DCIT, Udupi V. M/s. ICDS Ltd., Manipal

ITA 349/BANG/2009

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 0562 (ITAT-BANGALORE)
• Duration Of Justice: 6 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-10-2009
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 26-10-2009
• Assessment Year: 2002-2003
• Appeal Filed On: 20-04-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: PREETHI GARG
• Assessee Lawyers: P DINESH
• Keywords: Depreciation; Principle of natural justice; Bad and doubtful debts; Block assessment; Liquidation
• Section: 143(3); 207

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI GEORGE GEORGE K., JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ITA NO.349/BANG/2009 ASSESSMENT YEAR : 2002-03 THE DY. COMMISSIONER OF INCOME-TAX, CIRCLE 1, UDUPI. : APPELLANT VS. M/S. ICDS LTD., SYNDICATE HOUSE, MANIPAL. : RESPONDENT APPELLANT BY : SMT. PREETHI GARG RESPONDENT BY : SHRI P. DINESH O R D E R PER GEORGE GEORGE K., JUDICIAL MEMBER THIS APPEAL OF THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE LD.CIT(A), MANGALORE IN THE CASE OF ICDS LIMITED FO R THE ASSESSMENT YEAR 2002-03. 2. THE REVENUE HAD ORIGINALLY RAISED EXHAUSTIVE AND ELABORATIVE TWELVE GROUNDS OF APPEAL. IN ITS SUBSEQUENT GROUND S OF APPEAL, IT HAS RAISED SEVEN GROUNDS, OUT OF WHICH, GROUND NOS: 1, 6 AND 7 ARE GENERAL ITA NO.349/B/09 PAGE 2 OF 11 AND NOT VERY SPECIFIC AND, THEREFORE, DO NOT SURVIV E FOR ADJUDICATION. IN THE REMAINING GROUNDS, THE ESSENCE AND SUBSTANCE OF THE ISSUE IS WHETHER THE CIT(A) WAS JUSTIFIED IN ALLOWING THE CL AIM OF BAD DEBTS AMOUNTING TO RS.6.93 CRORES IN RESPECT OF SEVEN PAR TIES? 3. THE FACTS OF THE CASE, IN BRIEF, ARE THAT THE AS SESSEE A LIMITED COMPANY ENGAGED IN THE BUSINESS OF LEASE FINANCIN G AND ACCEPTING DEPOSITS FROM THE PUBLIC, FURNISHED ITS RETURN OF I NCOME, ADMITTING A NET LOSS OF RS.1,32,12,960/-. THE ASSESSMENT WAS CONCLUDED U/S 143(3) ON 31/3/05, DETERMINING THE TOTAL INCOME AT RS.13,26,6 9,232/- AND SETTING OF CARRIED FORWARD BUSINESS LOSS OF THE AY 99-00, THE INCOME WAS DETERMINED AT RS. NIL. WHILE DOING SO, THE AO HAD DISALLOWED THE BAD DEBTS AMOUNTING TO RS.10,44,92,697/- IN RESPECT OF NINE PARTIES AS AGAINST THE CLAIM OF RS.71.83 CRORES, ON THE GROUND THAT THE CLAIM OF TH E ASSESSEE WAS PREMATURE AND THAT THE BAD DEBTS WRITTEN OFF HAVE N OT BECOME ACTUALLY BAD. 4. AGGRIEVED, THE ASSESSEE TOOK UP THE ISSUE BEFORE THE LD.CIT(A) FOR REDRESSAL. AFTER CONSIDERING THE RIVAL SUBMISSIONS , THE CIT(A) HAD ALLOWED THE ASSESSEES CLAIM TO THE EXTENT OF RS.6.93 