M/s. J.K. Finance Co, Jammu V. The Asstt. Commissioner of Income-tax, Jammu

ITA 110/ASR/2013

• Counselvise Citation: 11020914 RSA 2013
• Duration Of Justice: 1 year(s) 1 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-04-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 09-04-2014
• Assessment Year: 2001-2002
• Appeal Filed On: 20-02-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: SSH S K BANSAL; TARUN BANSAL S
• Keywords: Depreciation; Bad and doubtful debts

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR. BEFORE SH. H.S. SIDHU, JUDICIAL MEMBER AND SH. B.P.JAIN, ACCOUNTANT MEMBER I.T.A. NO.110(ASR)/2013 ASSESSMENT YEAR:2001-02 PAN :AABFJ1185E M/S. J.K. FINANCE CO. VS. ASSTT. COMMR. OF INCOME TAX, 35, TRANSPORT NAGAR, RANGE-1, JAMMU. JAMMU. (APPELLANT) (RESPONDENT) APPELLANT BY:S/SH.S.K.BANSAL & TARUN BANSAL, ADVOCA TES RESPONDENT BY: SH. TARSEM LAL, DR DATE OF HEARING: 09/04/2014 DATE OF PRONOUNCEMENT:15/04/2014 ORDER PER BENCH ; THIS APPEAL OF THE ASSESSEE ARISES FROM THE ORDER OF THE CIT(A), JAMMU DATED 21.12.2012 FOR THE ASSESSMENT YEAR 200 1-02.THE ASSESSEE HAS PRESSED FOLLOWING GROUNDS OF APPEAL: 1A) THAT THE LD. CIT(A) HAS NOT APPRECIATED THE LA W RELATING TO SECTION 36(1)(VII) AFTER AMENDMENT W.E.F. 1.4.89 WH EN THE ONLY CONDITION TO ALLOW BAD DEBT IS TO WRITE OFF IN THE YEAR OF ASSESSMENT. ITA NO.110(ASR)/2013 2 1B) THAT THE LD. CIT(A) HAS NOT APPRECIATED THE CIR CULAR NO.551 DATED 23 RD JANUARY, 1990 APPEARING IN 183 ITR ST. 37 TO WRITE OFF BAD DEBTS IN THE YEAR OF ASSESSMENT TO REDUCE L ITIGATION. 1C) THAT THE LD. CIT(A) HAS NOT APPRECIATED THAT TH E APPELLANT HAS WRITTEN OFF ALL THE FOUR BAD DEBTS AT RS.43,52,764/ - IN THE YEAR NOW UNDER APPEAL WHEN THEIR COPY OF ACCOUNTS WERE F ILED IN THE PAPER BOOK DATED 28.06.2011. 2A) THAT THE LD. CIT(A) WRONGLY CONFIRMED THE ADDIT ION OF INTEREST, NOT CHARGED ON BAD DEBTS AT RS.17,53,162/- AND RS.2 2,912/- I.E. S.NO. INTEREST NOT CHARGED FROM PRINCIPLE INTEREST NOT CHARGED 1. ASHWANI KUMAR 41,28,211 17,53,162 2. J.K.STRUCTURAL 1,90,940 22,913 3. BITTU RAM 26,400 ----- 4. ADVANCE FOR CAR OF BOOKING 7,210 ---- 5. TOTAL 43,52,762 17,76,074 2E) AS PER GROUND NO. 2A & 2D THAT THE LD. CIT(A) WRONGLY CONFIRMED THE CONSISTEN T METHOD OF ACCOUNTING ADOPTED BY THE APPELLANT (WRONGLY CON FIRMED BY CIT(A) AND CHARGED INTEREST AT RS.3,67,810/- (RS.20 ,43,390 @ 18%) ON 13 BAD AND DOUBTFUL DEBTS. INTEREST ON BAD DEBTS RS.17,76,074/- INTEREST ON BAD AND DOUBTFUL DEBTS RS. 3,67,810/- TOTAL: RS.21,43,884/- 4A) THAT THE LD. CIT(A) WRONGLY CONFIRMED THE ADDIT ION AT RS.2,568/- AS 1/10 OF VEHICLE EXPENSES ON PRESUMPTI ON BASIS AND WITHOUT ANY EVIDENCE. 