESPECT OF LOANS GIVEN TO 2 PARTIES U/S 36(1)(VII) OF THE I.T. ACT. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD. CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE AO. 3. IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE L D. CIT(A) MAY BE CANCELLED AND THAT OF THE AO MAY BE RESTORED TO THE ABOVE EXTENT. CO NO. 182/AHD/2007 1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE , DEPARTMENTS APPEAL DESERVES NOT TO BE ADMITTED IN VIEW OF THE CIRCULAR NO.F.NO.279/126/98-IT DATED 29-03-2000 AND DECISION OF ITAT AHMEDABAD BENCH C IN ITA NO.3139/AHD/2004 WITH CO NO.50/AHD/2005 IN CASE OF ACIT VS. PURSHOTTAMDAS P PATEL. 2. WITHOUT PREJUDICE, EVEN ON MERITS, THE LD. CIT(A) ERRED IN LAW AND ON FACTS OF THE CASE IN CONFIRMING THE ADDITION OF RS. 38,73,602/- BEING INTEREST ALLEGED ACCRUED TO THE APPELLANT ON NOTION AL BASIS. UNDER THE ITA NO.1603/AHD/2007 FOR AY 2002-03 MADHUR CAPITAL & FINANCE LTD. 2 FACTS AND CIRCUMSTANCES OF THE CASE NO SUCH INTERES T HAS ACCRUED TO THE APPELLANT AND THEREFORE THE ENTIRE ADDITION DES ERVES TO BE QUASHED 3. THE RESPONDENT CRAVES LEAVE TO ADD, ALTER, A MEND AND/OR WITHDRAW ANY GROUND OR GROUNDS OF CROSS OBJECTION EITHER BEFORE OR DURING THE COURSE OF HEARING OF APPEAL. 2. ADVERTING FIRST TO GROUND NO. 1 IN THE APPEAL OF THE REVENUE, FACTS, IN BRIEF, AS PER RELEVANT ORDERS ARE THAT RE TURN DECLARING LOSS OF RS.43,52,860/- FILED ON 24-10-2002 BY THE ASSESSEE- COMPANY, ENGAGED IN THE BUSINESS OF LEASING, HIRE PURCHASE A ND TRADING IN SHARES ,AFTER BEING PROCESSED ON 02-01-2003 U/S 143 (1) OF THE INCOME-TAX ACT, 1961 [HEREINAFTER REFERRED TO AS TH E ACT], WAS SELECTED FOR SCRUTINY WITH THE ISSUE OF NOTICE U/S 143(2) OF THE ACT ON 22.10.2003. DURING THE COURSE OF ASSESSMENT PROCEE DINGS, THE ASSESSING OFFICER [AO IN SHORT] NOTICED THAT THE AS SESSEE-COMPANY CLAIMED DEDUCTION FOR BAD DEBTS OF RS.24,00,000/- R ELATING TO DR. MAHENSH SANGHVI- RS.9,50,000/- & DR. SUNITA M S ANGHVI- RS.14,50,000/-. TO A QUERY BY THE AO, THE ASSESSEE WHILE SUBMITTING COPIES OF PROMISSORY NOTES & LOAN AGREEMENT STATED THAT THE AMOUNTS HAD BEEN WRITTEN OFF. HOWEVER, THE AO DID N OT ACCEPT THE CONTENTIONS OF THE ASSESSEE ON THE GROUND THAT THE LOAN WAS GIVEN TO AFORESAID PARTIES WITHOUT ANY SECURITY/GUARANTEE DU RING THE PERIOD RELEVANT TO THE A.Y. 2001-02 AND NO INTEREST WAS CH ARGED NOR THE ASSESSEE FURNISHED ANY EVIDENCE REGARDING EFFORTS M ADE TO RECOVER THE AMOUNT WHILE DR. SUNITA M SANGHVI MENTIONED THAT TH ERE WAS NO AGREEMENT OR CONTRACT ENTERED INTO FOR THE ABOVE SAID LOAN WITH MADHUR CAPITAL & FINANCE LTD. EVEN THE SIGNATURE OF DR. SUNITA SANGHVI ON LOAN AG REEMENT FILED BY THE ASSESSEE DID NOT MATCH WITH THOSE ON THE REPLY SUBM ITTED BY HER IN RESPONSE TO NOTICE U/S 133(6) OF THE ACT. WHILE DOUBTING THE GE NUINENESS OF THE TRANSACTION., THE AO FURTHER OBSERVED THAT AMOUNT WRITTEN OFF RE PRESENTED THE PRINCIPAL AMOUNT AND THE ASSESSEE WAS NOT IN THE BUSINESS OF MONEY LENDING OR BANKING; THE AUDIT REPORT OF THE ASSESSEE COMPANY REVEALING BUSINESS OF ONLY HIRE PURCHASE AND ITA NO.1603/AHD/2007 FOR AY 2002-03 MADHUR CAPITAL & FINANCE LTD. 3 LEASING. ACCORDINGLY, THE AO DISALLOWED THE CLAIM F OR DEDUCTION OF BAD DEBTS TO THE TUNE OF RS.24,00,000/- . 3. ON APPEAL, THE ASSESSEE CONTENDED THAT THE MONE Y WAS LENT IN THE ORDINARY COURSE OF BUSINESS OF BANKING OR MONEY LEN DING CARRIED ON BY THE ASSESSEE, A NON-BANKING FINANCE COMPANY AND THEREOF , IN TEMM OF PROVISIONS OF SEC. 36(1)(VII) R.W.S. 36(2), THE CLAIM OF THE ASSE SSEE WAS ALLOWABLE INASMUCH AS THE SAID AMOUNTS WERE WRITTEN OFF IN THE BOOKS. IN THE LIGHT OF THESE SUBMISSIONS,, THE LD. CIT(A) DELETED THE DISALLOWANCE, HOLDING AS UNDER:. 