CRORE S IN RESPECT OF SEVEN PARTIES AND THE DETAILS OF WHICH ARE AS UNDER: SL.NO. NAME OF THE PARTIES AMOUNT (RS.) 01 M/S. PENTAFOUR PRODUCTS LIMITED 9 5,44,584 02 M/S. JNANAMANDAL LIMITED 55,10,193 03 M/S. BUSINESS INDIA LIMITED 45,38,5 17 04 M/S. STAR PRECISION ELECTRONICS (I) LTD 18,61,912 05 M/S. SANDUR UDYOG PVT. LIMITED 28, 00,000 06 M/S. DEVAN RUBBER INDUSTRIES LTD. 1,3 9,86,857 07 M/S. REPL ENGINEERING LIMITED 3,11,43 ,968 ITA NO.349/B/09 PAGE 3 OF 11 5. BEING AGGRIEVED, THE REVENUE HAS COME UP WITH TH E PRESENT APPEAL. DURING THE COURSE OF HEARING, THE LD. D. RS ARGUME NTS REVOLVED AROUND THE ACTION OF THE CIT(A) IN UPHOLDING THE ASSESSEE S CLAIM OF BAD DEBTS TO THE TUNE OF RS.6.93 CRORES . IN ESSENCE, THE CONT ENTION OF THE LD. D.R IS THAT (I) PENTAFOUR PRODUCTS LIMITED : THE ASSESSEE HAD FINANCED RS.1.60 CRORES FOR HIRE PURCHASE OF WIND MILLS BY THIS COMP ANY AND THE TOTAL AMOUNT RECEIVABLE WAS RS.2.29 CRORES. THE ASS ESSEES PLEA BEFORE THE AO WAS THAT THE COMPANY WAS PRESENTLY BE FORE THE BIFR AND ITS LIABILITIES EXCEED THE ASSETS. THE AS SESSEES DUES HAVE BEEN CLASSIFIED AS UNSECURED CREDITORS BY THE OFFICIAL LIQUIDATOR. THE WIND MILLS FINANCED BY THE ASSESSE E WERE STATED TO HAVE NOT BEEN ERECTED, TECHNOLOGY HAD BECOME OBSOLE TE AND IMPORTANT SPARE PARTS WERE NOT AVAILABLE. THUS, TH E ASSESSEE HAD WRITTEN OFF RS.95.44 LAKHS IN ITS BOOKS OF ACCOUNT AS BAD DEBTS. ON AN INQUIRY, THE AO FOUND THAT THE WIND MILL FINA NCED HAD BEEN TAKEN OVER BY THE ASSESSEE AND A SETTLEMENT WAS ARR IVED AT IN 2003. THUS, THE AO WAS OF THE VIEW THAT THE DEBT W AS PREMATURE AND DISALLOWED THE SAME WHICH IS IN ORDER; (II) JANANAMANDAL LIMITED : THE ASSESSEE HAD FINANCED RS.1.10 CRORES ON 5/6/97 FOR HIRE PURCHASE OF WEB OFFSET MA CHINERY IN HIRE PURCHASE BASIS. OUT OF RECEIVABLE AMOUNT OF RS.1.54 CRORES, RS.55.10 LAKHS WAS WRITTEN OFF AS BAD DEBT. IT WAS PLEADED BEFORE THE AO WAS THAT THE CLIENT HAD FILED TWO SUITS AT V ARANASI COURT FOR DECLARING THE HIRE PURCHASE AGREEMENT AS NULL A ND VOID. THE COMPANY WAS STATED TO BE FACING FINANCIAL CRUNCH DU E TO LOSSES AND THE BANKS HAVE TAKEN LEGAL RECOURSE TO RECOVER THEIR DUES, THE CHANCE OF RECOVERY WAS REMOTE AND THUS, THE ASSESSE E HAD WRITTEN OFF THE DUE. ON THE CONTRARY, THE AO WAS OF THE VIEW THAT ON AN INQUIRY, IT WAS ASCERTAINED THAT THERE WAS A DISPUTE BETWEEN THE AS SESSEE AND THE PARTY WITH REGARD TO FINANCE CHARGES DUE TO WHICH T HE PARTY HAD STOPPED PAYMENT OF INSTALLMENT AND IT HAD TRANSFERRED THE OUTSTAND AMOUNT OF RS.1.46 CRORES COMPRISING TH E PRINCIPAL