4B) THAT THE LD. CIT(A) WRONGLY CONFIRMED THE ADDIT ION AT RS.5,579/- AS DEPRECIATION ON CAR WITHOUT ANY BASIS AND THE BLOCK OF ASSETS CANNOT BE DISTURBED. ITA NO.110(ASR)/2013 3 4C) THAT THE LD. CIT(A) WRONGLY CONFIRMED THE ADDIT ION AT RS.2,000/- OUT OF TRAVELING EXPENSES BY THE STAFF W ITHOUT ANY IOTA OF EVIDENCE. 2. ALL OTHER GROUNDS WERE NOT PRESSED AND THEREFORE , WE DO NOT CONSIDER TO REPRODUCE THE SAME IN THIS ORDER AND THE SAME AR E DISMISSED AS NOT PRESSED. 3. THE BRIEF FACTS OF THE CASE AS PER AOS ORDER AR E REPRODUCED FOR THE SAKE OF CONVENIENCE AS UNDER: ASSESSEE FIRM DERIVES INCOME BY ADVANCING TEMPORAR Y LOANS AND ALSO INTEREST ON HIRE PURCHASE. IT ALSO ACCEPTS DEP OSITS FROM THE GENERAL PUBLIC AND PAY THEM INTEREST. DURING THE YE AR UNDER CONSIDERATION, THE ASSESSEE FIRM HAS PAID INTEREST ON THE DEPOSITS MADE BY THE PUBLIC TO THE TUNE OF RS.61,29,866/-. I N THE AUDIT REPORT THE C.A. HAS MENTIONED THE ACCOUNTS HAVE BEEN PREP ARED IN ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING PRINC IPAL AND ARE BASED ON MERCANTILE SYSTEM OF ACCOUNTING EXCEPT INT EREST ON DEBT CONSIDERED DOUBTFUL OF RECOVERY BY THE PARTNER WHER E INTEREST INCOME HAS NOT BEEN RECOGNIZED ON ACCRUAL BASIS OF ACCOUNT ING AND SHALL BE TAKEN TO INCOME ON RECEIPT BASIS. THE ASSESSEE HAS IN THE CURRENT ASSETS, LOAN AND ADVANCES SHOWN DEBT DOUBTFUL OF RE COVERY TO THE TUNE OF RS.20,43,390/-. ASSESSEE WAS ASKED AS TO WHY INT EREST HAS NOT BEEN CREDITED TO THE INCOME IN THE CASE OF LOANS AND HIR E MONEY IN CASES THE AMOUNTS HAVE BEEN CONSIDERED DOUBTFUL FOR RECOVERY. HE WAS ALSO ASKED TO EXPLAIN AS TO WHAT IS THE BASIS FOR THE LO AN TO BE CONSIDERED DOUBTFUL FOR RECOVERY AND WHAT STEPS WERE TAKEN FOR RECOVERY. SINCE THE SYSTEM OF ACCOUNTS BEING FOLLOWED IS MERCANTILE ASSESSEE WAS SUPPOSED TO ACCOUNT FOR ALL THE EXPENSES AND INCO ME ON THE BASIS OF THE ACCRUAL. NO REPLY TO THIS QUERY HAS BEEN FILE D EXCEPT FOR SAYING THAT THE AMOUNT HAS BEEN CONSIDERED TO BE IRRECOVER ABLE. ACCORDINGLY, ON THE AMOUNT OF RS.20,43,390/- INTEREST @ 18% WORK S OUT TO RS.3,67,810/- WHICH HAS NOT BEEN CHARGED BY THE ASS ESSEE. HOWEVER, HE HAS PAID INTEREST TO THE TUNE OF RS.61,29,866/-. ACCORDINGLY, THIS AMOUNT RS.3,67,810/- IS DISALLOWED FROM THE INTERE ST DEBITED TO THE PROFIT AND LOSS ACCOUNT. ITA NO.110(ASR)/2013 4 WHILE CHECKING THE ACCOUNT OF SH. ASHWANI KUMAR S/ O SH. KEWAL KRISHAN IN WHOSE CASE ASSESSEE HAS WRITTEN OF F BAD DEBTS TO THE TUNE OF RS.41,28,211/-, INTEREST TILL 31.03.2001 WO RKS OUT TO RS.17,53,162/- WHICH HAS ALSO NOT BEEN CHARGED. THI S INTEREST IS ALSO DISALLOWED FROM THE INTEREST PAID BY THE ASSESSEE. SIMILARLY, THE ASSESSEE HAS NOT CHARGED ANY INTERE ST FROM M/S. JK STRUCTURAL ROLLING SHUTTLES AND BODY GANGYAL TO THE TUNE OF RS.22,912/- ON THE SAME REASON THIS AMOUNT IS ALSO DISALLOWED FROM THE INTEREST PAYMENT MADE BY THE ASSESSEE. BAD DEBTS IN THE PROFIT AND LOSS ACCOUNT THE ASSESSEE HAS DE BITED A SUM OF RS.43,52,762/- AS