2.2 I HAVE PERUSED THE RELEVANT PORTION OF THE ASSESSME NT ORDER AND ALSO CONSIDERED THE ARGUMENTS AND WRITTEN SUBMISSIO NS OF THE APPELLANT. THE FACT THAT THE APPELLANT WAS IN THE BUSINESS OF FINANCING MONEY WITH NECESSARY APPROVAL FROM THE RESERVE BANK OF INDIA A ND THAT THE DISPUTED AMOUNTS WERE WRITTEN OFF IN THE BOOKS AND COMPLIANC E OF SECTION 36(1)(VII) R.W.S. 36(2) WERE NOT DISPUTED. THE AO DID NOT APPR ECIATE COMPLETE FACTS OBTAINING IN THIS REGARD. IN VIEW OF THE AMENDED PR OVISIONS IT IS NOW FAIRLY SETTLED THAT WHAT IS REQUIRED IS THAT THE DEBT SHOU LD BE WRITTEN OFF IN THE BOOKS AS BAD AND THE ADEQUACY OF THE RECOVERY ACTIO N CAN NO LONGER BE INSISTED. THE ASSESSEE RIGHTLY RELIED ON THE DECISI ON OF THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF CIT V. GIRISH BHAGWAT PRA SAD 152 CIR 199. IN THAT VIEW OF THE MATTER, ALL THE NECESSARY CONDITIO NS IN THIS REGARD R.W.S. 36(2) BEING SATISFIED, THE CLAIM OF THE APPELLANT I S TENABLE AND THE AO IS DIRECTED TO DELETE THE DISALLOWANCE TOWARDS BAD DEB TS WRITTEN OFF IN THE BOOKS OF ACCOUNTS. 4. THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST T HE AFORESAID FINDINGS OF THE LD. CIT(A),THE LEARNED DR SUPPORTED THE ORDER OF THE AO AND THE LEARNED AR ON BEHALF OF THE ASSESSEE SUP PORTED THE FINDINGS OF THE LD. CIT(A) WHILE RELYING UPON DECI SION OF THE HON'BLE SUPREME COURT IN THE CASE OF TRF LTD., 230 CTR 14 ( SC) . 5. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE AS ALSO THE DECISION RELIED UPON. UNDISPUT EDLY AND AS POINTED OUT BY THE LD. CIT(A), THE ASSESSEE IS IN THE BUSINESS OF FINANCING MONEY WITH NECESSARY APPROVAL FROM THE RE SERVE BANK OF INDIA. ONCE ITA NO.1603/AHD/2007 FOR AY 2002-03 MADHUR CAPITAL & FINANCE LTD. 4 THE ASSESSEE IS IN THE BUSINESS OF MONEY LENDING, A PPARENTLY THE AMOUNT WRITTEN OFF IN THE BOOKS IS ADMISSIBLE DEDUCTION IN TERMS O F PROVISIONS OF SEC. 36(1)(VII) R.W.S. 36(2) OF THE ACT. RECENTLY HONBLE SUPREM E COURT IN THEIR DECISION DATED 9.2.2010 IN THE CASE OF TRF LTD. VS. CIT, IN CIVIL APPEAL NO.5293 OF 2003, REPORTED IN 230 CTR 14 (SC) HELD THAT THIS POSITION IN LAW IS WELL-SETTLED. AFTER 1 ST APRIL, 1989, IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT THE DEBT, IN FACT, H AS BECOME IRRECOVERABLE. IT IS ENOUGH IF THE BAD DEBT IS WRITTEN OFF AS IRRECOVERA BLE IN THE ACCOUNTS OF THE ASSESSEE. HOWEVER, IN THE PRESENT CASE, THE ASSESSI NG OFFICER HAS NOT EXAMINED WHETHER THE DEBT HAS, IN FACT, BEEN WRITTEN OFF IN ACCOUNTS OF THE ASSESSEE. WHEN BAD DEBT OCCURS, THE BAD DEBT ACCOUNT IS DEBITED AN D THE CUSTOMER'S ACCOUNT IS CREDITED, THUS, CLOSING THE ACCOUNT OF THE CUSTOMER . IN THE CASE OF COMPANIES, THE PROVISION IS DEDUCTED FROM SUNDRY DEBTORS. AS STATE D ABOVE, THE ASSESSING OFFICER HAS NOT EXAMINED WHETHER, IN FACT, THE BAD DEBT OR PART THEREOF IS WRITTEN OFF IN THE ACCOUNTS OF THE ASSESSEE. THIS EXERCISE HAS NOT BEEN UNDERTAKEN BY THE ASSESSING OFFICER. HENCE, THE MATTER IS REMITTE D TO THE ASSESSING OFFICER FOR DE NOVO CONSIDERATION OF THE ABOVE-MENTIONED ASPECT ONLY AND THAT TOO ONLY TO THE EXTENT OF THE WRITE OFF. 5.1. IN THE LIGHT OF AFORESAID DECISION OF T HE HONBLE APEX COURT IN TRF LTD.(SUPRA) AND THERE BEING NO MATERIAL BEFORE US T O TAKE A DIFFERENT VIEW IN THE MATTER, WE HAVE NO OPTION BUT TO UPHOLD THE FINDI NGS OF THE LD. CIT(A). THEREFORE, GROUND NO. 1 IN THE APPEAL IS DISMISSED. 6. NOW COMING TO GROUND NO.2 RELATING TO ADDITION OF RS.38,73,602/- ON ACCOUNT OF INTEREST IN THE CROSS OBJECTION, THE AO NOTICED DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS THAT THE A SSESSEE- COMPANY DID NOT REFLECT ANY INCOME BY WAY OF INTERE ST DESPITE THE FACT THAT LOANS AND ADVANCES OUTSTANDING WITH REGAR D TO SEVERAL PARTIES AT THE BEGINNING AND END OF THE YEAR WERE O F THE ORDER OF RS.2,81,71,655/- & RS.54,61,771/- RESPECTIVELY EVEN WHEN DURING THE PERIOD RELEVANT TO THE A.Y. 2001-02 THE ASSESSE E-COMPANY HAD SHOWN INTEREST INCOME OF RS.64,59,637/-. TO A QUERY BY THE AO, THE ASSESSEE SUBMITTED A LIST OF FOLLOWING EIGHT PARTIE S FROM WHOM NO INTEREST WAS CHARGED: ITA NO.1603/AHD/2007 FOR AY 2002-03 MADHUR CAPITAL & FINANCE LTD. 5 NAME BALANCE OUTSTANDING