DCIT, Panchkula V. M/s Haryana Agro Industries Corpn. Ltd., Chandigarh

ITA 531/CHANDI/2011

• Counselvise Citation: 53121514 RSA 2011
• Duration Of Justice: 3 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-08-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 04-08-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 16-05-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K MITTAL
• Assessee Lawyers: B K NOHRIA
• Keywords: Business income; Depreciation; Business expenditure; Additional evidence; Bad and doubtful debts
• Section: 6; 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH B, CHANDIGARH BEFORE MS.SUSHMA CHOWLA, JUDICIAL MEMBER AND SHRI MEHAR SINGH, ACCOUNTANT MEMBER ITA NO.530 & 531/CHD/2011 ASSESSMENT YEAR : 2006-07 & 2007-08 THE D.C.I.T., PANCHKULA VS. M/S HARYANA AGRO IND USTRIES CORPN. LTD. CIRCLE PANCHKULA SCO 811-12, SECTOR 22-A, CHANDIGARH. PAN: AAACH4686C (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI S.K.MITTAL, CIT DR RESPONDENT BY : SHRI B.K.NOHRIA DATE OF HEARING : 4.8.2011 DATE OF PRONOUNCEMENT : 30/08/2011 O R D E R PER SUSHMA CHOWLA, J.M, : THE REVENUE HAS FILED THESE TWO APPEALS AGAINST T HE SEPARATE ORDERS OF CIT(A), PANCHKULA DATED 15.3.2011 RELATIN G TO ASSESSMENT YEARS 2006-07 & 2007-08 AGAINST THE ORDER PASSED UN DER SECTION 143(3) OF THE I.T. ACT, 1961. 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL IN ITA NO. 530/CHD/2011 RELATING TO ASSESSMENT YEAR 2006-07. 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) IS RIGHT IN DELETING AN ADDITI ON OF RS. 42,596/- DESPITE THE FACT THAT THE LOSS ON SALE OF STORES CANNOT BE ALLOWED AS EXPENDITURE AS THESE ARE ASSES SEES CURRENT ASSETS? 2 WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) IS RIGHT IN DELETING AN ADDITI ON OF RS. 1,88,848/- ON ACCOUNT OF CONSUMABLE STORES DESPITE THE FACT THAT THE AMOUNT IS ACTUALLY THE COST OF OLD CONSUMA BLE STORES WRITTEN OFF? 2 3 WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) IS RIGHT IN DELETING AN ADDITI ON OF RS. 2,75,214/- ON ACCOUNT OF EXCISE DUTY DESPITE THE F ACT THAT THE SAME IS NOT ADMISSIBLE KEEPING IN VIEW THE PROV ISIONS OF SECTION 145A? 4 WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) IS RIGHT IN DELETING AN ADDITI ON OF RS.73,36,650/- ON ACCOUNT OF INTEREST CHARGEABLE O N THE INVESTMENT BY THE ASSESSEE COMPANY. 5 WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) IS RIGHT IN DELETING AN ADDITI ON OF RS. 50,86,680/- ON ACCOUNT OF DISALLOWANCES OF INTERES T CLAIMED, DESPITE THE FACT THAT A SUM OF RS. 245.29 LACS HAS BEEN SHOWN AS RECOVERABLE FROM EMPLOYEES ON ACCOUNT OF SHORTAGE IN STOCK FOUND AT THE TIME OF FINAL DELIVE RY. NO RECOVERIES HAVE BEEN MADE THOUGH THE EMPLOYEES ARE DIRECTLY UNDER THE CONTROL OF THE ASSESSEE. THE FU NDS TO THE EXTENT OF RS. 423.89 LACS ARE LOCKED FOR NON BUSINE SS PURPOSES? 6 IT IS PRAYED THAT THE ORDER OF THE LD. CIT(A) BE SET ASIDE AND THAT OF THE AO BE RESTORED. 3. BOTH THESE APPEALS RELATING TO THE SAME ASSESSEE ARE HEARD TOGETHER AND ARE BEING DISPOSED OFF BY THIS CONSOLIDATED ORD ER FOR THE SAKE OF CONVENIENCE. 4. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS ENGAGED IN THE MANUFACTURING AND STORAGE OF AGRICULTURAL PRODUCTS AND TRADING OF WHEAT PRODUCTS AND FERTILIZERS. FOR THE YEAR UNDER CONS IDERATION THE ASSESSEE HAD FURNISHED RETURN OF INCOME DECLARING NIL INCOME . THE CASE OF THE ASSESSEE WAS PICKED UP FOR SCRUTINY AND FOLLOWING ADDITIONS/DISALLOWANCES WERE MADE BY THE ASSESSING OFFICER: I) ADDITION ON A/C OF LOSS ON SALE OF STORES RS. 42,596/- II) ADDITION ON A/C OF CONSUMABLE STORES RS.1,88,8 48/- III) ADDITION ON A/C OF EXCISE DUTY RS.2,75,214/- IV) ADDITION ON A/C OF INTEREST DISALLOWED RS.73,3 6,560/- V) ADDITION ON A/C OF INTEREST DISALLOWED RS.50,86 ,680/- VI) PROVISION FOR BAD & DOUBTFUL DEBTS RS. 22,4 96/- 3 5. THE ASSESSEE PREFERRED AN APPEAL AGAINST THE ORD ER OF THE ASSESSING OFFICER BEFORE THE CIT (APPEALS), WHO AFTER ADMITTI NG THE ADDITIONAL EVIDENCE FURNISHED BY THE ASSESSEE UNDER RULE 46A A ND CONFRONTING THE SAME TO THE ASSESSING OFFICER DECIDED THE ISSUES AN D DELETED THE ADDITIONS/ DISALLOWANCES MADE BY THE ASSESSING OFFI CER. 6. THE REVENUE IS IN APPEAL AGAINST THE ORDER PF TH E CIT (APPEALS). THE LEARNED D.R. FOR THE REVENUE PLACED RELIANCE ON THE ORDER OF THE ASSESSING OFFICER. 