BAD DEBTS IN RESPECT OF THE FOLLO WING PERSONS: I) SH. ASHWANI KUMAR S/O SH. KEWAL KRISHAN 41,28,2 11 II) M/S. J.K. STRUCTURAL ROLLING SHUTTLES AND BODY 1,90,940 III) SH. BITTU RAM VEHICLE NO.JKR 5639 26,400 IV) ADVANCE GIVEN ON BOOKING ON CAR 7,210 TOTAL: 43,52,761 ASSESSEE WAS REQUIRED TO EXPLAIN THE REASON HOW TH E DEBTS BECAME BAD AND WHAT STEPS WERE TAKEN BY HIM TO LODG E THE CLAIM FOR RECOVERY OF DEBTS. HE WAS ALSO ASKED TO EXPLAIN AS WHEN THE AMOUNT WAS IN DEBT AND WHEN IT BECAME BAD AND THE DATE WHE N IT WAS FINALLY WRITTEN OF. THE ASSESSEE HAS NOT GIVEN ANY PROPER R EPLY IN RESPECT OF OTHER DEBTORS OF WHOSE ACCOUNTS ARE WRITTEN OFF EXC EPT FOR IN THE CASE OF SH.ASHWANI KUMAR S/O SH. KEWAL KRISHAN WHICH HAS BEEN EXPLAINED AS UNDER: IT IS RESPECTFULLY SUBMITTED THAT THE TOTAL LOAN SINCE 1988 STOOD AT RS.59,62,500/- AND TOTAL INTEREST ON THIS TEMPOR ARY LOAN TILL MARCH, 2000 STOOD AT RS.1,23,41,606/-. TOTAL AMOUNT COMES TO RS.1,83,4106/- . OUT OF WHICH A SUM OF RS.1,41,75,895/- HAS BEEN R ECOVERED LEAVING A BALANCE OF RS.41,28,211/- WHICH COULD BE RECOVERED AND THE ASSESSEE HAS NO OPTION EXCEPT CLAIMING IT A BAD DEBTS WHICH HAS TO BE WRITTEN OFF. IN ANOTHER REPLY DATED 12.12.2003 ASSESSEE HAS SUBMITTED THAT REGARDING THE OTHER ENQUIRIES ABOUT SH. ASHWANI KUM AR S/O SH. KEWAL KRISHAN THE ASSESSEE SUBMITS THAT WHEREABOUTS ARE NOT KNOWN ITA NO.110(ASR)/2013 5 AS SUCH THE ASSESSEE IS NOT IN A POSITION TO CONVEY TO YOUR GOODSELF HAS PERMANENT ACCOUNT NO. AND PLACE OF RESIDENCE. HOW STRANGE IT IS TO KNOW THAT A PERSON ADVANCING LOANS DOES NOT KNOW THE ADDRESS OF THE PERSON TO WHOM SUCH HEA VY AMOUNT IS BEING ADVANCED AS LOANS. VIRTUALLY WHEN SOME LOANS IS ADVANCE AN AGREEMENT IS ENTERED INTO AND ALSO SOME SECURITIES IS TAKEN TO SAFE GUARD THE MONEY. ASSESSEE WAS MANY TIMES REQUESTED TO SUPPLY THE COPY OF AGREEMENT ENTERED INTO WHILE ADVANCING THE LOANS TO SH. ASHWANI KUMAR. HOWEVER, HE HAS NEVER BROUGHT ANY A GREEMENT NOT TOLD ABOUT ANY SECURITIES TAKEN AGAINST THE LOANS. NOW A DAYS THE MODUS OPERANDI IN THE CASES OF MOST OF THE FINANCE COMPANIES IS TO CLAIM BAD DEBTS AND RECEIVE THE AMOUNT OUT OF THE B OOKS OF ACCOUNTS AND INVEST THE SAME IN THE REAL ESTATE. MOSTLY THE SE ARE FINANCE COMPANIES WHO HAVE ACQUIRED REAL ESTATE BY ADOPTIN G SUCH MODUS OPERANDI. SINCE THE ASSESSEE HAS NOT BEEN ABLE TO T ELL AS TO WHAT STEPS HE HAS TAKEN TO RECOVER THE SAID AMOUNT WHICH IS IN LACS IT CANNOT BE ADMITTED THAT SUCH A HUGE AMOUNT HAS ACTUALLY BECOM E BAD FOR RECOVERY. IT IS ALSO INTERESTING TO NOTE THAT IN TH E SCHEDULE ATTACHED IN THE BALANCE SHEET WHICH IS IN RESPECT OF CURRENT A SSETS LOANS AND ADVANCE ASSESSEE HAS SHOWN DEBTS DOUBTFUL FOR RECOV ERY AT RS.20,43,390/- AND HAS ACTUALLY DEBITED IN P & L A/ C A SUM OF RS.43,52,762/-. IN VIEW OF THE ABOVE DISCUSSION THE AMOUNT CLAIMED CANNOT BE ALLOWED AS BAD DEBTS AND ADDED BACK TO TH E TOTAL INCOME OF THE ASSESSEE. 