AT THE BEGINNING & END OF THE YEAR (IN RS.) I)MADHUR SUPER MARKET PVT. LTD. 2701948 NIL II)GUJARAT HOME PRODUCTS PVT. LTD. 5101321 NIL III)GUJATART KIRANA PVT. LTD. 10227651 NIL IV)MEDIA MEN 131567 131567 V)ACME DEVELOPERS 1000000 1000000 VI)MAHENDRASINGH GOHEL 4330204 4330204 VII)SUNITA M SANGHVI 1450000 NIL VIII)MAHESH SANGHVI 950000 NIL TOTAL OPENING BALANCE 25892691 6.1 SUBSEQUENTLY, THE ASSESSEE COMPANY FURNISHED D ETAILS WITH REGARD TO THE FOLLOWING PARTIES ALSO:. NAME BALANCE OUTSTANDING AT THE BEGINNING & END OF THE YEAR (IN RS.) I) MADHUR FOOD PRODUCTS LTD. 803147 II) C VAKIL & CO. 18847 III) NAILESH & CO. 819753 IV)YOGENDRA P PATEL 6797 V) MINESH K JASANI 90299 VI) VINIT R PARIKH HUF 9863 VII) RAMESH N PARIKH 9863 VIII) EKTA D VAKI 4815 IX) BHARTI DAX VAKI 50018 X) B D VAKIL & CO 465560 TOTAL 2278962 6.2 THE ASSESSEE CONTENDED WHILE RELYING ON TH E DECISION IN THE CASE OF UCO BANK LTD. VS CIT 237 ITR 889(SC) & JT. CIT V. PACT SECURITIES & FINANCIAL LTD. [2003] 86 ITD 115 (HYD.) THAT THE AF ORESAID ADVANCES BEING STICKY, INTEREST WAS NOT CHARGED ON THE AFORESAID ADVANCES IN ACCORDANCE WITH RBI ITA NO.1603/AHD/2007 FOR AY 2002-03 MADHUR CAPITAL & FINANCE LTD. 6 GUIDELINES. IT WAS FURTHER POINTED OUT THAT THE IN TEREST HAD NOT BEEN CHARGED FROM MADHUR SUPER MARKET PVT. LTD., GUJARAT HOME PRODUCTS PVT. LTD., GUJARAT KIRANA PVT. LTD BECAUSE THESE PA RTIES HAD SETTLED THEIR ACCOUNTS. WITH REGARD TO REMAINING FIVE PARTI ES, THE RECOVERY BEING DOUBTFUL, NO INTEREST HAS BEEN CHARGED. AS RE GARDS THE OTHER PARTIES REFERRED TO IN PARA 6.1 ABOVE, NO REPLY WAS FURNISHED BEFORE THE AO NOR EVEN THE FIGURES OF THEIR CLOSING BALANC ES. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE AO OBSERVED TH AT THOUGH THE ASSESSEE HAD SHOWN INTEREST INCOME OF RS.13487852/ - AND RS.6459637/-IN THE A.Y. 2000-01 & 2001-02 RESPECTIVELY, WHICH INC LUDED INCOME RECEIVED FROM THE AFORESAID PARTIES, NO SUCH INCOME WAS SHOWN IN THE YEAR UNDER CONSIDERATION. BARRING FEW LOANS, THE LOANS AND ADVANCES GIVEN BY THE ASSESSEE TO VARIOUS PARTIES WERE NOT STICKY AT ALL, THE AO FURTHER OBSE RVED. SEVERAL PARTIES SUCH AS MADHUR SUPER MARKET PVT. LTD., GUJARAT KIRANA PVT. LTD. ETC., SISTER CONCERNS OF THE ASSESSEE AND MANY OTHER PARTIES, ARE STATED TO HAVE REPAID BACK THE AMOUNT TAKEN FROM THE ASSESSEE COMPANY IN THE YEAR UNDER C ONSIDERATION. THE AO WAS OF THE VIEW THAT THAT THE ASSESSEE COMPANY WAS OFFE RING INTEREST INCOME AS PER ITS CONVENIENCE. SINCE THE ASSESSEE DID NOT FURNISH COPY OF ACCOUNT FOR THE PERIOD RELEVANT TO THE A.YS. 1999-2000 TO 2002-2003 OF AL L THE PARTIES FROM , IN WHOSE ACCOUNT LOANS AND ADVANCES WERE OUTSTANDING AT ANY TIME DURING THE YEAR UNDER CONSIDERATION, RELYING UPON THE CIRCULAR DATED 8.1 0.1984 OF THE CBDT AND DECISION IN THE CASE OF UCO BANK LTD VS CIT, 237 IT R 889(SC), THE AO ADDED AN AMOUNT OF RS. 37,73,602/-,CALCULATED AS UNDER: TOTAL LOANS GIVEN AS PER TABLE 1&2 RS.28171653/- PERIOD OF LOAN ON AVERAGE BASIS 11 MONTHS INTEREST AT THE RATE OF 15% 37,73,602/- 7. ON APPEAL, THE ASSESSEE CONTENDED BEFORE THE LEA RNED CIT(A) THAT INTEREST WAS NOT PROVIDED IN THE ACCOUNTS AS T HE ASSESSEE WAS UNABLE TO REALIZE EVEN THE PRINCIPAL OUTSTANDING. IN THE LIGH T OF THE PRUDENTIAL NORMS PRESCRIBED BY THE RESERVE BANK OF INDIA, APPLICABLE IN THE CASE OF THE ASSESSEE, ITA NO.1603/AHD/2007 FOR AY 2002-03 MADHUR CAPITAL & FINANCE LTD. 7 INTEREST ON NPA WAS NOT PROVIDED. INTER ALIA, THE A SSESSEE RELIED UPON DECISIONS IN THE CASE OF SMT. MADHU GUPTA V. DCIT CENTRAL CI R-3 MUMBAI 2006-(008)- SOT-0691- TBOM AND TEDCO INVESTMENT & FINANCIAL S ERVICES PVT, LTD. V. DCIT, 82 TTJ 259 (DELHI). IN THE LIGHT OF THESE SUBMISSIO NS, THE LD. CIT(A) CONCLUDED AS UNDER: 3.2 I HAVE PERUSED THE REASONING GIVEN BY THE AO F OR INCLUDING ACCRUED INTEREST INCOME AND ALSO THE VARIOUS ARGUMENTS AND JUDICIAL DECISIONS RELIED ON BY THE APPELLANT IN THIS REGARD. THE AO R ELIED ON THE