7. THE LEARNED A.R. FOR THE ASSESSEE PLACED RELIANC E ON THE ORDER OF THE CIT (APPEALS). 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ISSUE IN GROUND NO.1 IS AGAINST THE DELETION OF ADD ITION OF RS.42,596/-. THE ASSESSEE HAD CLAIMED LOSS OF RS.42,596/- ON SAL E OF STORES. AS PER THE ASSESSEE, SOME OLD POLY COVERS WHICH WERE UNUSA BLE WERE SOLD DURING THE CURRENT YEAR AND LOSS HAD TAKEN PLACE. THE AS SESSING OFFICER DISALLOWED THE LOSS AS THE ASSESSEE WAS DEBITING 25 % OF THE COST OF POLY COVERS TO THE PROFIT & LOSS ACCOUNT AND HENCE THE S AID ASSET CONSTITUTED CURRENT ASSET OF THE ASSESSEE. 9. BEFORE THE CIT (APPEALS) THE ASSESSEE CONTENDED THAT IT WAS NEVER ASKED TO EXPLAIN THE NATURE OF LOSS AND NO SUCH EXP LANATION WAS EVER GIVEN TO THE ASSESSING OFFICER. IT WAS EXPLAINED B Y THE LEARNED A.R. FOR THE ASSESSEE THAT THE LOSS WAS ON SALE OF STORES, L YING AS JUNK, THE DETAILS OF WHICH WERE FILED DURING THE APPELLATE PROCEEDING S. THE CIT (APPEALS) VIDE PARA 5.2 OBSERVED AS UNDER : 5.2 I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS MADE BY THE APPELLANT AND HAVE ALSO GONE THROUGH THE DETAIL S FILED DURING THE COURSE OF APPELLATE PROCEEDINGS WHICH WA S DULY CONFRONTED TO THE AO AS ALREADY MENTIONED ABOVE. I T IS 4 SEEN THAT THE APPELLANTS CONTENTION THAT HE LOSS I N QUESTION IS NOT RELATING TO THE POLY COVERS BUT TO THE OLD JUNK STORE IS CORRECT. THE SAID EXPENDITURE HAS BE EN CLAIMED UNDER THE HEAD OTHER EXPENDITURE AS IS EVID ENT FROM SCHEDULE 15 OF THE BALANCE SHEET. THE DISALLO WANCES IS MADE BY THE AO IS DELETED. THIS GROUND OF APPEA L IS ALLOWED. 10. WE ARE IN AGREEMENT WITH THE ORDER OF THE CIT ( APPEALS) IN VIEW OF THE FACT THAT THE LOSS HAD ARISEN ON SALE OF OLD JU NK STORES AND HENCE, THE SAME IS ALLOWABLE EXPENDITURE. GROUND NO.1 RAISED BY THE REVENUE IS THUS DISMISSED. 11. THE ISSUE IN GROUND NO.2 IS AGAINST THE DELETIO N OF ADDITION MADE ON CONSUMABLE STORES. THE ASSESSING OFFICER NOTED THAT THE EXPENDITURE AMOUNTING TO RS.1,81,848/- DEBITED UNDER THE HEAD CONSUMABLE STORES WAS ACTUALLY THE COST OF OLD CONSUMABLE STORES AND THE SAME WAS DISALLOWED AS IT WAS NOT SUPPORTED BY ANY DOCUMENTA RY EVIDENCE. BEFORE THE CIT (APPEALS) THE CONTENTION OF THE ASSESSEE WA S THAT THE SAID DISALLOWANCE WAS MADE WITHOUT AFFORDING ANY OPPORTU NITY TO THE ASSESSEE. IT WAS EXPLAINED BY THE LEARNED A.R. FOR THE ASSESSEE THAT THE EXPENDITURE HAD BEEN CLAIMED UNDER THE HEAD OTHER EXPENDITURE AND WAS DULY SUPPORTED BY UNIT-WISE DETAILS OF THE SAME . THE SAME WAS STATED TO BE NOT ON ACCOUNT OF WRITE OFF OF OLD CON SUMABLE STORES AS MENTIONED BY THE ASSESSING OFFICER IN THE ASSESSMEN T ORDER. THE CIT (APPEALS) VIDE PARA 6.2 HELD AS UNDER : 6.2 I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS MADE BY THE APPELLANT AND GONE THROUGH THE DETAILS FILED WH ICH WERE DULY CONFRONTED TO THE AO AS ALREADY MENTIONED ABOVE AND FIND THAT THE CLAIM OF THE APPELLANT IS C ORRECT. THE AMOUNT DEBITED REPRESENTS THE EXPENDITURE INCUR RED ON ACCOUNT OF MISCELLANEOUS CONSUMABLE STORES AND NOT ON ACCOUNT OF WRITE OFF. IT IS HENCE AN ADMISSIBLE BUSINESS EXPENDITURE. THE ADDITION OF RS. 1,88,848 /- MADE BY THE AO IS THEREFORE DELETED. THIS GROUND O F APPEAL IS ALLOWED. 5 12. THE CLAIM OF THE ASSESSEE IS THAT THE EXPENDITU RE DEBITED UNDER THE HEAD CONSUMABLE STORES WAS INCURRED ON ACCOUNT OF PURCHASE OF MISCELLANEOUS CONSUMABLE STORES AND WAS NOT ON ACCO UNT OF WRITE OFF. THE LEARNED D.R. FOR THE REVENUE HAS NOT CONTROVERT ED THE FINDING OF THE CIT (APPEALS) AND HENCE UPHOLDING THE ORDER OF THE CIT (APPEALS) WE DISMISS THE GROUND NO.2 RAISED BY THE REVENUE. 13. THE GROUND NO.3 RAISED BY THE REVENUE IS AGAINS T THE DELETION OF ADDITION OF RS.2,75,214/- ON ACCOUNT OF EXCISE DUTY . THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS MADE AN ADDITION OF RS.2,75,214/- ON ACCOUNT OF ADVANCE EXCISE DUTY PAI D AS APPEARING UNDER THE HEAD LOANS & ADVANCES. AS PER THE ASSESSING OFFICER THE SAME WAS NOT PERMISSIBLE IN VIEW OF THE PROVISIONS OF SE CTION 145A OF THE ACT AS THE SAME GOES TO THE VALUATION OF GOODS PURCHASE D OR SOLD BY THE ASSESSEE. 