4. THE OBSERVATIONS OF THE LD. CIT(A) ARE CONTAINED AT PAGES 25 TO 29 OF THE ORDER, WHICH ARE BEING REPRODUCED FOR THE SAKE OF CONVENIENCE AS UNDER: 4.1. I HAVE CONSIDERED THE ASSESSMENT ORDER AND THE SUBMISSION MADE BY THE APPELLANT. IT IS SEEN THAT WITH REGARD TO THE OUTSTANDING BALANCE AMOUNTING TO RS.41,28,211/- IN THE NAME OF SH. ASHWANI KUMAR CLAIMED AS BAD DEBT, THE APPELLANT HAS CLAIME D THAT THE SAID AMOUNT IS THE BALANCE OF LOAN WHICH IS IRRECOVERABL E FROM THE BORROWER AND ACCORDINGLY THE SAID AMOUNT IS CLAIMED AS BAD DEBT IN THE YEAR UNDER CONSIDERATION. FURTHER APPELLANT HAS ARGUED THAT THE ONLY CONDITION FOR CLAIMING BAD DEBT AFTER THE AMEN DMENT OF RELEVANT PROVISIONS W.E.F. 1989 AND BOARD CIRCULAR IS THAT T HE BAD DEBT MUST BE ITA NO.110(ASR)/2013 6 WRITTEN OFF DURING THE YEAR AND EFFORTS OF RECOVERY OF BAD DEBT ARE IMMATERIAL. THE APPELLANT, NEITHER DURING THE COURSE OF ASSESSM ENT NOR DURING THE APPELLATE PROCEEDINGS, PRODUCED THE LOAN AGREEMENT MAD WITH SH. ASHWANI KUMAR. THE APPELLANT EVEN FAILED TO PROVIDE THE BASIC DETAILS OF BORROWER SUCH AS ADDRESS AND PAN NO. ETC. AS FAR AS THE AMENDED PROVISIONS ARE CONCERNED, PRESENT SECTION 36(1)(VII ) OF THE ACT STARTS WITH THE WORDS SUBJECT TO THE PROVISIONS OF SUB SE CTION (2) AND THE PROVISIONS OF SUB SECTION 2 OF SECTION 36 OF THE AC T STATES THAT THE DEDUCTION IS TO BE ALLOWED IN CASE OF IRRECOVERABLE BALANCE OF LOAN IF THE MONEY IS LENT IN THE ORDINARY COURSE OF BUSINES S OF BANKING OR MONEY LENDING WHICH IS CARRIED ON BY THE APPELLANT. THE RELEVANT PROVISION IS AS UNDER: SECTION 36(1)(VII) ( VII ) SUBJECT TO THE PROVISIONS OF SUB-SECTION (2), THE AMOUNT OF [ANY BAD DEBT OR PART THEREOF WHICH IS WRITTEN OFF AS IR RECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE FOR THE PREVIOUS YEAR]: [ PROVIDED THAT IN THE CASE OF [AN ASSESSEE] TO WHICH CLAUSE ( VIIA ) APPLIES, THE AMOUNT OF THE DEDUCTION RELATING TO AN Y SUCH DEBT OR PART THEREOF SHALL BE LIMITED TO THE AMOUNT BY WHICH SUC H DEBT OR PART THEREOF EXCEEDS THE CREDIT BALANCE IN THE PROVISION FOR BAD AND DOUBTFUL DEBTS ACCOUNT MADE UNDER THAT CLAUSE.] [ EXPLANATION ] . FOR THE PURPOSES OF THIS CLAUSE, ANY BAD DEBT OR PA RT THEREOF WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNT S OF THE ASSESSEE SHALL NOT INCLUDE ANY PROVISION FOR BAD AND DOUBTFU L DEBTS MADE IN THE ACCOUNTS OF THE ASSESSEE;] 36 (2) IN MAKING ANY DEDUCTION FOR A BAD DEBT OR PA RT THEREOF, THE FOLLOWING PROVISIONS SHALL APPLY [( I ) NO SUCH DEDUCTION SHALL BE ALLOWED UNLESS SUCH D EBT OR PART THEREOF HAS BEEN TAKEN INTO ACCOUNT IN COMPUTING TH E INCOME OF THE ASSESSEE OF THE PREVIOUS YEAR IN WHICH THE AMOUNT O F SUCH DEBT OR PART THEREOF IS WRITTEN