DECISION OF THE HON'BLE APEX COURT IN THE CASE OF UCO BANK V. C IT 237 ITR 889 TO THE EFFECT THAT INTEREST ON STICKY ADVANCES NOT RECOVER ED FOR A PERIOD OF 3 YEARS CANNOT CONSIDERED AS INCOME FROM THE FOURTH YEAR ON WARDS AND CANNOT BE INCLUDED IN THE INCOME OF THE ASSESSEE; THE CBDT'S CIRCULAR OF 09-10- 1984 HAVING BEEN APPROVED BY THE HON'BLE APEX COURT IN THIS REGARD NON- RECOGNITION OF ACCRUED INCOME WITHIN 3 YEARS OF ADV ANCE IS AGAINST THE SETTLED POSITION OF LAW IN THIS REGARD. IN THIS CAS E, ADMITTEDLY, THE DEBTS WERE NOT MORE THAN 3 YEARS OLD AND HENCE THE AO'S A CTION IN WORKING OUT THE ACCRUED INTEREST IS TENABLE IN THE LIGHT OF THE CBDT'S CIRCULAR DATED 09.10.1984 AND THE FINDING LAID DOWN IN THE CASE OF UCO BANK. THE OTHER CONTENTION OF THE APPELLANT THAT THE RESERVE BANK O F INDIA NORMS ARE BINDING AND HENCE INTEREST WAS NOT PROVIDED ON NON- PERFORMING ASSETS CAN NOT BE ACCEPTED AS NO FINAL VIEW HAS BEEN PRONO UNCED IN THIS REGARD. IN FACT, THE HON'BLE MADRAS HIGH COURT IN THE CASE OF TAMIL NADU POWER FINANCE CORPORATION V. CIT 280 ITR 491 (MAD) HAS HE LD THAT THE RESERVE BANK OF INDIA REGULATIONS HAVE NO OVER RIDING EFFEC T ON THE INCOME-TAX ACT. IN VIEW OF THE ABOVE, THE APPELLANTS ACTION OF NON -PROVISION OF INTEREST ON STICKY ADVANCES OF LESS THAN 3 YEARS CAN NOT BE HEL D AS TENABLE. THE AOS ACTION IN THIS REGARD IS TO BE UPHELD AS JUSTIFIABL E CONSISTENT WITH THE METHOD OF ACCOUNTING REGULARLY EMPLOYED BY THE APPE LLANT. THIS GROUND IS THUS REJECTED. 8. THE ASSESSEE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LD. CIT(A).THE LEARNED AR ON BEHALF OF THE ASSESSEE WHILE RELYING UPON THE DECISIONS IN THE CASE OF JIT PAN HOLDINGS PVT. LTD.VS.ACIT,48 ITD 369(BOMBAY),ACIT VS. LAXMI NARAY AN MEHTA,76 TTJ 686(JODHPUR), JCIT VS. PACT SECURITIES & FINANC IAL LTD.,86 ITD 115, AND TEDCO INVESTMENT & FINANCIAL SERVICES PV T, LTD. V. DCIT, 82 TTJ 259 (DELHI) SUBMITTED THAT WHEN RECOVERY OF EVEN THE PR INCIPAL AMOUNT IS IN DOUBT, INTEREST ON SUCH ADVANCES COULD NOT BE AD DED TO THE INCOME. AS REGARDS PROPOSITION OF TAXATION OF REAL INCOME, THE ITA NO.1603/AHD/2007 FOR AY 2002-03 MADHUR CAPITAL & FINANCE LTD. 8 ASSESSEE RELIED UPON 46 ITR 144 & 225 ITR 746(SC).T HE LEARNED DR, ON THE OTHER HAND, SUPPORTED THE FINDINGS OF TH E LD THE CIT(A). 9. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE AS ALSO THE DECISIONS RELIED UPON. ADMITTE DLY, LOANS AND ADVANCES GIVEN BY THE ASSESSEE TO VARIOUS PARTIES M ENTIONED IN THE IMPUGNED ORDERS AS REFERRED TO ABOVE WERE NOT INTER EST FREE. THE ASSESSEE CLAIMED BEFORE THE AO THAT THEY HAD FOLLOW ED RBI GUIDELINES TO RECOGNIZE THE INCOME AND RELIED UPON DECISION IN THE UCO LTD.(SUPRA). IN ORDER TO ASCERTAIN AS TO WHETHE R OR NOT LOANS GIVEN TO THE VARIOUS PARTIES AS MENTIONED IN PARA 6 & 6.1 ABOVE WERE STICKY LOANS, AS CLAIMED BY THE ASSESSEE, THE AO AS KED THE ASSESSEE TO SUBMIT COPIES OF ACCOUNT OF THE SAID PA RTIES FOR THE PERIOD RELEVANT TO THE AYS 1999-2000 TO 2002-03 . T HOUGH THE ASSESSEE CLAIMED BEFORE THE AO THAT INTEREST HAD NO T BEEN CHARGED FROM M/S MADHUR SUPER MARKET PVT. LTD., M/S GUJRAT HOME PRODUCTS PVT. LTD., M/S GUJRAT KIRANA PVT. LTD., DUE TO SETT LEMENT OF ACCOUNTS WITH THEM WHILE FROM THE REMAINING FIVE PARTIES ME NTIONED IN PARA 6 ABOVE, RECOVERY WAS STATED TO BE DOUBTFUL, THE ASSE SSEE DID NOT FURNISH ANY REPLY WITH REGARD TO PARTIES MENTIONED IN PARA 6.1 ABOVE NOR THE COPIES OF ACCOUNTS OF ALL THE AFORESAID P ARTIES FOR THE EARLIER YEARS, DESIRED BY THE AO, IN ORDER TO ASCER TAIN THE VERACITY OF THE CLAIM MADE BY THE ASSESSEE. . EVEN COPIES OF AG REEMENT OR ANY OTHER MATERIAL WAS NOT PLACED BEFORE THE AO, WHICH COULD SUGGEST THAT THE AFORESAID PARTIES WERE NOT LIABLE TO PAY A NY INTEREST IN THE YEAR UNDER CONSIDERATION TO THE ASSESSEE NOR THERE IS ANY MATERIAL, SUGGESTING THAT THE AFORESAID PARTIES WERE NOT IN A POSITION TO PAY EVEN THE PRINCIPAL AMOUNT . THERE IS NOTHING