14. BEFORE THE CIT (APPEALS) THE ASSESSEE POINTED O UT THAT THE SAID ADVANCE EXCISE DUTY PAID WAS SHOWN UNDER THE HEAD LOANS AND ADVANCES ON THE ASSET SIDE AND WAS NOT CLAIMED AS AN EXPENDI TURE IN THE PROFIT & LOSS ACCOUNT AND HENCE THERE WAS NO BASIS FOR MAKIN G THE SAID ADDITION. SIMILARLY, ADDITION MADE IN THE PRECEDING YEAR WAS DELETED BY THE CIT (APPEALS) VICE ORDER DATED 16.7.2008. THE CIT (APP EALS) VIDE PARA 7.2 HELD AS UNDER : 7.2 I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS MADE BY THE APPELLANT AND HAVE ALSO GONE THROUGH THE ORDER OF MY PREDECES SOR IN APPEAL NO. 141/PKL/07-08 DATED 16.7.2008. MY PREDECESSOR HAS DELETED THE ADDITION MADE ON THIS ACCOUNT OBSERVING AS UNDER:- 5.2 ON PERUSAL OF THE PROFIT AND LOSS ACCOUNT, IT IS NOTICED THAT THE EXCISE DUTY OF RS. 3,31,562/- HAS NOT BEEN DEBITED TO PROF IT AND LOSS ACCOUNT. ALSO AS PER NOTES TO THE ACCOUNTS THE SALES ARE INCLUS IVE OF EXCISE DUTY, THE AO HAS NOT POINTED OUT AS TO HOW THE ADDITION IS REQUI RED UNDER THE PROVISIONS OF SECTION 145A OF THE ACT. I DO NOT FIND ANY BASI S FOR SUCH AN ADDITION. THE AO IS DIRECTED TO DELETE THE ADDITION. 6 15. WE FIND NO MERIT IN GROUND NO.3 RAISED BY THE R EVENUE WHERE THE AMOUNT OF ADVANCE EXCISE DUTY PAID HAD NOT BEEN CLA IMED AS AN EXPENDITURE ONCE THE SAID AMOUNT IS NOT DEBITED TO THE PROFIT & LOSS ACCOUNT. THERE IS NO MERIT IN THE ADDITION MADE BY THE ASSESSING OFFICER. THUS, GROUND NO.3 RAISED BY THE REVENUE I S DISMISSED. 16. THE ISSUE IN GROUND NO.4 IS AGAINST THE DELETIO N OF ADDITION OF RS.73,36,560/- ON ACCOUNT OF INTEREST CHARGEABLE O N THE INVESTMENT. THE ASSESSING OFFICER UNDER PARA 5 AT PAGE 3 OF THE ASSESSMENT ORDER HAS ENLISTED THE INVESTMENT OF RS.6,11,38,100/- MADE BY THE ASSESSEE IN THE EQUITY SHARES OF VARIOUS COMPANIES. THE ASSESSING OFFICER NOTED THAT AS PER THE REPORT OF THE AUDITOR TO THE AG(AUDIT), POI NT 3, THE INVESTMENT WAS OVER DUE FOR DISINVESTMENT AND THE RESPECTIVE P ARTIES HAD DEFAULTED IN BUY BACK OF SHARES AS PER AGREEMENTS. THE ASSE SSING OFFICER FURTHER OBSERVED THAT OUT OF RS.611.38 CRORES THE ASSESSEE HAD RECEIVED RS.55 LACS AND THE BALANCE WAS OVER DUE SINCE LONG, THOUG H THE ARBITRATION AWARDS IN ALL THE CASES HAD ALREADY BEEN RECEIVED I N FAVOUR OF THE ASSESSEE. AS PER COLLABORATION AGREEMENT, THE BORR OWER IS OBLIGED TO BUY BACK THE EQUITY HOLDING OF THE CORPORATION AT A PRE-DETERMINED RATE WHICH IS FIXED BY INCLUDING THEREIN THE ELEMENT OF INTEREST ON THE AMOUNT OF LOAN/FINANCE GIVEN. THE ASSESSING OFFICER THERE FORE HELD THAT THESE ARE THE CASES OF FINANCING THROUGH EQUITY PARTICIPA TION WHEREIN THE ASSESSEE HAD MADE ADVANCE/LOAN AND RETAINED EQUITY OF THE BORROWER. THE PROFIT ON SUCH BUY BACK TRANSACTION WAS NOT A C APITAL GAIN. IT WAS PROFIT EARNED IN THE ORDINARY COURSE OF BUSINESS OF FINANCING CARRIED BY THE ASSESSEE. THE ASSESSEE HAD CLAIMED INTEREST OF RS.14,02,35,732/- AS PAYABLE TO VARIOUS BANKS THOUGH NO INTEREST WAS REC OVERED BY THE ASSESSEE ON ITS INVESTMENT. THE ASSESSING OFFICER ALSO TOOK NOTE OF THE FACT THAT THE ASSESSEE HAD NOT TAKEN ANY STEPS TO R ECOVER THE AMOUNT AND 7 THE PRINCIPAL NOR HAD THE AG AUDIT REPORT LABELED T HEM AS BAD OR IRRECOVERABLE INVESTMENTS. THE AG MENTIONED THAT T HE QUANTUM OF RECOVERABLE AMOUNTS AND ITS IMPACT ON THE ACCOUNT O F THE COMPANY WAS NOT ASCERTAINABLE AS THE SECURITY AGAINST THESE INV ESTMENTS WAS NOT TANGIBLE. THE ASSESSING OFFICER THEREFORE RELYING UPON THE DECISION OF HONBLE HIGH COURT IN THE CASE OF ABHISHEK IND., 28 6 ITR 1 DISALLOWED INTEREST AMOUNTING TO RS.73,36,560/- @ 12% ON INVES TMENT OF RS.611.38 LACS. 17. THE SUBMISSIONS MADE BY THE ASSESSEE BEFORE THE CIT (APPEALS) ARE SUMMARIZED UNDER PARA 7.1 AT PAGES 9 TO 13 OF THE A PPELLATE ORDER WHICH ARE NOT BEING REPRODUCED FOR THE SAKE OF BREVITY BU T ARE REFERRED TO FOR DECIDING THE ISSUE OF THE PRESENT APPEAL. THE CIT (APPEALS) VIDE PARA 7.2 OBSERVED THAT THE ASSESSEE HAD UNDOUBTEDLY MADE INVESTMENT BY