OFF OR OF AN EARLIER PREVIOUS YE AR, OR REPRESENTS MONEY LENT IN THE ORDINARY COURSE OF THE BUSINESS O F BANKING OR MONEY-LENDING WHICH IS CARRIED ON BY THE ASSESSEE;] ITA NO.110(ASR)/2013 7 ( II ) IF THE AMOUNT ULTIMATELY RECOVERED ON ANY SUCH D EBT OR PART OF DEBT IS LESS THAN THE DIFFERENCE BETWEEN THE DEBT O R PART AND THE AMOUNT SO DEDUCTED, THE DEFICIENCY SHALL BE DEDUCTI BLE IN THE PREVIOUS YEAR IN WHICH THE ULTIMATE RECOVERY IS MADE; ( III ) ANY SUCH DEBT OR PART OF DEBT MAY BE DEDUCTED IF IT HAS ALREADY BEEN WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS O F AN EARLIER PREVIOUS YEAR [(BEING A PREVIOUS YEAR RELEVANT TO THE ASSESS MENT YEAR COMMENCING ON THE 1ST DAY OF APRIL, 1988, OR ANY EA RLIER ASSESSMENT YEAR)], BUT THE [ASSESSING] OFFICER HAD NOT ALLOWED IT TO BE DEDUCTED ON THE GROUND THAT IT HAD NOT BEEN ESTABLISHED TO H AVE BECOME A BAD DEBT IN THAT YEAR; ( IV ) WHERE ANY SUCH DEBT OR PART OF DEBT IS WRITTEN O FF AS IRRECOVERABLE IN THE ACCOUNTS OF THE PREVIOUS YEAR [(BEING A PREV IOUS YEAR RELEVANT TO THE ASSESSMENT YEAR COMMENCING ON THE 1ST DAY OF AP RIL, 1988, OR ANY EARLIER ASSESSMENT YEAR)] AND THE [ASSESSING] OFFIC ER IS SATISFIED THAT SUCH DEBT OR PART BECAME A BAD DEBT IN ANY EARLIER PREVIOUS YEAR NOT FALLING BEYOND A PERIOD OF FOUR PREVIOUS YEARS IMME DIATELY PRECEDING THE PREVIOUS YEAR IN WHICH SUCH DEBT OR PART IS WRI TTEN OFF, THE PROVISIONS OF SUB-SECTION (6) OF SECTION 155 SHALL APPLY; [( V ) WHERE SUCH DEBT OR PART OF DEBT RELATES TO ADVANC ES MADE BY AN ASSESSEE TO WHICH CLAUSE ( VIIA ) OF SUB-SECTION (1) APPLIES, NO SUCH DEDUCTION SHALL BE ALLOWED UNLESS THE ASSESSEE HAS DEBITED THE AMOUNT OF SUCH DEBT OR PART OF DEBT IN THAT PREVIOUS YEAR TO THE PROVISION FOR BAD AND DOUBTFUL DEBTS ACCOUNT MADE UNDER THAT CLAU SE.] IN THE ABSENCE OF LOAN AGREEMENT, IT IS IMPOSSIBLE TO DETERMINE WHETHER THE AMOUNT OUTSTANDING IN THE NAME OF SH. ASHWANI KUMAR REPRESENTS THE MONEY LENT IN THE ORDINARY COURSE OF BUSINESS OF MONEY LENDING. THE APPELLANT HAS FAILED TO ESTABLISH BOTH AT ASSESSMENT STAGE AS WELL AS APPELLATE STAGE THE AMOUNT STANDING IN T HE NAME OF SH. ASHWANI KUMAR IS THE LOAN ADVANCED IN THE ORDINARY COURSE OF MONEY LENDING BUSINESS. THE HONBLE SUPREME COURT IN THE CASE OF SH. AMAR CHAND, SMT. SOBHA CHAND VS. CIT (1971) 82 ITR 591 ( SC) HAS ALSO HELD THAT IN THE MONEY LENDING BUSINESS A LOAN MUST HAVE BEEN MADE IN THE ORDINARY COURSE OF THE BUSINESS. A DEBT DUE IN THE COURSE OF THE BUSINESS OF A MONEY LENDING IS NOT ALLOWABLE UNLESS IT IS IN RESPECT OF LOAN MADE IN THE ORDINARY COURSE OF HIS BUSINESS. T HE REQUIREMENT OF ITA NO.110(ASR)/2013 8 SUB SECTION 2 IS TO BE ESTABLISHED EVEN IN CASE WHE RE SUM IS WRITTEN OFF IN THE BOOKS AS IRRECOVERABLE DEBT; KASHMIR TRADING CO; VS. DCIT (2007) 291 ITR 229 (RAJ). THE INTENTION