IN THE IMPUGNED ORDER TO SUGGEST AS TO WHETHER OR NOT THE RELEVANT DETAIL S AS AFORESAID WERE FILED EVEN BEFORE THE LD. CIT(A). BEFORE US AL SO SITUATION IS NO BETTER EXCEPT THE PLEA MADE BY THE LD. AR ON BEHALF OF THE ASSESSEE ITA NO.1603/AHD/2007 FOR AY 2002-03 MADHUR CAPITAL & FINANCE LTD. 9 THAT IN RESPECT OF TWO PARTIES VIZ. DR. MAHENSH SAN GHVI & DR. SUNITA M SANGHVI, CLAIM HAVING BEEN ALLOWED AS BAD DEBTS, THE LD. CIT(A) WAS NOT JUSTIFIED IN HOLDING THAT INTEREST SHOULD BE CHARGED EVEN FROM THESE TWO PERSONS.BESIDES FEW DECISIONS AS AFO RESAID HAVE BEEN RELIED UPON. IN THE PAPER BOOK FILED BEFORE US , THE ASSESSEE PLACED ON PAGES 27 TO 29 COPY OF ACCOUNT M/S MADHU R SUPER MARKET PVT. LTD.,M/S GUJRAT HOME PRODUCTS PVT. LTD. & M/S GUJRAT KIRANA PVT. LTD., WHERE IN ,BALANCE IS STATED TO HAVE BEEN TRANSFERRED TO M/S MADHUR SHARES AND STOCK ON 31.3.2002. THE ASSESSEE PLEADED THAT THEIR DUES HAVING BEEN SETTLED, NO INTEREST WAS CHA RGED IN RESPECT OF THESE PARTIES. WHAT WERE THE TERMS OF SETTLEMENT WI TH THESE PARTIES, HAS NOT BEEN EXPLAINED BEFORE US NOR IS EVIDENT FRO M THE IMPUGNED ORDERS. EVEN THE DATE OF SETTLEMENT OF DUES IS NOT EVIDENT NOR IT HAS BEEN EXPLAINED AS TO WHY INTEREST UNTIL THE DATE OF SETTLEMENT WAS NOT PROVIDED. BEFORE PROCEEDING FURTHER, WE MAY HAV E A LOOK AT THE DECISIONS RELIED UPON ON BEHALF OF THE ASSESSEE. TH E DECISION IN TEDCO INVESTMENT & FINANCIAL SERVICES (P) LTD.(SUPR A), PROCEEDED ON THE BASIS THAT PROVISIONS OF THE RBI ACT,1934 AND THE PRUDENTIAL NORMS ISSUED BY IT IN EXERCISE OF THE POWERS DELEGA TED TO THEM, OVERRIDE THE PROVISIONS OF THE ACT AND THEREFORE, THE REVENUE W AS HELD TO BE NOT JUSTIFIED IN TAXING INCOME ACCRUED ON ACCOUNT OF LEASE RENTALS, INTEREST ON ICD AND BILL DISCOUNTING CHARGES. WE ARE OF THE OPINION THAT RE LIANCE ON THIS DECISION IS TOTALLY MISPLACED IN VIEW OF DECISION OF THE HONBLE APEX C OURT IN SOUTHERN TECHNOLOGIES LTD. VS. JCIT, 320 ITR 577(SC) WHEREIN IT WAS HELD THAT BY VIRTUE OF SECTION 45Q OF THE RBI ACT,1934, AN OVERRIDING E FFECT IS GIVEN TO THE DIRECTIONS ISSUED BY THE RBI IN 1998 VIS-A-VIS 'INCOME RECOGN ITION' PRINCIPLES IN THE COMPANIES ACT, 1956. HOWEVER, THESE DIRECTIONS 199 8 HAVE NOTHING TO DO WITH COMPUTATION OF TAXABLE INCOME. THESE DIRECTIONS CAN NOT OVERRULE THE 'PERMISSIBLE DEDUCTIONS' OR 'THEIR EXCLUSION' UNDER THE IT ACT. THE INCONSISTENCY BETWEEN THESE DIRECTIONS AND COMPANIES ACT WAS ONLY IN THE MATTER OF INCOME RECOGNITION AND PRESENTATION OF FINANCIAL STATEMENT S. THE ACCOUNTING POLICIES ITA NO.1603/AHD/2007 FOR AY 2002-03 MADHUR CAPITAL & FINANCE LTD. 10 ADOPTED BY AN NBFC CANNOT DETERMINE THE TAXABLE IN COME, THE HONBLE APEX COURT OBSERVED. A SIMILAR VIEW WAS TAKEN BY THE H ON'BLE MADRAS HIGH COURT IN THE CASE OF T.N. TOWER FINANCE INFRASTRUCTURE DEVEL OPMENT CORPORATION LIMITED V. JCIT 280 ITR 491 (MAD) WHEN THEY UPHELD THE FIND INGS OF THE ITAT AND THE LD. CIT(A) IN HOLDING THAT MERELY BECAUSE THE RESERVE B ANK OF INDIA DIRECTED THE ASSESSEE TO PROVIDE FOR NON-PERFORMING ASSETS, THAT DIRECTION CANNOT OVERRIDE THE MANDATORY PROVISIONS OF THE INCOME-TAX ACT. IN THE LIGHT OF THESE DECISIONS, WE ARE OF THE OPINION THAT THE RELIANCE ON THE DECISIO N IN THE CASE OF TEDCO INVESTMENT & FINANCIAL SERVICES (P) LTD.(SUPRA) IS TOTALLY MISPLACED NOR THE LD. AR DEMONSTRATED BEFORE US AS TO HOW THI S DECISION IS OF ANY HELP TO THE ASSESSEE. 