WAY OF EQUITY PARTICIPATION IN CERTAIN CONCERNS WHEREIN DISINVESTMENT WAS OVER DUE. THE CASE OF THE ASSESSING OFFICER WAS TH AT THE ASSESSEE SHOULD HAVE BEEN TAKEN NECESSARY STEPS TO RECOVER THE SAID INVESTMENT AS PER CLAUSE 25 OF THE AGREEMENT. THE ASSESSING OFFICER FURTHER HAD OBSERVED THAT IN CASE THE AMOUNT OF INVESTMENT OF RS.611.38 LACS WAS RECOVERED AND INVESTED THE SAME WOULD REDUCE THE INTEREST COS T OF THE ASSESSEE AND HENCE DISALLOWANCE WAS WORKED OUT ON THE SAID INVES TMENT OF RS.611..38 LACS BEING NOT UTILIZED FOR THE BUSINESS. THE CIT (APPEALS) NOTES THE CONTENTION OF THE ASSESSEE THAT THE AFORESAID AMOUN TS IN QUESTION WERE NOT RECOVERABLE AS DESPITE THE ARBITRATION AWARD IN FAVOUR OF THE ASSESSEE NO AMOUNT HAD BEEN RECOVERED SO FAR. THE INVESTMEN T HAD BEEN MADE BY THE ASSESSEE AS PART OF THE ASSISTED SECTOR AGREEME NT AND NONE OF THE COMPANIES WERE SISTER CONCERNS OF THE ASSESSEE. TH E CIT (APPEALS) HELD THAT THERE WAS MERIT IN THE SUBMISSIONS OF THE ASSE SSEE THAT IT WAS NOT BECAUSE OF NON ACTION ON ITS PART THAT THE AMOUNT I N QUESTION HAD NOT 8 BEEN RECOVERED AS OUT OF TOTAL INVESTMENT IN 18 CAS ES ARBITRATION AWARD IN 17 CASES HAD BEEN RECEIVED AND EXECUTION PROCEED INGS HAD STARTED IN ALL THE CASES. AS ALL THE CASES WERE SUB-JUDICE I N NATURE, NO APPRECIATION OR DEPRECIATION COULD BE REFLECTED IN TERMS OF FINANCIAL COLLABORATION AGREEMENT WITH THE SAID CONCERN. THE CIT (APPEALS) FURTHER HELD THAT THESE WERE NOT THE CASES OF FINAN CING THROUGH EQUITY PARTICIPATION THOUGH FINANCIAL ASSISTANCE HAD BEEN PROVIDED IN TERMS OF ASSISTED SECTOR AGREEMENTS WHICH WAS AIMED AT THE G ROWTH OF AGRICULTURAL SECTOR INDUSTRY IN THE STATE OF HARYAN A BY ASSISTING IN INVESTING IN THE EQUITY OF UNITS BEING SET UP FOR T HE GROWTH OF AGRICULTURAL SECTOR. THE CIT (APPEALS) HAS FURTHER HELD THAT THE EQUITY PARTICIPATION IN THE SAID CONCERNS WAS NOT OUT OF T HE BORROWINGS BY THE ASSESSEE AND THE INTENTION OF THE ASSESSEE WAS NOT TO EARN INTEREST BUT TO PROMOTE AGRICULTURAL SECTOR BASED INDUSTRY. FURTHE R IT WAS NOTED BY THE CIT (APPEALS) THAT THE AFORESAID COMPANIES WERE NOT LISTED COMPANIES AND HENCE THE EQUITY IN THE SAID COMPANIES WERE NOT EASILY SALEABLE IN THE MARKET. THE CIT (APPEALS) THUS HELD AS UNDER : IN VIEW OF THE FACT THAT THE APPELLANT IS NOT ABLE TO EVEN EXECUTE THE ARBITRATION AWARDS WHICH HAVE ALRE ADY BEEN GIVEN IN ITS FAVOUR, THE INVESTMENT SO MADE CA N AT THE MOST BE TERMED AS BAD INVESTMENTS BUT NO FURTHE R DISALLOWANCES CAN BE MADE ON ACCOUNT OF THESE LOSS ES WHICH THE APPELLANT HAS SUFFERED ON ACCOUNT OF ITS POLICIES. AS THE RECOVERY OF THE PRINCIPAL AMOUNT ITSELF IS IN DOUBT, AND NONE OF THE COMPANIES IN WHICH THE INVESTMENT HAS BEEN MADE ARE SISTER CONCERNS OF THE APPELLANT AND NONE OF THE INVESTMENT HAS BEEN HELD TO BE NON BUSINESS ADVANCES, THERE IS NO JUSTIFICATION TO MAKE A DISALLOWANCES OUT OF THE INTEREST PAID/PAYABLE BY T HE APPELLANT U/S 36(1)(III) BY RELYING UPON THE DECISI ON OF HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF ABHISHEK INDUSTRY (SUPRA). IN VIEW OF THE AFORESAI D DISCUSSION, IT IS HELD THAT THE EQUITY PARTICIPATIO N BY THE APPELLANT IN THE 18 COMPANIES AS MENTIONED BY THE A O ASSISTED SECTOR AGREEMENTS IS NOT IN NATURE OF FINA NCIAL ON WHICH THE INTEREST IS RECOVERABLE. THE EQUITY PARTICIPATION, AS SUBMITTED BY THE APPELLANT IS WIT H THE PURPOSES OF PROMOTION OF GROWTH OF AGRO BASED INDUS TRY IN THE STATE OF HARYANA. THE EQUITY PARTICIPATION IS IN TERMS 9 OF THE POLICY OF THE APPELLANT. IT CANNOT BE TREAT ED AS AN INTEREST FREE ADVANCE MADE FOR NON BUSINESS PURPOSE S SO AS TO ATTRACT THE DISALLOWANCES OF INTEREST U/S 361 )(III) OF THE ACT. THEREFORE, THE DISALLOWANCES MADE BY THE AO IN THIS REGARD IS HELD TO BE NOT JUSTIFIED AND IS DELETED. 18. THE CIT (APPEALS) VIDE PARA 7.3 FURTHER HELD AS UNDER : 7.3 MOREOVER, THE LOAN RAISED BY THE APPELLANT FOR WHICH THE INTEREST HAS BEEN PAID HAS BEEN RAISED FOR THE PURPOSES OF CREATION OF FIXED ASSETS AND HAVE NOT B EEN UTILIZED FOR MAKING THESE INVESTMENT. THEREFORE, O N THIS ACCOUNT ALSO NO DISALLOWANCE OF INTEREST PAYABLE BY THE APPELLANT IS JUSTIFIED. THIS GROUND OF APPEAL IS A LLOWED. 