OF LEGISLAT URE WHILE PROVIDING FOR THE CLAIMS OF DEDUCTION U/S 36(1)(VII ) WAS NOT TO GIVE UNFETTERED RIGHT TO THE APPELLANT TO CLAIM ANYTHING AS PER ITS WISH. UNLESS SOME EFFORTS OF RECOVERY IS MADE WHICH FAIL ED TO YIELD RESULT THE DEBT CANNOT BE SAID TO BE IRRECOVERABLE. A BARE LOOK AT THE ABOVE PROVISIONS SHOWS THAT THERE IS NO AMBIGUITY IN THE LANGUAGE USED BY THE LEGISLATURE. CLEAR AND UNAMBIGUOUS WORDS ARE US ED IN THE ABOVE PROVISIONS. NO WORDS USED BY THE LEGISLATURE CAN BE CONSIDERED AS SUPERFLUOUS. EACH WORD HAS TO BE GIVEN ITS DUE MEAN ING. THE WORD DEBT IS QUALIFIED BY THE WORD BAD. THEREFORE, I T IS NOT ANY OR EVERY DEBT WHICH CAN BE WRITTEN OFF AS DEBT. ASSESSEE MUS T FORM AN HONEST OPINION ON THE BASIS OF MATERIAL ON RECORD THAT DEB T HAS BECOME BAD. MERE WRITING OFF ANY DEBT IS NOT SUFFICIENT FOR CLA IMING DEDUCTION U/S 36(1)(VII). THE ASSESSEE MUST SHOW, AT LEAST PRIMA FACIE, THAT DEBT HAS BECOME BAD. IT IS INTERESTING TO NOTE THAT IN THE SCHEDULE C AT TACHED WITH THE BALANCE SHEET WHICH IS IN RESPECT OF CURRENT ASSET LOANS AND ADVANCES; THE APPELLANT HAD SHOWN DEBTS DOUBTFUL FOR RECOVERY AT RS.20,43,390/- , BUT ACTUALLY DEBITED IN P & L ACCOUNT A SUM OF RS.43,52,762/-. THIS SUGGESTS THAT THE DEBTS DOUBTFUL OF RECOVERY WERE INFLATED AT THE WILL OF THE ASSESSEE. REGARDING OTHER DEBTS WRITTEN OFF OF M/S. J.K. STRUCTURAL (RS.1,90,,940/-), BITTU RAM VEHICLE 7, 210/-, THE APPELLANT COULD NOT GIVE LOAN AGREEMENT OR SUPPORTING PAPERS TO ESTABLISH THAT THESE WERE ADVANCED IN AN ORDINARY COURSE OF BUSINE SS. IN VIEW OF THE PRESENT LEGAL POSITION AND ABOVE DIS CUSSED FACTS, THE ADDITION OF RS.43,52,761/- (RS.4128211/- + 190940 + 36400 + 7210) MADE BY THE AO IS CONFIRMED. 4.2. THE AO HAS DISALLOWED AN INTEREST OF RS.21,43, 884/- OUT OF TOTAL INTEREST PAID FOR RS.61,29,866/- FOR THE REASON THA T THE APPELLANT HAS NOT CHARGED INTEREST AND CREDITED TO ITS INCOME ON CERTAIN LOANS WHICH WERE DOUBTFUL FOR RECOVERY. THE APPELLANT DERIVES I NCOME BY ADVANCING LOANS AND ALSO INTEREST ON HIRE PURCHASE. IT ALSO ACCEPTS DEPOSITS FROM GENERAL PUBLIC AND PAY INTEREST THERE ON. THE AUDITORS HAS REMARKED IN THE NOTES TO ACCOUNT THAT THE ACCO UNTS HAVE BEEN PREPARED IN ACCORDANCE WITH GENERAL ACCEPTED ACCOU NTING PRINCIPLE ITA NO.110(ASR)/2013 9 AND BASED ON MERCANTILE SYSTEM OF ACCOUNTING EXCEP T INTEREST ON DEBT CONSIDERED DOUBTFUL OF RECOVERY HAS NOT BEEN RECOGN IZED ON ACCRUAL BASIS AND SHALL BE TAKEN TO INCOME ON RECEIPT BASIS . THE APPELLANT DID NOT FURNISH ANY REPLY BEFORE THE AO AND THE AO APPLIED AN INTEREST OF AN 18% ON DOUBTFUL DEBTS FOR RS.20,43,3 90/- ADDED RS.3,67,810/- ON THIS ACCOUNT. FURTHER, THE AO HAS DISALLOWED AN INTEREST OF RS.17,53,162/- FROM THE ACCOUNT OF SH. ASHWANI KUMAR WHICH WAS NOT PROVIDED BY THE APPELLANT ON THE PRET EXT OF BEING