AND FINANCE CHARGES IN DISPUTED UNSECURED LOAN ACCO UNT IN THE AY 01-02. THUS, THE AO HELD THAT THE DEBT HAD NOT BEC OME BAD WHICH HAD BEEN PREMATURELY WRITTEN OFF. THE AO WAS JUSTI FIED IN DOING SO. ITA NO.349/B/09 PAGE 4 OF 11 (III) BUSINESS INDIA LTD : THE ASSESSEE HAD FINANCED HIRE PURCHASE OF STUDIO EQUIPMENTS FOR RS.45.29 LAKHS. OUT OF TOTAL RECEIVABLE OF RS.65.96 LAKHS, RS.45.38 LAKHS WAS WRITTEN DURING T HE YEAR UNDER DISPUTE. THE CLAIM OF THE ASSESSEE THAT THE HIRER HAD AVAILED FINANCE FOR EQUIPPING A STUDIO FOR STARTING TV CHAN NEL WHICH DID NOT TAKE OFF. THE ELECTRONIC EQUIPMENT FINANCE HAD BECOME OBSOLETE WHICH STATED TO HAVE NO RESALE VALUE EVEN THOUGH THE ASSESSEE HAD OBTAINED AN EX-PARTE DECREE FROM THE A RBITRATOR. AS THERE WERE NO ASSETS WORTH ATTACHING, THE DECREE CO ULD NOT BE EXECUTED, THE AMOUNT WAS WRITTEN OFF AS IRRECOVERAB LE. ON AN INQUIRY THROUGH HIS COUNTER-PART AT MUMBAI, T HE AO HAD OBTAINED A COPY OF ACCOUNT OF THE ASSESSEE FROM THE BOOKS OF THE PARTY WHICH SHOWED THAT THE C.B WAS AT RS.39.29 LAK HS AND THE RECOVERY WAS SHOWN AT RS.6 LAKHS DURING JULY 01 M ARCH 02. THE AO DISALLOWED THE CLAIM OF BAD DEBT OF RS.45.38 LAKHS AS THE PARTY WAS IN EXISTENCE AND SOME PAYMENT WAS RECEIVE D, THE WRITE OFF WAS HELD TO BE PREMATURE WHICH THE LD. DR SUBMI TTED IS IN ORDER; (IV) M/S.STAR PRECISION ELECTRONICS (I) LTD : THROUGH TWO HIRE PURCHASE AGREEMENTS, THE ASSESSEE HAD FINANCED THE COMPANY OF RS.74 LAKHS FOR PURCHASE OF PLANT AND MACHINERY. O UT OF TOTAL RECEIVABLE OF RS.1.13 CRORES, RS.18.61 LAK HS WAS WRITTEN OFF BY THE ASSESSEE ON THE GROUND THAT THE COMPANY WAS IN BIFR AND THE PERSONAL GUARANTOR HAD BEEN ADJUDICATED AS INSOLVENT. THOUGH THE ASSESSEE HAD OBTAINED AWARD A ND FILED EXECUTION PETITION AT VADODARA COURT, THE ASSETS FI NANCED WERE IN BAD SHAPE WHICH HAD NO RESALE VALUE AND, THUS, RS.1 8.61 LAKHS WAS WRITTEN OFF AS BAD DEBT. ON AN INVESTIGATION, THE AO FOUND THAT AS PER CONSE NT TERM AND MINUTES OF THE ORDER PASSED BY MR.JUSTICE D.Y.CHAND RACHUD DT: 25/6/04, THE DEBT WAS SETTLED FOR RS.20 LAKHS, OUT OF WHICH, IT WAS AGREED THAT RS.25000/MONTH WOULD BE PAID TILL M ARCH, 04 TOTALLING TO RS.20 LAKHS AS FINAL SETTLEMENT OF THE DEBT. THE AO WAS OF THE VIEW THAT SINCE THE PETITION FILED BY THE AS SESSEE WAS ON 12.8.02 AND ORDER OBTAINED WAS ON 15.6.04 AND TH US THE DEBT HAD NOT BECOME BAD AS ON 31.3.02. (V) SANDUR UDYOG PVT. LTD : BY TWO HIRE PURCHASE AGREEMENTS, THE ASSESSEE HAD FINANCED RS.1.17 CRORES, OUT OF WHICH, RS.28 LAKHS WAS WRITTEN OFF AS BAD DEBT. THE CLAIM