19. THE DISALLOWANCE OF INTEREST WAS MADE BY THE AS SESSING OFFICER IN VIEW OF THE INVESTMENT BY THE ASSESSEE COMPANY IN E QUITY OF DIFFERENT CONCERNS TOTALING RS.611.38 LACS. THE SAID INVESTM ENTS WERE MADE BY THE ASSESSEE IN ITS ROLE OF NODAL AGENCY OF GOVERNM ENT OF HARYANA TO PROMOTE THE AGRICULTURE SECTOR BASED INDUSTRY. THE INVESTMENT WAS MADE IN SUCH CONCERNS WHICH WERE NOT LISTED COMPANIES. THE ASSESSEE HAD ENTERED INTO BUY BACK AGREEMENTS WITH THE SAID CONC ERNS, AS PER WHICH THE INVESTMENTS WERE OVER DUE FOR RECOVERY. THE CA SE OF THE ASSESSEE WAS THAT THE AMOUNT IN QUESTION COULD NOT BE RECOVE RED DESPITE ARBITRATION AWARDS BEING AWARDED IN FAVOUR OF THE A SSESSEE. OUT OF TOTAL INVESTMENT IN 18 CASES, ARBITRATION AWARD IN 17 CAS ES HAD BEEN RECEIVED AND EXECUTION PROCEEDINGS HAD BEEN INITIATED IN ALL THE CASES; DESPITE ABOVE THE ASSESSEE WAS UNABLE TO RECOVER ANY PART O F INVESTMENT. FURTHER CONTENTION OF THE ASSESSEE WAS THAT AS ALL THE MATTERS WERE SUB- JUDICE AND NO APPRECIATION OR DEPRECIATION COULD BE REFLECTED IN TERMS OF FINANCIAL COLLABORATION AGREEMENT WITH THE SAID CON CERNS. FURTHER THE FINDING OF THE CIT (APPEALS) WAS THAT THE EQUITY PA RTICIPATION IN THE SAID CONCERNS WAS NOT OUT OF BORROWINGS BY THE ASSESSEE AND THE LEARNED D.R. FOR THE REVENUE HAS FAILED TO CONTROVERT THE ABOVES AID FINDING OF THE CIT (APPEALS). FURTHER FINDING OF THE CIT (APPEALS) WA S THAT NO LOANS WERE 10 RAISED FOR THE PURPOSES OF MAKING THE AFORESAID INV ESTMENT AND THE LOANS, IF ANY RAISED, WERE FOR THE PURPOSE OF CREATION OF FIXED ASSET. THE LEARNED D.R. FOR THE REVENUE HAS FAILED TO BRING ON RECORD ANY FINDING TO THE CONTRARY. IN THE TOTALITY OF FACTS AND CIRCUM STANCES OF THE CASE, WE ARE IN CONFORMITY WITH THE ORDER OF THE CIT (APPEAL S) THAT WHERE THE RECOVERY OF THE PRINCIPAL AMOUNT ITSELF WAS IN DOUB T AND THE INVESTMENT WAS MADE IN COMPANIES, WHICH WERE NOT SISTER CONCER NS OF THE ASSESSEE AND NONE OF THE INVESTMENT MADE BY THE ASSESSEE WER E HELD TO BE NON- BUSINESS ADVANCES, NO DISALLOWANCE IS WARRANTED U/S 36(1)(III) OF BY RELYING UPON THE RATIO LAID DOWN BY THE HON'BLE PUN JAB & HARYANA HIGH COURT IN ABHISEK INDUSTRIES (SUPRA). WE UPHOLD THE ORDER OF THE CIT (APPEALS) THAT THE EQUITY PARTICIPATION MADE BY THE ASSESSEE IN 18 CASES BY WAY OF ASSISTED SECTOR AGREEMENT WERE NOT IN THE NATURE OF FINANCING BUT WAS WITH THE PURPOSES OF PROMOTION OF AGRO BASE D INDUSTRY IN THE STATE OF HARYANA BY WAY OF EQUITY PARTICIPATION. T HE SAID INVESTMENT COULD NOT BE TREATED AS INTEREST FREE ADVANCES MADE FOR NON-BUSINESS PURPOSES. UPHOLDING THE ORDER OF THE CIT (APPEALS) WE DISMISS THE GROUND NO.4 RAISED BY THE REVENUE. 20. THE ISSUE IN GROUND NO.5 IS AGAINST THE DELETIO N OF ADDITION OF RS.50,86,680/-. THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTED THE ASSESSEE TO HAVE SHOWN A SUM OF RS.245.29 LACS AS RECOVERABLE FROM EMPLOYEES AS ON 31.3.2005 ON ACCOU NT OF SHORTAGE IN STOCK FOUND AT THE TIME OF DELIVERY, WHICH HAD INCR EASED TO RS.423.89 LACS AS ON 31.3.2006. THE ASSESSING OFFICER HELD T HAT THE FUNDS TO THE EXTENT OF RS.423.89 LACS WERE LOCKED FOR NON BUSINE SS PURPOSES AS NO RECOVERY HAD BEEN MADE FROM THE EMPLOYEES. NOTING THE ASSESSEE TO HAVE SHOWN AN INCREASE IN THE INTEREST EXPENDITURE AT RS.14.08 CRORES, MADE DISALLOWANCE OF INTEREST AMOUNTING TO RS.50,86 ,680/- ON ACCOUNT OF 11 INTEREST @ 12% OF RS.423.89 LACS. THE ASSESSEE EXP LAINED THE PROCEDURE FOR RECOVERY FROM THE EMPLOYEES BEFORE THE CIT (APP EALS) AS UNDER : 6.3 THAT IT IS FURTHER CLARIFIED THAT THE ASSESSEE IS AN ARTIFICIAL JURIDICAL PERSON BEING A GOVT. CORPORATI ON INCORPORATED UNDER THE COMPANIES ACT, 1956. THAT ACCORDINGLY ALL THE STOCKS ARE MANAGED BY THE EMPLO YEES OF THE ASSESSEE AND ON BEING COMING TO KNOW THAT TH E EMPLOYEES HAVE EITHER PILFERED THE STOCKS OR OTHERW ISE THERE ARE SHORTAGES IN THE STOCKS THE SAME ARE SHOW N AS RECOVERABLE FROM THE EMPLOYEES FOR PROPER ACCOUNTIN G AND MEMORANDA PURPOSES INSTEAD KEEPING IN STOCK DETAILS WHICH DOES NOT EXIT. 21. THE SECOND LIMB OF ARGUMENTS OF THE ASSESSEE WA S AS UNDER : IN FACT THE ASSESSEE IS AT LOSS THAT NEITHER IT CA N RECOVER THE AMOUNT UNLESS ALL LAWS OF THE LANDS ARE COMPLIED NOR CLAIM THE EXPENDITURE AS LOSS ON SHORT AGE. 22. WE ARE IN AGREEMENT WITH THE ORDER OF THE CIT ( APPEALS) IN VIEW OF THE FACT THAT THE RECOVERY OF THE AMOUNT DUE FROM E MPLOYEES WAS TO BE MADE UNDER THE PRESCRIBED RULES AND PROCEDURES AND NO AMOUNT OF INTEREST CAN BE RECOVERED ON SUCH OUTSTANDING DUES UNLESS IT WAS SO PROVIDED UNDER THE RULES OF THE ORGANIZATION. THE GROUND NO.5 RAISED BY THE REVENUE IS THUS DISMISSED. 