DOUBTFUL. THIS INTEREST WAS DISALLOWED FROM THE IN TEREST PAID BY THE APPELLANT ON ACCOUNT OF NOT BEING THE AMOUNT PAID F OR THE PURPOSE OF BUSINESS. SIMILARLY, THE APPELLANT HAD NOT CHARGED INTEREST FROM J.K. STRUCTURAL ROLLING SHUTTLES AND BODY, GANGYAL TO T HE TUNE OF RS.22,912/-. FOR THE SAME REASON THIS INTEREST WAS ALSO DISALLOWED FROM THE INTEREST PAID. THE APPELLANT IN ITS SUBMISSION BEFORE ME STATED T HAT THOSE DEBTS WERE DOUBTFUL DEBTS WHICH WERE WRITTEN OFF IN THE ASSESSMENT YEAR 2003-04 AND 2004-05 AS BAD DEBTS. SINCE, THE D EBTS BECOME DOUBTFUL NO INTEREST WAS PROVIDED AS INCOME. WHEN T HE DEBT IS DOUBTFUL IN THE PRECEDING YEARS AND ACCEPTED BY THE AO IN SUCCEEDING YEARS AND INTEREST WAS NOT CHARGED IN THE EARLIER Y EAR AND ACCEPTED BY THE AO. THEREFORE, THE CHARGING OF INTEREST BY THE AO IN THE YEAR UNDER REFERENCE IS NOT WITHIN THE LAW. THIS ARGUMENT AND INTERPRETATION OF THE APPELLANT IS WEIRED AND NOT CONVINCING THAT THE DEBTS WHICH WERE WRITTEN OFF IN THE SUBSEQUENT ASSTT. YEAR 2003-04 A ND 2004-05, IT WAS JUSTIFIED IN NOT PROVIDING THE INTEREST IN THE YEAR UNDER REFERENCE I.E. AY 2001-02. OUT OF TOTAL ADDITION OF RS.21,43,884/- THE MAJOR INTEREST AMOUNT WAS RELATING TO SH. ASHWANI KUMAR FOR RS.17, 53,162/-. THE BAD DEBTS RELATING TO SH. ASHWANI KUMAR IS NOT ACC EPTED AND MY FINDINGS ARE GIVEN IN PRECEDING PARAGRAPH. THUS, AD DITION ON ACCOUNT OF INTEREST RELATING THERETO IS ALSO CONFIRMED. FOR SIMILAR REASON THE OTHER DISALLOWANCES OF INTEREST FOR RS.3,67,810/- A ND RS.22,912/- ARE ALSO CONFIRMED. 4.3. REGARDING ROUTINE DISALLOWANCES ON ACCOUNT OF VEHICLE EXPENSES FOR RS.2568/-, DEPRECIATION ON CAR FOR RS. 5579/- AND TRAVELING ALLOWANCE FOR RS.2000/- THE APPELLANT HAS NOT DENIED IN ITS SUBMISSION ABOUT THE ELEMENT OF PERSONAL USER. HENC E, THERE IS NO OCCASION TO INTERFERE WITH THE FINDINGS OF THE AO A ND THESE DISALLOWANCES ARE CONFIRMED. ITA NO.110(ASR)/2013 10 5. THE LD. COUNSEL FOR THE ASSESSEE, MR. TARUN BANS AL ALONGWITH SH. S.K. BANSAL APPEARED AND ARGUED THAT AFTER THE AMEN DMENT IN THE ACT W.E.F. 01.04.1989 BAD DEBT HAS TO BE ALLOWED ONCE IT IS WR ITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE. HE REFERRED TO CIR CULAR NO.551 DATED 23 RD JANUARY, 1990 OF CBDT AVAILABLE AT PB 9A, REPORTED IN 183 ITR (ST.) 37 IN THIS REGARD. HE FURTHER ARGUED THAT THE ASSESSEE HA S FILED COPY OF ACCOUNT SINCE BEGINNING TILL THE END OF THE IMPUGNED YEAR A ND THE PERSONS TO WHOM LOANS HAVE BEEN ADVANCED HAVE ALREADY BEEN ACCOUNTE D FOR IN THE BOOKS OF ACCOUNT. THE BOOKS OF ACCOUNT ARE AUDITED AND IN TH E CASE OF SH. ASHWANI KUMAR, THE BAD DEBT HAS BEEN SETTLED. THE MONEY HAS BEEN LENT IN THE ORDINARY COURSE OF BUSINESS. THE LOANEE, SH. ASHWAN I KUMAR IS ASSESSED TO TAX, WHICH CAN BE VERIFIED FROM THE EARLIER RECORD OF THE DEPARTMENT. IN THE FACTS AND CIRCUMSTANCES, THE LD. COUNSEL FOR THE AS SESSEE ARGUED THAT THE APPEAL OF THE ASSESSEE MAY BE ALLOWED. HE FURTHER A RGUED THAT INTEREST PROVISION IS CONSEQUENTIAL. 