OF THE ASS ESSEE WAS THAT THE COMPANY WAS CLOSED SINCE 4 -5 YEARS UNDER LITIG ATION AND IT HAD RECEIVED MORE THAN THE PRINCIPAL AMOUNT. AS TH E COMPANY ITA NO.349/B/09 PAGE 5 OF 11 WAS FACED WITH LITIGATIONS, THE ASSESSEE WROTE OFF RS.28 LAKHS AS BAD DEBT; ON AN INQUIRY, THE AO FOUND THAT THE ASSESSEE HAD R ECEIVED RS.35 LAKHS DURING THE PREVIOUS YEAR AND THE CB AS ON 31.3.02 STOOD AT RS.21.60 LAKHS, AND RATHER UNCONVINCED WIT H THE REASONING OF THE ASSESSEE, HE HAD DISALLOWED THE SA ID CLAIM . (VI ) M/S.DEWAN RUBBER INDUSTRIES LIMITED : OUT OF RS.2 CRORES FINANCED FOR HIRE PURCHASE OF VARIOUS EQUIPMENTS, THE ASSESSEE HAD WRITTEN OFF RS.1.39 CRORES AS BAD DEBT ON THE P LEA THAT THE COMPANY HAD BEEN REFERRED TO BIFR AND THE MANUFACTU RING ACTIVITIES HAD COME TO A GRINDING HALT AND HAD BEE N INCURRING HUGE OPERATIONAL LOSSES. AS THE POSSIBILITY OF REC OVERING THE DUE WAS INCREASINGLY BECOME REMOTE, THE ASSESSEE RESORT ED TO WRITE OFF RS.1.39 CRORES. [HOWEVER, THE ASSESSEE HAD RECOVERED PARTIALLY A SU M OF RS.17.50 LAKHS DURING THE YEAR-ENDING 31/3/04 AND THIS WAS O FFERED AS INCOME U/S 41 OF THE ACT.] ON AN INQUIRY THROUGH HIS COUNTER-PART [OF COURSE, ADIT(INV)], THE AO FOUND THAT THE COMPANY COULD NOT PRODUCE THE BOO KS OF ACCOUNT AS THE LOCAL AUTHORITIES HAVE ALREADY SEIZED THE FA CTORY PREMISES FOR RECOVERY OF CERTAIN DUES. SINCE THE PARTY HAD NOT DENIED THE DEBT, THE AO HAD REJECTED THE REASONING OF THE ASSESSEE A ND DISALLOWED THE CLAIM. (VII) WITH REFERENCE TO REPL ENGINEERING LTD., APA RT FROM RELYING ON THE FINDINGS OF AO, THE LD. DR SUBMITTED THAT THE ASSES SEE HAS WRITTEN OFF RS.48,46,233/- AGAINST THIS PARTY. DURING THE VERIF ICATION OF ALL THE BAD DEBTS WRITTEN OFF, IT WAS FOUND BY THE ASSESSIN G OFFICER THAT THERE WERE OTHER AMOUNTS ALSO WRITTEN IN RESPECT OF THE S AME PARTY REPL ENGINEERING WHICH WAS NOT EXPLAINED. IN VIEW OF TH E ASSESSEES FAILURE TO EXPLAIN THIS WRITE OFF, AN AMOUNT OF RS. 3,11,43,968/- WAS DISALLOWED INSTEAD OF RS.48,46,233/-. THE HONBLE C IT(A) HAS ALLOWED THE CLAIM OF RS.3,11,43,968/- MADE BY THE A SSESSEE OVERLOOKING THE FACT THAT DETAILS FOR RS.2,62,97,74 4/- WAS NOT FURNISHED DURING THE COURSE OF ASSESSMENT PROCEEDIN GS. IT WAS FURTHER SUBMITTED THERE WAS A SEARCH IN THE CASE OF THE ASSESSEE ON 18-12-198 AND, THE BLOCK ASSESSMENT ORDERS HAVE BEE N PASSED DISALLOWING THE DEPRECIATION CLAIM OF NON-EXISTING WIND TURBINE GIVEN ON LEASE TO REPL. THE BLOCK ASSESSMENT ORDER WAS A PPEALED AGAINST AND THE KARNATAKA HIGH COURT HAS RULED IN FAVOUR OF THE DEPARTMENT. THE ASSESSEE