23. THE REVENUE HAS RAISED UNDER MENTIONED GROUNDS OF APPEAL IN ASSESSMENT YEAR 2007-08: 1. WHETHER ON FACTS AND THE CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) IS RIGHT IN DELETING AN ADDITION OF RS. 4,24,11750/- DESPITE THE FACT THAT THE SUM HAS BEEN SHOWN AS PRO VISION FOR DOUBTFUL DEBTS IN THE BALANCE SHEET AND CLAIMED AS AN EXPENSE ON ACCOUNT OF BAD AND DOUBTFUL DEBTS AND ADVANCE WR ITTEN OFF IN P&L ACCOUNT IS DISALLOWED AS A BUSINESS EXPENDIT URE DURING THE YEAR? 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) IS RIGHT IN DELETING AN ADDITION OF RS. 1,88,000/- ON ACCOUNT OF CONSUMABLE STORES DESPITE THE FACT TH AT THE AMOUNT IS ACTUALLY THE COST OF OLD CONSUMABLE STORE S WRITTEN OFF? 3. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) IS RIGHT IN DELETING THE ADDITION OF RS. 73,36,650/- 12 ON ACCOUNT OF INTEREST CHARGEABLE ON INVESTMENT BY THE ASSESSEE COMPANY. 4. IT IS PRAYED THAT THE ORDER OF THE LD. CIT(A) BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. 24. THE ISSUE IN GROUND NO.3 RAISED BY THE REVENUE IS IDENTICAL TO THE ISSUE RAISED VIDE GROUND NO.4 IN ITA NO.530/CHD/201 1 AND FOLLOWING OUR DISCUSSION IN RESPECT OF THE AFORESAID GROUND R AISED IN ASSESSMENT YEAR 2006-07 WE DISMISS GROUND NO.3 RAISED BY THE R EVENUE IN ASSESSMENT YEAR 2007-08. 25. THE ISSUE RAISED IN GROUND NO.2 IS IDENTICAL TO THE ISSUE RAISED VIDE GROUND NO.2 IN ITA NO.530/CHD/2011/ THE GROUND NO. 2 RAISED BY THE REVENUE IN ASSESSMENT YEAR 2007-08 IS ALSO DISMISSE D. 26. THE ISSUE IN GROUND NO.1 RAISED BY THE REVENUE IS AGAINST THE DELETION OF ADDITION OF RS.4.24 CRORES. THE ASSESS EE DURING THE YEAR UNDER CONSIDERATION HAD MADE PROVISIONS FOR DOUBTFU L ADVANCES AMOUNTING TO RS.4.24 CRORES. THE EXPLANATION OF TH E ASSESSEE BEFORE THE ASSESSING OFFICER WAS AS UNDER : AS REGARDS PROVISIONS OF DOUBTFUL ADVANCES AMOUNTING TO RS.4,24,41,790/- IN THE BALANCE SHEET, IT IS SUBMITTED THAT THE ASSESSEE SUFFERED LOSS ON ACCOUN T OF SHORTAGE IN THE 2004-05 AND 2005-06 WHICH WERE SHOW N AS RECOVERABLE FROM THE EMPLOYEES AND SUBSEQUENTLY DUE TO VARIOUS FACTORS THE ASSESSEE HAS WRITTEN OFF THE AM OUNT AS BAD AND DOUBTFUL DEBTS AND ADVANCES WRITTEN OFF IN SCHEDULE 14 AND THERE IS NO PROVISION IN THE ACCOUN T. THE PROVISION USED IN SCHEDULE 6 IS TECHNICAL MISTAKE A ND THE ONLY INTENTION WAS TO WRITE OFF THE SAME AND TO TRE AT THE RECOVERIES IN THE YEAR OF RECEIPT. THE FACT CAN BE VERIFIED FROM SCHEDULE 14 AT PAGE 39 AND PARA 14 OF SCHEDULE 19. NOTES ON ACCOUNT AT PAGE 52 OF THE ANNUAL REPORT. IT IS AGAIN CLARIFIED THAT THE ASSESSEE HAS WRITTEN OFF T HE AMOUNT U/S 36 OF THE ACT AND THE USE OF WORD PROVIS ION IN SCHEDULE 6 IS A TECHNICAL MISTAKE. 27. THE ASSESSING OFFICER, HOWEVER, REJECTED THE CL AIM OF THE ASSESSEE AND ADDED THE SAME TO THE INCOME OF THE ASSESSEE. AS THE ASSESSEE HAD INCURRED ABOVESAID LOSS ON ACCOUNT OF SHORTAGE OF S TOCK DURING THE 13 ASSESSMENT YEARS 2005-06 AND 2006-07 WHICH WAS NOT CLAIMED AS LOSS DURING THE SAID YEARS AND THE ASSESSEE HAS SHOWN TH E SAME AS LOANS AND ADVANCES RECOVERABLE FROM THE EMPLOYEES. THE SAID EXPENSES WERE ALSO HELD TO BE OF PRIOR PERIOD EXPENSES NOT ALLOWABLE A S THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. 