6. THE LD. DR, MR. TARSEM LAL, RELIED UPON THE ORDE RS OF THE AUTHORITIES BELOW. 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. THERE IS NO DISPUTE TO THE FACT THAT THE ASSESSEE H AS NOT PROVIDED ADDRESSES OF THE PERSONS O WHOM LOANS HAVE BEEN ADVANCED. BUT AT THE SAME TIME, THE LD. ITA NO.110(ASR)/2013 11 COUNSEL FOR THE ASSESSEE HAS FILED COPY OF ACCOUNT SINCE LOAN HAD BEEN ADVANCED. MR. ASHWANI KUMAR IS ASSESSED TO TAX AND PAN HAS BEEN PROVIDED. AUDIT REPORT AND COPY OF AWARD IS ALSO O N RECORD. BUT AT THE SAME, ADDRESS OF THE PERSON HAS NOT BEEN PROVIDED A ND THE GENUINENESS OF THE TRANSACTION COULD NOT BE VERIFIED UNLESS THE PE RSONS TO WHOM LOAN HAS BEEN ADVANCED AND EXAMINED OR THEIR RECORDS ARE EXA MINED BY THE AO. THEREFORE, IT IS NOT POSSIBLE FOR THE AO OR THE LD. CIT(A) TO DECIDE THE MATTER. IT WILL BE IN THE INTEREST OF JUSTICE IF TH E MATTER IS SET ASIDE TO THE FILE OF THE LD. CIT(A), WHO WILL EXAMINE THE ISSUE DENOV O IN PARTICULAR WHETHER THE MONEY HAS BEEN LENT IN THE ORDINARY COURSE OF M ONEY LENDING BUSINESS AND THE ASSESSEE IS DIRECTED TO PROVIDE LAST ADDRES S AVAILABLE. THE LD. CIT(A) IS ACCORDINGLY DIRECTED TO DECIDE THE ISSUE DENOVO WITH REGARD TO BAD DEBTS AMOUNTING TO RS.43,52,761/- AND THE INTEREST THEREON INCLUDING THE INTEREST OF RS.3,67,810/- WITH REFERENCE TO THE AUD ITED BALANCE SHEET OF THE ASSESSEE. THUS, GROUNDS NO.1A, 1B, 1C, 2A & 2E ARE ALLOWED FOR STATISTICAL PURPOSES. 8. AS REGARDS GROUNDS NO. 4A, 4B & 4C ARE CONCERNED , THESE ARE EXPENSES WHICH HAVE BEEN DISALLOWED BY THE AO AND CONFIRMED BY THE LD. CIT(A) BEING PERSONAL ELEMENT INVOLVED FOR WHICH NO SUPPOR TING VOUCHERS HAVE BEEN PLACED ON RECORD BEFORE ANY OF THE AUTHORITIES BELOW OR EVEN BEFORE US. ITA NO.110(ASR)/2013 12 THEREFORE, PERSONAL ELEMENT CANNOT BE DENIED. ACCO RDINGLY, WE FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT(A) WHO HAS RI GHTLY CONFIRMED DISALLOWANCES ON ACCOUNT OF VEHICLE EXPENSES AT RS .2,568/-, DEPRECIATION ON CAR AT RS.5,579/- AND TRAVELING ALLOWANCE AT RS.200 0/-. THUS, GROUNDS NO. 4A, 4B & 4C OF THE ASSESSEE ARE DISMISSED. 9. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IN ITA NO.110(ASR)/2013 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 15TH APRIL, 2014. SD/- SD/- (H.S. SIDHU) (B.P. JAIN) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 15TH APRIL, 2014 /SKR/ COPY OF THE ORDER FORWARDED TO: 1. THE ASSESSEE:M/S. J.K. FINANCE CO. JAMMU 2. THE ACIT, RANGE-1, JAMMU 3. THE CIT(A), JAMMU 4. THE CIT, JAMMU 5. THE SR DR, ITAT, AMRITSAR. TRUE COPY BY ORDER (ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL, AMRITSAR BENCH: AMRITSAR.