IS IN SLP BEFORE THE HONBLE APEX COUR T ON THIS ISSUE ITA NO.349/B/09 PAGE 6 OF 11 PENDING. THEREFORE, THE ASSESSEES ACTION OF WRITI NG OFF OF DEBT IS PREMATURE AND THE AO RIGHTFULLY DISALLOWED THE CLAI M. 5.1. IN CONCLUSION, THE LD. D R WAS VERY FIRM IN H ER URGE THAT THE AO AFTER DISCUSSING THE SPECIFIC ISSUES HAD ALSO RELIE D UPON THE FINDING OF THE HONBLE CALCUTTA HIGH COURT REPORTED IN 209 ITR 221 AND ALSO ON PAGE NOS.2026 AND 2031 OF CHATURVEDI & PITHASARIA INCOME -TAX LAW (5 TH EDITION). IT WAS, FURTHER, URGED THAT THE FACTS DI SCUSSED BY THE AO STRONGLY INDICATE THAT THE DEBTS HAVE NOT BECOME BAD DURING THE RELEVANT ACCOUNTING PERIOD. TO DRIVE HOME HER POINT, SHE HAS PLACED ST RONG RELIANCE ON THE FINDING OF THE HONBLE GUJARAT HIGH COURT REPORTED IN 295 ITR 481. 5.2. ON THE OTHER HAND, THE LD. A.RS SUBMISSION A LSO REVOLVED AROUND MORE OR LESS WHAT WAS REITERATED BEFORE THE LD. CIT(A). BUTTRESS HIS ARGUMENTS, THE LD. A.R HAD FURNISHED A PAPER-BO OK CONTAINING 1 22 PAGES WHICH CONSISTS OF, INTER ALIA, COPIES OF (I) WRITTEN SUBMISSIONS FURNISHED BEFORE THE CIT(A); AND (II) EXPLANATION W ITH REGARD TO BAD DEBTS OF VARIOUS PARTIES BEFORE THE AO. ALSO PLACED RELIANC E ON THE FINDING OF THE HONBLE TRIBUNAL IN ITA NO.909/BANG/2003 AND ANOTH ER DATED: 19/2/2007 IN THE ASSESSEES OWN CASE. 6. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS AND ALSO PERUSED THE RELEVANT RECORDS, THE PAPER-BOOK FURNIS HED BY THE LD. A.R. AND ALSO NOTE OF THE LD. D.R. ON THE ISSUE. 6.1. ON A PERUSAL OF THE IMPUGNED ORDER WHICH IS I N DISPUTE, THE LD. CIT(A), AFTER DELIBERATING THE ISSUE EXHAUSTIVE LY, HAD CONCLUDED THAT ITA NO.349/B/09 PAGE 7 OF 11 (I) PENTAFOUR PRODUCTS LIMITED: THE COMPANY HAD BECOME SICK AND UNDER CONSIDERATION OF BIFR AS LIABILITIES EXCE ED ITS ASSETS. THE ASSESSEE HAD TRIED TO RECOVER ITS DUE BY TAKING BACK THE ASSETS AND SELLING THEM SINCE THE ASSESSEE REALIZED THAT THE ENTIRE AMOUNT OUTSTANDING CANNOT BE RECOVERED EVEN AFTER T HE POSSESSION OF ASSETS, IT HAD WRITTEN OFF THE IRRECOVERABLE ASS ETS, AND THAT A PART OF AMOUNTS RECOVERED DURING THE AYS 03-04 AND 04-05, THE SAME WERE OFFERED FOR TAXATION U/S 41 OF THE ACT A ND DRAWING STRENGTH FROM THE FINDINGS OF THE HONBLE HIGH COUR T OF MADHYA PRADESH IN THE CASE OF MRS.GITA SANGHVI V. CIT [277 ITR 388] AND THAT OF THE HONBLE RAJASTHAN HIGH COURT IN THE CASE OF CIT V. BHAGPATIA FOOD INDUSTRIES [ 207 ITR 1045], THE I RRECOVERABLE AMOUNT OF RS.95.44 LAKHS WRITTEN OFF IN THE BOOKS O F ACCOUNT OF THE ASSESSEE WAS JUSTIFIABLE; (II) JANANAMANDAL