9.1 IN LAXMI NARAYAN MEHTA(SUPRA) IT WAS HELD THA T AO HAVING ESTIMATED THE DEBTORS OF THE ASSESSEE SIMPLY ON THE BASIS OF SEIZED DIARIES, ADDITION OF NOTIONAL INTEREST MADE BY THE AO DISREG ARDING THE REALIZED (NON- EXISTENT) DEBTORS, TIME-BARRED DEBTORS, WRITTEN OFF BAD DEBTS AND PAWNED DEBTORS, WHO WERE NOT PAYING INTEREST WAS NOT JUSTIFIED IN T HE ABSENCE OF ANY MATERIAL / EVIDENCE TO SUPPORT THE ACCRUAL / RECEIPT OF INTERE ST. IN PACT SECURITIES & FINANCIAL LTD. (SUPRA) THE ASSESSEE FOLLOWED THE ACCOUNTING STANDARDS AND GUIDANCE NOTES ON ACCOUNTING FOR LEASES, ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA AND DEBITED AN AMOUNT OF RS. 1 3,16,122 TERMED AS 'LEASE TERMINAL ADJUSTMENT ACCOUNTS'. THE AO REJECTED THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE AS ACCORDING TO HIM THE ME THOD DID NOT DISCLOSE THE TRUE AND CORRECT INCOME OF THE ASSESSEE FOR INCOME- TAX PURPOSES. THE ITAT WHILE RELYING UPON THE DECISIONS OF THE HONBLE AP HIGH C OURT IN MARGADARSI CHIT FUNDS (P.) LTD., AND DECISION OF THE TRIBUNAL IN THE CAS E OF NAGARJUNA FINANCE LTD. IN IT APPEAL NOS. 2777 AND 2967/(HYD.) OF 1988,CONCLUDED THAT THE METHOD OF ACCOUNTING REGULARLY FOLLOWED BY THE ASSESSEE CANNO T BE REJECTED BY APPLICATION OF SECTION 145 OF THE ACT AS IT CANNOT BE SAID THAT PROPER INCOME CANNOT BE DEDUCED THERE FROM . IN THE INSTANT CASE, THE AO HAS NOWHERE REJECTED TH E METHOD OF ACCOUNTING OR HAD RECOURSE TO PROVISIONS OF SEC. 145 OF THE ACT. SINCE ITA NO.1603/AHD/2007 FOR AY 2002-03 MADHUR CAPITAL & FINANCE LTD. 11 THE ASSESSEE IN THE EARLIER YEARS REFLECTED INTERES T INCOME FROM THE AFORESAID PARTIES WHILE IT HAD NOT SHOWN INTEREST FROM THESE PARTIES IN THE YEAR UNDER CONSIDERATION NOR SUBMITTED ANY MATERIAL BEFORE T HE AO DESPITE REQUEST MADE IN THAT REGARD, WHICH COULD ESTABLISHTHAT THE LOANS AND ADVANCES TO THE SAID PARTIES WERE STICKY OR WERE NOT RECOVERABLE. IN TH ESE CIRCUMSTANCES, THE AO BROUGHT TO TAX THE INTEREST ON THE AFORESAID LOANS AND ADVANCES IN THE YEAR UNDER CONSIDERATION, ON ESTIMATED BASIS FOR WANT OF RELEV ANT DETAILS . IN ANY CASE, IT HAS NOT BEEN EXPLAINED BEFORE US AS TO HOW THIS DECISIO N HELPS THE ASSESSEE. 9.2 IN JITPAN HOLDINGS PVT. LTD.(SUPRA) RELIED UPON BY THE LD. AR, THE ASSESSEE PROVIDED INTER-CORPORATE DEPOSITS UP TO AN AGGREGATE OF RS. 16.50 CRORES TO M/S DEVANG EXPORTS (P) LTD. OF BOMBAY, T O ENABLE THE LATTER TO INVEST IN THE SHARES OF M/S. ORKAY SILK MILLS (P.) LTD. FOR E NSURING THAT THE SHARES CONTINUED TO BE TRADED IN THE MARKET AT REASONABLE LEVELS --- BOTH IN RESPECT OF THE VOLUME OF TRADING AND THEIR PRICES. SUCH DEPOSITS WERE NOT TO CARRY ANY INTEREST FOR A PERIOD OF TWO YEARS FROM THE DATE OF DEPOSIT; THE INTEREST WAS TO BE CHARGED ON OR AFTER 1ST OF OCTOBER 1988 (NO RATE PRESCRIBED) .SINCE DEV ANG EXPORTS, INCURRED HUGE LOSSES AND COULD NOT PAY BACK EVEN THE PRINCIPAL AM OUNT ADVANCED BY THE ASSESSEE, THE ASSESSEE DID NOT SHOW ANY INTEREST I NCOME. HOWEVER, THE ASSESSING OFFICER TOOK THE VIEW THAT INTEREST WAS C HARGEABLE ON THE ADVANCES WITH EFFECT FROM 1ST OCTOBER 1988 AS ENVISAGED BY T HE CONTRACT BETWEEN THE ASSESSEE AND M/S. DEVANG EXPORTS, AND THE ASSESSEE FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING, INTEREST FOR AN AMOUNT OF RS. 84,81,300 ACCRUED TO THEM FOR THE PERIOD 1-10-1988 TO 31-3-1989. ACCORDINGLY, THE AO ADDED THE AMOUNT. SINCE THERE WAS NO DISPUTE OF LOSSES SUFFERED BY M/ S DEVNG EXPORTS AND THE ASSESSEE MADE A PROVISION FOR DOUBTFUL DEBTS IN A S UM OF RS. 14,13,55,000 IN THEIR P & L A/C. FOR THE YEAR ENDED 30TH SEPTEMBER 1987, THE ITAT CONCLUDED THAT ONCE THE PRINCIPAL AMOUNT HAD BEEN WRITTEN OFF, IT WOULD BE BOTH INCONGRUOUS AND INCOMPATIBLE AND SO OUT OF PLACE TO PERMIT THE DEPA RTMENT TO ATTRIBUTE THE ACCRUAL OF INTEREST TO THE ASSESSEE FROM M/S. DEVANG EXPORT S FOR THE ASSESSMENT YEAR 1989-90. ITA NO.1603/AHD/2007 FOR AY 2002-03 MADHUR CAPITAL & FINANCE LTD. 12 9.3 HON'BLE SUPREME COURT IN CASE OF CIT V. SHOO RJI VALLABHDAS & CO. [1962] 46 ITR 144 AND IN CASE OF GODHARA ELECTRICITY CO. LTD. V. CIT [1997] 225 ITR 746 , REITERATED THAT INCOME-TAX IS NOT LEVIABLE ON HYPOT HETICAL INCOME. 