28. BEFORE THE CIT (APPEALS) THE CONTENTION OF THE ASSESSEE WAS THAT THE AMOUNT HAD BEEN WRITTEN OFF AND THERE WAS NO PR OVISION DURING THE YEAR UNDER APPEAL. THE SAID AMOUNT IN QUESTION WAS ON ACCOUNT OF CURRENT AMOUNT WRITTEN OFF ON ACCOUNT OF SHORTAGE S UFFERED BY THE ASSESSEE DURING ASSESSMENT YEARS 2004-05 AND 2005-0 6, WHICH WAS SHOWN AS RECOVERABLE FROM THE EMPLOYEES BUT WAS WRI TTEN OFF DURING THE YEAR UNDER APPEAL. THE LEARNED A.R. ALSO RAISED SE VERAL CONTENTIONS AGAINST VARIOUS REASONS GIVEN BY THE ASSESSING OFF ICER IN THE ASSESSMENT ORDER FOR REJECTING THE CLAIM OF THE ASS ESSEE PARAWISE WHICH ARE INCORPORATED UNDER PARA 4.2 AT PAGES 4 TO 8 OF THE APPELLATE ORDER AND THE SAME ARE NOT BEING REPRODUCED FOR THE SAKE OF B REVITY. RELIANCE WAS PLACED ON THE RATIO LAID DOWN BY THE TRIBUNAL IN PU NJAB STATE WAREHOUSING CORPORATION VS. ACIT CIRCLE 2(1) CHANDI GARH IN ITA NO.204 & 311/CHANDI/2008, VIDE WHICH A SIMILAR ISSU E HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE. THE CIT (APPEALS) HELD AS UNDER : 4.7 I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS MA DE AND ALSO THE FACTS OF THE CASE. AS PER THE DETAILS FILED IT IS SEEN THAT THE BAD DEBTS WRITTEN OFF PRIMARILY ARE O N ACCOUNT OF RECOVERABLE FORM EMPLOYEES. HOWEVER, DEBTS MENTION ED AT S.NO. (III), (V) AND (VI) IN PARA 4.4 ARE ON OTHER ACCOUNTS UNCLAIMED LIABILITIES & SECURITIES, OTHER SHORTAGE, PETTY SHORTAGES. HOWEVER, AS THE BASIC PRINCIPLE TO ALLO W / DISALLOW A BAD DEBT IS THE SAME ALL OF THESE ARE BEING DEALT TOGETHER. IT IS SEEN THAT THE ASSESSING OFFICER WHILE REJECTING THE CLAIM OF THE APPELLANT HAS GIVEN VARIOUS REASONS FOR THE SAM E WHICH HAVE BEEN EXPLAINED BY THE APPELLANT VIDE HIS SUBMI SSIONS AS DETAILED ABOVE. THE DIFFERENCE IN AMOUNT SHOWN AS RECOVERABLE FROM EMPLOYEES AS ON 31.3.2006 (RS. 423 .89 LACS) AND AMOUNT WRITTEN OFF DURING THE YEAR 4,24,11,750/ - HAS BEEN RECONCILED AND EXPLAINED. THE ASSESSING OFFICERS 14 OBSERVATION THAT THE AMOUNT SHOULD HAVE BEEN WRITTE N OFF DURING THE YEAR IN WHICH THE SHORTAGES WERE DISCOVE RED AND THAT THE EXPENSE REPRESENTS PRIOR PERIOD EXPENDITUR E DOES NOT HAVE ANY MERIT. IT IS FOR THE APPELLANT TO DECIDE BASED ON ITS RULES AND REGULATIONS AND THE STATUS OF RECOVERY PR OCESS AS TO WHETHER AND WHEN THE AMOUNT IN QUESTION IS TO BE WR ITTEN OFF. THIS CANNOT BE AS REASON TO REJECT THE APPELLANTS CLAIM FOR BAD AND DOUBT DEBTS. THE ASSESSING OFFICER HAS NOT DISPUTED THAT THE AMOUNT IN QUESTION HAS ACTUALLY BEEN WRIT TEN OFF AND IT IS NOT A PROVISION AS MENTIONED IN APPELLANTS CLAIM DUE TO TECHNICAL ERROR. FURTHER, THE ASSESSING OFFICER HAS STATED THAT THE AMOUNT HAS BEEN WRITTEN OFF WITHOUT THE AP PROVAL OF THE BOARD OF DIRECTOR OF THE CORPORATION WHICH IN F ACT IS FACTUALLY INCORRECT AS THE AMOUNT HAS BEEN WRITTEN OFF WHILE FINALIZING THE ANNUAL ACCOUNTS OF THE APPELLANT WHI CH HAVE BEEN DULY APPROVED BY THE BOARD OF DIRECTORS AND SUBSEQUENTLY ARE DULY AUDITED BY THE C&AG. MOREOVE R, THERE IS NO SUCH REQUIREMENT US/ 36(1)(VII) OF THE ACT TH AT A SPECIFIC RESOLUTION IN THIS REGARD NEEDS TO BE PASSED. 4.8 THUS, WHAT EMERGES FROM THE ABOVE DISCUSSION IS THAT THE DEBTS IN QUESTION HAVE ARISEN IN THE COURS E OF THE ASSESSEES BUSINESS AND ARE GENUINE. FURTHER, THE AMOUNTS IN QUESTION HAD BEEN SHOWN AS INCOME IN THE RESPECT IVE YEARS AND HAVE BEEN WRITTEN OFF AS IRRECOVERABLE DURING T HE YEAR. IT IS ALSO NOT CONTROVERTED BY THE AO THAT THE ASSE SSEE HAS DECIDED TO TREAT SUCH SUM AS IRRECOVERABLE DURING T HE YEAR UNDER CONSIDERATION AND THUS THE SAID DEBT IS LIAB LE TO BE CONSIDERED WHILE COMPUTING THE BUSINESS INCOME OF T HE ASSESSEE. IT HAS BEEN HELD BY THE HON'BLE BOMBAY H IGH COURT IN THE CASE OF CIT V. STAR CHEMICALS BOMBAY P VT LTD, 220 CTR 319 THAT IN VIEW OF THE AMENDMENT TO SECTIO N 36(1)(VII) BY THE AMENDMENT ACT, 1987 AND THE CIRCU LAR NO. 551 DATED 23.1.1990 THAT IF THE ASSESSEE HAS WRITTE N OFF THE DEBT AS BAD DEBT IT WOULD SATISFY THE PURPOSE OF SE CTION 36(1)(VII) OF THE ACT. THE HON'BLE HIMACHAL PRADES H HIGH COURT IN THE CASE OF SURESH GAGGAL V. ITO 180 TAXMA N 90 HAS HELD THAT PRIOR TO THE AMENDMENT OF SECTION 36( 10(VII) WITH EFFECT FROM 1.4.1989 THE ASSESSEE COULD CLAIM DEDUCTION ON ACCOUNT OF BAD DEBT, ONLY IF IT WAS ESTABLISHED THAT ANY DEBT OR PART THEREOF HAD BECOME A BAD DEBT IN THE P REVIOUS YEAR. THE LEGISLATURE IN ITS WISDOM CHOSE TO AMEND THE ACT AND THE AMENDED PROVISION IS ABSOLUTELY CLEAR THAT ONCE THE ASSESSEE WRITES OFF ANY BAD DEBT OR ANY PART