LIMITED : THE DEBTOR HAD FILED A SUIT AGAINST THE ASSESSEE TO DECLARE THE HIRE PURCHASE AGREEMENT AS NULL AND VOID, ALLEGING THE DIFFERENCE IN THE RATE OF FINANCE CHAR GES. THE COMPANY HAD ALSO STOPPED PAYMENT OF INSTALLMENTS AN D TRANSFERRED THE OUTSTANDING AMOUNT IN DISPUTED UNSE CURED LOAN AMOUNT. THE CIT(A) HAD REASONED THAT SIMPLY BECAUS E THE DEBTOR HAD MADE SOME AD-HOC PAYMENTS DURING AYS 01-02 AND 02-03 AND THE PARTY IN EXISTENCE, THE AOS CONTENTION THA T THE DEBT HAD NOT BECOME BAD AND THE WRITE OFF WAS PREMATURE DOES NT HOLD WATER. CITING THE RULINGS IN THE CASES OF (I) CIT V. AHMEDABAD ELECTRICITY CO. LTD.(262 ITR 97 GUJ.)AND (II) CIT V. GOODLASS NEROLAC PAINTS LTD. (188 ITR 1 BOM), THE CIT(A) F OUND THAT THE ASSESSEES ACTION OF WRITING OFF OF THE DEBT AS BAD WAS REASONABLE AND TO BE LOGICAL; (III) BUSINESS INDIA LTD : FOLLOWING THE RULINGS OF THE HONBLE HIGH COURTS OF GUJARAT AND BOMBAY REFERRED SUPRA AND ALS O CONSIDERING THE FACT THAT THE RECOVERY MATTER WAS D ECREED BY THE ARBITRATOR AND ONLY NOMINAL AMOUNT OF RS.6 LAKHS CO ULD BE RECOVERED DURING 02-03, THE AOS FINDING OF THE DEB T WAS PREMATURELY WRITTEN OFF CANNOT BE SUSTAINED; (IV) M/S.STAR PRECISION ELECTRONICS (I) LTD : THE FACTUAL DETAILS SHOW THAT THE COMPANY HAD BECOME SICK WHICH WAS PEN DING BEFORE THE BIFR INDICATE THAT THE FINANCIAL BANKRUP TCY AND THAT THE DEBTOR WAS NOT IN A POSITION TO REPAY THE DEBT . THE DISALLOWANCE OF THE CLAIM BY THE AO WAS BECAUSE OF THE HC HAD PASSED A SETTLEMENT DECREE IN A SUBSEQUENT YEAR. T AKING CUE FROM THE RULINGS OF THE HONBLE HIGH COURTS REPORTED IN 277 ITR 388 [MP] AND IN 188 ITR A (BOM) AND ALSO CONSIDERING TH E FACT THAT THE AMOUNTS WERE FINANCED IN 94 AND 96 AND REPAYMEN TS PERIOD ITA NO.349/B/09 PAGE 8 OF 11 HAD EXPIRED IN 96 AND 99 RESPECTIVELY FOR THE TWO H IRE PURCHASE LIABILITIES AND THAT THE COMPANY WAS BEFORE BIFR, T HE ASSESSEES ACTION OF WRITING OFF THE DEBT WAS FOUND FAVOUR WIT H THE CIT(A); (V) SANDUR UDYOG PVT. LTD : THE AMOUNTS ADVANCED IN 1992 AND THE INSTALMENTS WERE TO BE RECOVERED BY 1997. SOME HOW, THE ASSESSEE COULD BE ABLE TO RETRIEVE ONLY TO THE EXTE NT OF RS.35 LAKHS. AS THE COMPANY HAD SINCE BEEN CLOSED LAST 4 5 YEA RS AND WAS ALSO IN THE PROCESS OF LIQUIDATION; (VI) M/S.DEWAN RUBBER INDUSTRIES LIMITED : DUE TO HUGE OPERATIONAL LOSSES OVER THE YEARS, THE DEFUNCT COMP ANY WAS REFERRED TO BIFR. HAVING FAILED TO RETRIEVE THE BA LANCE AMOUNT, THE ASSESSEE HAD RESORTED TO WRITE OFF RS.1.39 CROR ES. THE AOS REASONING OF DENYING OF THE CLAIM OF BAD DEBT JUST BECAUSE THE RECORDS WERE NOT MADE AVAILABLE AND THAT THE PARTY WAS NOT DENYING THE DEBT DOESNT ON THE SOUND FOOTING. FOLLOWING THE RULINGS OF THE HONBLE HIGH COURTS OF MADHYA PRADESH AND BOMBAY REPORTED IN 277 ITR 388 AND 188 ITR 1 RESPECTIVELY, THE CIT(A) ALLOWED THE CLAIMS OF THE ASSESSEE ON THESE TWO CASES. 