9.4 THE CONTROVERSY IN THE INSTANT CASE RE VOLVES AROUND CHARGEABILITY OF INTEREST INCOME TO THE TAX WHICH EVEN THOUGH ACCRUE D AS PER THE MERCANTILE SYSTEM OF ACCOUNTING BEING FOLLOWED BY THE ASSESSEE , WAS NOT ACCOUNTED FOR AS INCOME ON THE BASIS OF RBI GUIDELINES. IT IS WELL- SETTLED THAT THE ACT LEVIES CHARGE ON THE TOTAL INCOME AS PER SECTION 4. SECTIO N 5 OF THE ACT DEFINES THE SCOPE OF TOTAL INCOME. THE PROVISIONS OF SECTION 14 5(1) STIPULATE THAT INCOME CHARGEABLE UNDER THE HEAD 'PROFIT AND GAIN OF BUSIN ESS OR PROFESSION' OR 'INCOME FROM OTHER SOURCES', SHALL SUBJECT TO PROVISIONS OF SECTION 145(2) BE COMPUTED IN ACCORDANCE WITH EITHER CASH OR MERCANTILE SYSTEM OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE. SEC. 145(2), IN TURN, EN VISAGES THAT THE ACCOUNTING STANDARD, AS MAY BE NOTIFIED BY THE CENTRAL GOVERNM ENT FROM TIME TO TIME, ARE TO BE FOLLOWED BY CLASS OF ASSESSEE OR IN RESPECT OF A NY CLASS OF INCOME . THE NOTIFIED ACCOUNTING STANDARD AS-1, STIPULATES THAT IRRESPECTIVE OF THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE, IT IS SINE QUA NON THAT THE FINANCIAL STATEMENTS PREPARED ON THE BASIS OF SUCH METHOD OF ACCOUNTING MUST REPRESENT A TRUE AND FAIR VIEW OF THE STATE OF AFFAIRS OF THE B USINESS BASED ON THE POLICY OF PRUDENCE. IN OUR OPINION, EVEN WHERE AN ASSESSEE I S FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING, IT IS ONLY ACCRUAL OF REAL IN COME WHICH IS CHARGEABLE TO TAX. INTEREST INCOME ON STICKY LOANS, WHICH HAS ACCRUED IN FAVOUR OF THE ASSESSEE, BUT DID NOT FACTUALLY MATERIALIZE AT ALL TO AN ASSESSE E DURING THE ACCOUNTING YEAR, CAN NOT BE REGARDED AS THE REAL. IN THE LIGHT OF BINDING CIRCULAR OF OCTOBER 6, 1952, HONBLE APEX COURT IN UCO BANK (SUPRA) CONCLUDED TH AT THE INTEREST ON STICKY ADVANCES COULD NOT BE TAXED. WHETHER OR NOT A PARTICULAR LOAN OR ADVANCE HAS BECOME STICK OR IRRECOVERABLE, CAN NOT BE DECIDED ON THE MERE IPSE DIXIT OF THE ASSESSEE, BUT ON BEING OBJECTIVELY ESTABLISHED BY S HOWING DETERIORATING FINANCIAL POSITION OF THE CONCERNED DEBTOR AND THE HISTORY OF THEIR ACCOUNTS. THUS, THE STICKINESS OF ADVANCES OR LOANS ,IF OBJECTIVELY EST ABLISHED, IS SUFFICIENT TO PREVENT ACCRUAL OF INTEREST THEREON AS REAL INCOME AND WOU LD HAVE THE EFFECT OF RENDERING ITA NO.1603/AHD/2007 FOR AY 2002-03 MADHUR CAPITAL & FINANCE LTD. 13 SUCH INCOME HYPOTHETICAL ONE. IN THIS CONNECTION T HE GUIDANCE NOTE ON ACCRUAL BASIS ON ACCOUNTING ISSUED BY THE ICAI LAYS DOWN THAT WHE RE THE ULTIMATE COLLECTION WITH REASONABLE CERTAINTY IS LACKING, THE REVENUE R ECOGNITION IS TO BE POSTPONED TO THE EXTENT OF UNCERTAINTY INVOLVED. THE RELEVANT GU IDANCE NOTE READS AS UNDER: '3.4 WHEN RECOGNITION OF REVENUE IS POSTPONED DUE T O THE EFFECT OF UNCERTAINTIES, IT IS CONSIDERED AS REVENUE FOR THE PERIOD IN WHICH IT IS PROPERLY RECOGNIZED ACCORDING TO THE PRINCIPLES DISCUSSED HEREIN. 3.5 WHERE THE ABILITY TO ASSESS THE ULTIMATE COLLEC TION WITH REASONABLE CERTAINTY IS LACKING AT THE TIME OF RAISING ANY CLAIM, E.G., FOR ESCALATION OF PRICE, EXPORT INCENTIVES, INTEREST, ETC., REVENUE RECOGNITION IS POSTPONED TO THE EXTENT OF UNCERTAINTY INVOLVED. IT IS POSSIBLE THAT THE UNCER TAINTY OF COLLECTION MAY BE EITHER IN RESPECT OF THE ENTIRE TRANSACTION OR A PART THER EOF. FOR THAT PART IN RESPECT OF WHICH THERE IS NO UNCERTAINTY OF COLLECTION, THE RE VENUE IS IMMEDIATELY RECOGNIZED AND FOR THE REMAINING PART, RECOGNITION OF REVENUE IS POSTPONED. IN SUCH CASES, IT MAY BE APPROPRIATE TO RECOGNIZE REVENUE ONLY WHEN I T IS REASONABLY CERTAIN THAT THE ULTIMATE COLLECTION WILL BE MADE. IT IS NECESSA RY TO DISCLOSE THE CIRCUMSTANCES IN WHICH REVENUE RECOGNITION HAS BEEN POSTPONED PEN DING THE RESOLUTION OF SIGNIFICANT UNCERTAINTIES.' 9.4. IN THE LIGHT OF AFORESAID DISCUSSION, WE A GREE WITH THE VIEW TAKEN BY THE ITAT IN JITPAN HOLDINGS PVT. LTD.