THEREO F AS BEING IRRECOVERABLE, THE ASSESSEE IS ENTITLED TO CLAIM DE DUCTION FOR THE SAME. THE WORD ESTABLISHED HAS BEEN DELETED FROM THE AMENDED PROVISION. THE INTENTION OF THE LEGISLATUR E IS ABSOLUTELY CLEAR THAT THE ASSESSEE IS NO LONGER REQ UIRED TO ESTABLISH THAT THE DEBT IS BAD. HE HAS ONLY TO PRO VE THAT HE HAS WRITTEN OFF THE DEBIT IN HIS BOOKS OF ACCOUNT A S A BAD DEBT. ONCE HE WRITES OFF THE DEBT AS BEING IRRECOV ERABLE, HIS CLAIM FOR DEDUCTION CANNOT BE REJECTED. ANY DOUBT, IF REMAINING HAS BEEN CLARIFIED BY THE CIRCULAR NO. 55 1 DATED 23.1.1990 (1990) 823 CTR (ST) 325} ISSUED BY CBDT. 4.9 THEREFORE THERE IS NO REASON TO REJECT THE CLAI M OF THE APPELLANT. MOREOVER, THE APPELLANT HAS DRAW N 15 ATTENTION TO PARA 14 OF NOTES ON ACCOUNT VIDE WHICH IT HAS BEEN MENTIONED THAT THE AMOUNT RECOVERED FROM THE EMPLOYEES SHALL BE TREATED AS INCOME OF THE YEAR IN WHICH THE RECOVERY IS EFFECTED. THEREFORE ON ALL ACCOUNTS TH E AMOUNT IN QUESTION IS ALLOWABLE AS BAD DEBT WRITTEN OFF. SUPPORT IN THIS REGARD IS DRAWN FROM THE DECISION OF HON'BLE I TAT CHANDIGARH IN THE CASE OF PUNJAB WAREHOUSE CORP WHI CH HAS BEEN APPROVED BY THE HON'BLE JURISDICTIONAL HIGH CO URT WHEREIN THE HON'BLE ITAT HAS ALLOWED THE WRITE OFF OF RECOVERABLE FROM EMPLOYEES OBSERVING AS UNDER:- 31. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFULLY. THE CIT(A) IN PARA 10 OF HIS ORDER HAS BROUGHT OUT THE FACTUAL CONTOURS OF THE IMPUGNED CLAIM, WHI CH READS AS UNDER: THE ASSESSEE HAD SHOWN AMOUNTS RECOVERABLE FROM EMPLOYEES ON ACCOUNT OF SHORTAGE AND DEFALCATION IN PADDY, WHEAT AND GUNNIES. SUCH AMOUNT HAS BEEN RECOVERABL E FROM THE EMPLOYEES WHO WERE INCHARGE, HAVING SOLE RESPON SIBILITY REGARDING THE WAREHOUSING OF PADDY, WHEAT AND GUNNI ES, DURING THE PERIOD WHEN THE SHORTAGE AND DEFALCATION S WERE DETECTED BY THE APPELLANT CORPORATION. AS AND WHEN THE SHORTAGE AND DEFALCATION WERE DETECTED, SUCH AMOUNT WAS BOOKED AS INCOME BY CREDITING IT TO THE SALES ACCOU NT AND SHOWING IT RECOVERABLE FROM THE DELINQUENT EMPLOYEE S. IT WAS FURTHER SUBMITTED THAT EVEN IF THE RECOVERY FRO M THE EMPLOYEES ARE MADE FROM THE SALARY, THE WHOLE AMOUN T CANNOT BE RECOVERED BECAUSE AS PER SERVICE RULES TH E ASSESSEE CAN DEDUCT ONLY A PART OF THE SALARY. 32. THE AFORESAID FACTUAL POSITION IS NOT IN DISPU TE. IN OUR VIEW, IN THE ABOVE BACKGROUND, THE CLAIM OF THE ASSESSEE IS CLEARLY ALLOWABLE IN TERMS OF THE REASO NING MADE OUT BY THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF OMAN INTERNATIONAL BANK (SUPRA). THE DECISION RELIED UP ON BY THE CIT(A) HAD SINCE BEEN APPROVED BY THE HON'BLE BOMBA Y HIGH COURT. IT IS NOTE WORTHY THAT THE ASSESSEE HAS MAD E OUT BEFORE THE CIT(A) THE IRRECOVERABILITY OF THE COMPL ETE AMOUNT OF DEBT IN QUESTION AND ALSO THE FACT THAT T HE DEBT HAD BEEN OFFERED AS INCOME IN THE EARLIER ASSESSMEN T YEARS. FURTHER, IT IS ALSO CLEAR THAT AS AND WHEN RECOVERI ES ARE EFFECTED FROM THE CONCERNED EMPLOYEES, THE SAME WOU LD BE TAXABLE IN TERMS OF SECTION 41(1) OF THE ACT. THER EFORE CONSIDERING THE ENTIRETY OF FACTS AND CIRCUMSTANCES AND TAKING INTO ACCOUNT THAT THE CLAIM OF THE ASSESSEE IS ON BONAFIDE CONSIDERATION, THE CIT(A) WAS JUSTIFIED IN ALLOWING THE WRITE OFF U/S 36(1)(VII) OF THE ACT. THE SAME IS HEREBY AFFIRMED. IN VIEW OF THE AFORE SAID DISCUSSION, THE CLAIM OF THE APPELLANT IS ALLOWED AND THE ADDITION OF RS. 4,24,1 1,750/- MADE BY THE AO IS DELETED. THIS GROUND OF APPEAL I S ALLOWED. 16 29. WE ARE IN AGREEMENT WITH THE ORDER OF THE CIT ( APPEALS). THE LEARNED D.R. FOR THE REVENUE HAS FAILED TO CONTROV ERT THE FINDING OF THE CIT (APPEALS). UPHOLDING THE SAME WE DISMISS GROU ND NO.1 RAISED BY THE REVENUE IN ASSESSMENT YEAR 2007-08. 30. IN THE RESULT, BOTH THE APPEALS FILED BY THE RE VENUE RELATING TO ASSESSMENT YEARS 2006-07 AND 2007-08 ARE DISMISSE D ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH DAY OF AUGUST, 2011. SD/- SD/- (MEHAR SINGH) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 30 TH AUGUST, 2011 RATI COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT(A)/TH E CIT/THE DR. TRUE COPY BY ORDER ASSISTANT REGISTRAR, ITAT, CHANDIGARH