6.2. IN AN OVERALL CONSIDERATION OF THE FACTS AND CIRCUMSTANCES UNDER WHICH THE ASSESSEE HAD RESORTED TO WRITE OFF OF THE DEBTS IN ITS BOOKS OF ACCOUNT DURING THE PREVIOUS YEAR RELEVANT TO THE AS SESSMENT YEAR UNDER DISPUTE AND ALSO THE WELL REASONINGS OF THE LD. CI T (A) DELIBERATED IN THE FORE-GOING PARAGRAPHS, WE ARE OF THE UNANIMOUS VIEW THAT THE CIT(A) WAS JUSTIFIED IN DELETING THE ADDITIONS MADE BY THE AO ON THIS COUNT IN RESPECT OF THE ABOVE NAMED PARTIES . 6.2.1. MOREOVER, IT IS NOT IN DISPUTE AS AGAINST THE ABOVE PERSONS THE ASSESSEE HAS WRITTEN OFF THE DEBT IN HIS BOOKS OF ACCOUNT AS BAD. SECTION 36(1)(VII) HAS BEEN AMENDED WITH EFFECT FRO M 1.4.89. UNDER THE AMENDED PROVISIONS OF SECTION 36(1)(VII), THE ASSES SEE IS NOT REQUIRED TO ESTABLISH THAT THE DEBT HAS BECOME BAD IN THE PREVI OUS YEAR AND MERE WRITE ITA NO.349/B/09 PAGE 9 OF 11 OFF OF AMOUNT AS BAD DEBTS WAS SUFFICIENT. IN OTHE R WORDS, THERE IS NO OBLIGATION OR BURDEN ON THE ASSESSEE TO PROVE THE D EBT HAS BECOME BAD DEBT AS LONG AS WRITE OFF WAS BONA FIDE AND ON THE BASIS OF COMMERCIAL WISDOM OR EXPEDIENCY. FOR THE ABOVE REASONING, WE DRAW SUPPORT FROM THE FOLLOWING HIGH COURT DECISIONS: (I) LAWLYS ENTERPRISES P.LTD. V. CIT REPORTED IN (2009 ) 314 ITR 297 (PAT.); (II) SURESH GAGGAL V. ITO REPORTED IN (2009) 222 CTR 96 (HP); (III) CIT V. STAR CHEMICALS (BOMBAY) P.LTD REPORTED IN ( 2009) 313 ITR 126; (BOM) & (IV) DIT (INTERNATIONAL TAXATION) V. OMAN INTERNATIONAL BANK REPORTED IN 313 ITR 128 (BOM). 6.3. HOWEVER, IN RESPECT OF REPL ENGINEERING LIMIT ED, THE ASSESSEE HAD ENTERED INTO LEASE AGREEMENTS WITH REP L ENGG. LTD. ON 28/9/93 AND 10/4/96 FOR RS.49,85,662 AND RS.1,30,00 ,000 AND THE EXPIRY OF SUCH AGREEMENTS BEING 1/10/98 AND 1/11/98 RESPECTIV ELY. ACCORDING TO THE ASSESSEE, THE TOTAL AMOUNT RECEIVABLE WAS RS.212736 03 [7558264+13715339]. THE CIT (A)S OBSERVATION WAS THAT THE AO HAS SIMPLY DISALLOWED THE CLAIM AS THE COMPANY IS IN EX ISTENCE AND ACKNOWLEDGES THE DEBT. HOWEVER, THE FACT REMAINS T HAT THE PROMOTER HAS SWINDLED NOT ONLY THE APPELLANT BUT A NUMBER OF BAN KS, FINANCIAL INSTITUTIONS AND NBFCS AND FLED OUT OF THE COUNTRY. THE WINDING UP PETITION IS PENDING AGAINST THE COMPANY. THEREFORE, THE RECOVERY IS NO T ONLY DIFFICULT BUT