(SUPRA) THAT IF T HE PRINCIPAL AMOUNT ITSELF IS IRRECOVERABLE, THE AO CAN NOT ATTRIBUTE INTEREST ON SUCH AMOUNT.BUT THEN THE ASSESSEE SHOULD PLACE RELEVANT MATERIAL BEFORE THE AO THAT THE PRINCIPAL AMOUNT WAS NOT RECOVERABL E. IN THE INSTANT CASE, THE AO NOTICED THAT THE ASSESSEE ITSELF OFFER ED INTEREST INCOME IN THE PERIOD RELEVANT TO THE AYS. 2000-01 & 2001-02 FROM THE FI RST SIX PARTIES MENTIONED IN TABLE 1 ON PAGE 5 OF THE ASSESSMENT ORDER AND EXTRA CTED IN PARA 6 ABOVE WHILE NO DETAILS WERE FURNISHED IN RESPECT OF PARTIES MEN TIONED IN TABLE 2 ON PAGE 5-6 OF THE ASSESSMENT ORDER ,EXTRACTED IN PARA 6.1 ABOV E. TO A QUERY BY THE AO, THE ASSESSEE ADMITTED THAT THE AFORESAID LOANS AND ADV ANCES WERE NOT INTEREST FREE. IN THESE CIRCUMSTANCES, ONUS WAS ENTIRELY ON THE AS SESSEE TO ESTABLISH WITH PROPER EVIDENCE THAT INTEREST WAS NOT REFLECTED ON THE SAID ADVANCES SINCE EVEN THE PRINCIPAL AMOUNT WAS NOT RECOVERABLE DUE TO FI NANCIAL CONSTRAINTS BY THE AFORESAID PARTIES .MERELY RELYING ON RBI GUIDELINES WITHOUT ESTABLISHING THAT THE ITA NO.1603/AHD/2007 FOR AY 2002-03 MADHUR CAPITAL & FINANCE LTD. 14 PRINCIPAL AMOUNT OF LOANS OR INTEREST COULD NOT BE RECOVERED FROM THE AFORESAID PARTIES, WOULD NOT HELP THE ASSESSEE. 10. IN VIEW OF THE FOREGOING, SINCE WE HAVE AL READY UPHELD THE FINDINGS OF THE LD. CIT(A) IN RESPECT OF CLAIM FOR DEDUCTION OF BA D DEBS IN RESPECT OF AMOUNT OF ADVANCES TO DR. MAHENSH SANGHVI & DR. SUNITA M SANG HVI OF , WE ARE OF THE OPINION THAT INTEREST INCOME CAN NOT BE ATTRIBU TED TO THESE ADVANCES. AS THE RECOVERY OF PRINCIPAL AMOUNT ITSELF WAS IN DOUBT IN RESPECT OF THESE TWO ADVANCES, AS A PRUDENT BUSINESSMAN THE ASSESSEE WAS WHOLLY WI THIN ITS RIGHT TO DECIDE NOT TO CHARGE ANY INTEREST FROM THE DEBTOR. IN THIS VIE W OF THE MATTER, THERE WAS NO QUESTION OF ADDING AN ESTIMATED AMOUNT OF INTEREST ON THE LOAN ADVANCED TO THE AFORESAID TWO PARTIES . IN SIMILAR CIRCUMSTANCES, H ONBLE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS. LAXMI DAL MILLS,146 TAXMAN 625, UPHELD THE FINDINGS OF THE ITAT IN DELETING THE DISALLOWANCE. TO THIS EXTENT F INDINGS OF THE LD. CIT(A) ARE VACATED AND THE ASSESSEES CLAIM IS ALLOWED. 10.1 AS REGARDS ADVANCES TO THE REMAINING PARTIE S, THERE IS NOTHING TO SUGGEST IN THE IMPUGNED ORDERS THAT THE PRINCIPAL AMOUNTS W ERE IRRECOVERABLE. EVEN BEFORE THE AO, THE ASSESSEE APPEARS TO HAVE NOT FUR NISHED THE RELEVANT DETAILS. IN THESE CIRCUMSTANCES, ESPECIALLY WHEN COMPLETE FA CTS WITH REGARD TO REMAINING PARTIES ARE NOT EVIDENT FROM THE IMPUGNED ORDERS NO R HAVE BEEN PLACED BEFORE US BY THE LD. AR ON BEHALF OF THE ASSESSEE, WE CONSIDE R IT FAIR AND APPROPRIATE TO SET ASIDE THE ORDER OF THE LD. CIT(A) AND RESTORE THE ISSUE TO HIS FILE FOR DECIDING THE MATTER AFRESH IN ACCORDANCE WITH LAW, AFTER ALLOWIN G SUFFICIENT OPPORTUNITY TO BOTH THE PARTIES IN THE LIGHT OF OUR AFORESAID OBSERVATI ONS AND KEEPING IN VIEW THE VARIOUS JUDICIAL PRONOUNCEMENTS, INCLUDING THOSE RE FERRED TO ABOVE. NEEDLESS TO SAY THAT WHILE REDECIDING THE APPEAL, THE LEARNED C IT(A) SHALL PASS A SPEAKING ORDER, KEEPING IN MIND, INTER ALIA, THE MANDATE OF PROVISIONS OF SEC. 250(6) OF THE ACT. WITH THESE OBSERVATIONS, GROUND NO. 2 IN THE CO IS DISPOSED OF. 11. GROUND NOS. 2 & 3 IN THE APPEAL OF THE REVENU E BEING GENERAL IN NATURE, DO NOT REQUIRE ANY SEPARATE ADJUDICATION WHILE NO ITA NO.1603/AHD/2007 FOR AY 2002-03 MADHUR CAPITAL & FINANCE LTD. 15 SUBMISSIONS/ARGUMENTS HAVING BEEN MADE ON THE GROUN D NO. 1 IN THE CO NOR THE LD. AR EVEN PLACED BEFORE US DECISION O F THE ITAT IN THE CASE OF PURSHOTAMDAS P PATEL REFERRED TO IN THE SAI D GROUND AND NO ADDITIONAL GROUND HAVING BEEN RAISED IN TERMS OF RE SIDUARY GROUND NO.3 IN THE SAID CO, ALL THESE GROUNDS ARE DISMISS ED. 12. IN THE RESULT, APPEAL OF THE REVENUE IS DIS MISSED WHILE CO IS PARTLY ALLOWED, BUT FOR STATISTICAL PURPOSES . ORDER PRONOUNCED IN THE COURT TODAY ON 9 -7-2010 SD/- SD/- (D T GARASIA) JUDICIAL MEMBER (A N PAHUJA) ACCOUNTANT MEMBER DATE : 9 -7-2010 COPY OF THE ORDER FORWARDED TO: 1. MADHUR CAPITAL & FINANCE LTD., MADHUR COMPLEX, S TADIUM CIRCLE, NAVRANGPURA, AHMEDABAD 2. DCIT, CIRCLE-4, NAVJIVAN TRUST BLDG., OFF. ASHR AM ROAD, AHMEDABAD 3. CIT CONCERNED 4. CIT(A)-VIII, AHMEDABAD 5. THE DR, BENCH-C, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITAT, AHMEDABAD