CHANCE IS ABSOLUTELY REMOTE.. ITA NO.349/B/09 PAGE 10 OF 11 6.3.1. HOWEVER, ON A CLOSE LOOK INTO THE ISSUE, WE FIND THAT NEITHER THE AO NOR THE CIT(A) HAD DEALT WITH THE ISSUE IN A COMPREHENSIVE MANNER. FOR EXAMPLE, THE ASSESSEE HAD CLAIMED THE WRITE OFF OF RS.48,46,233 [1210812+3635421] WHEREAS THE AO WENT AHEAD WITH TH E DISALLOWANCE OF RS.31143968/- BY UPHOLDING THUS - ENQUIRY REPORT RECEIVED FROM THE ADDL. DIT (INV), UNIT-2, MUMBAI DT.11.3.05 REVEALS THAT THE COMPANY IS IN EXISTENCE AND ACKNOWLEDGES THE DEBT. I REJECT THE ASSESSEES REASONING FOR WRITIN G OFF AND AN AMOUNT OF RS.48,46,233/- IS DISALLOWED AS A PREMATURE. IN TH E LIST OF AMOUNTS WRITTEN OFF OF RS.71 CRORES, THE ASSESSEE HAS INCLUDED WRIT E OFF IN RESPECT OF THIS PARTY THE FOLLOWING AMOUNTS: RS.1210812 + 3635420+2000925+17545000+6751 811 = 31143968 SINCE THE ASSESSEE FAILED TO EXPLAIN THESE AMOUNTS, THE ENTIRE AMOUNT OF RS.31143968/- HAS BEEN DISALLOWED IN PLACE OF RS.48 46233/- MENTIONED ABOVE AS PREMATURE DEBT. FURTHER, DURING THE COURSE OF HEARING, THE LD. D R HAD BROUGHT TO THE REFERENCE OF THIS BENCH THAT THERE WAS A SEARCH IN THE CASE OF THE ASSESSEE ON 18/12/1987 ON THE BASIS OF WHICH BLOCK ASSESSMEN TS ORDERS HAVE BEEN PASSED, DISALLOWING THE DEPRECIATION CLAIM OF NON- EXISTING WIND TURBINE GIVEN ON LEASE TO REPL. THE BLOCK ASSESSMENT ORDER S WERE CHALLENGED BEFORE THE HONBLE HIGH COURT OF KARNATAKA AND THE HONBLE COURT WAS PLEASED TO RULED IN FAVOUR OF THE DEPARTMENT. THE ASSESSEE HAS FILED SLP BEFORE THE HONBLE SUPREME COURT ON THIS ISSUE WHI CH IS STILL PENDING. NOW THE QUESTION IS WHETHER THE ASSESSEE HAD REALLY ADVANCED MONEY TO REPL ENGG. LTD. FOR PURCHASE OF WIND TURBINE. THIS ASPECT HAS NOT BEEN DELIBERATED BY THE LOWER AUTHORITIES. 6.3.2. IN THE INTEREST OF NATURAL JUSTICE AND EQUI TY, WE ARE OF THE UNANIMOUS VIEW THAT THIS ISSUE SHOULD BE REMITTED B ACK ON THE FILE OF THE ITA NO.349/B/09 PAGE 11 OF 11 AO WITH A DIRECTION TO LOOK INTO ALL ASPECTS AFRESH IN A COMPREHENSIVE MANNER AND TO TAKE APPROPRIATE ACTION IN ACCORDANCE WITH LAW, AFTER AFFORDING A REASONABLE OPPORTUNITY TO THE ASSESSEE OF BEING HEARD. 7. IN THE RESULT, THE REVENUES APPEAL IS PARTLY ALLOWED AS INDICATED ABOVE FOR STATISTICAL PURPOSE. PRONOUNCED IN THE OPEN COURT ON THIS 30 TH DAY OF OCTOBER, 2009. SD/- SD/- (A. MOHAN ALANKAMONY ) (GEORGE GEORGE K. ) ACCOUNTANT MEMBER JUDICIAL MEMBER BANGALORE, DATED, THE 30 TH OCTOBER, 2009. DS/- COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE (1+1) BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE.