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Income Tax Appellate Tribunal, MUMBAI BENCH “B”, MUMBAI
Before: SHRI MAHAVIR SINGH & SHRI RAJESH KUMAR
Per Rajesh Kumar, Accountant Member:
The present appeal has been preferred by the assessee against the order dated 07.03.2015 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment year 2012-13.
In the ground No.1 & 2, the assessee has challenged the confirmation of addition of Rs.48,75,000/- by Ld. CIT(A) as made by the AO on the ground of notional interest on loan of Rs.5 crore advanced to M/s. Gulmohar Park Pvt. Ltd.
The facts in brief are that the AO during the course of assessment proceedings observed that assessee has debited to 2 M/s. BLB Ball Management Co. Pvt. Ltd. the P&L account Rs.5 crore as exceptional item and accordingly called upon the assessee to furnish the details thereof. The assessee submitted before the AO that the said amount represented the write off of the loan given to M/s. Gulmohar Park Pvt. Ltd. The AO also called for the balance sheet of M/s. Gulmohar Park Pvt. Ltd. and verified that the said amount has been written back in the books of accounts, however, observed that no interest has been waived off by the assessee as well as shown in the books of accounts and accordingly issued a show cause to the assessee as to why the proportionate mark up interest should not be added to the income of the assessee. The assessee submitted before the AO that since the principal amount could not be recovered from M/s. Gulmohar Park Pvt. Ltd., there was no hope of recovering any interest from the said party and thus it was not provided in the books of account. The AO brushing aside the submissions of the assessee estimated the interest by applying a mark up of 1.25% on the rate charged by the bank which was 8.50% and thus applied the rate of 9.75% thereby calculating the notional addition on account of interest not provided at Rs.48,75,000/-.
In the appellate proceedings, the Ld. CIT(A) dismissed the appeal of the assessee by holding that the assessee could not furnish even a single document or correspondence between the assessee and M/s. Gulmohar Park Pvt. Ltd. qua the loan advanced in the appellate proceedings despite specific direction to the assessee. The Ld. CIT(A) also noted that the loan was written off within a year before the expiry of the period for which it was granted and the assessee has failed to produce even a single document to prove that efforts were made to recover the
After hearing both the parties and perusing the material on record, we observe that in this case the loan has been advanced by the assessee to M/s. Gulmohar Park Pvt. Ltd. of Rs. 5 crore at a mark up interest of 1.25% on the interest which was payable to the bank by the assessee. The said loan was written off by the assessee in the books of accounts of the assessee as exceptional item. However, the dispute is only with regard to the interest not provided on the said loan in the books of accounts which was calculated by the AO at Rs.48,75,000/- by applying 9.75% calculated at a mark up of 1.25% on the interest rate of 8.5% paid by the assessee to the Union Bank of India. As per the AO’s version the assessee has not waived off the interest and therefore it has to be provided in the books of accounts and also that no documentary evidences were filed when specifically called upon by the AO. Similarly, the Ld. CIT(A) called upon the assessee during the appellate proceedings to furnish the evidences in this regard, however, the assessee could not furnish any evidence in support of his defence. Under these circumstances, we are in opinion that assessee should be given one more chance to defend itself. Accordingly, the issue is restored to the file of the AO with the direction to decide the same as per facts and law after a reasonable opportunity to the assessee and the assessee is also directed to produce the necessary evidences.
Ground No.1 is allowed for statistical purposes.
4 M/s. BLB Ball Management Co. Pvt. Ltd. 7. The issue raised in 2nd ground of appeal is against the disallowance of Rs.67,94,000/- by Ld. CIT(A) as made by the AO on account of provision for bad debts amounting to Rs.67,94,000/-.
The facts in brief are that during the course of assessment proceedings assessee vide letter dated 25.02.2014 requested the AO to allow a deduction of Rs.67,94,000/- under section 36 of the Act as bad debt which he has added back in the computation of income filed along with the income tax return. The AO observed that assessee has debited the said amount as provision for doubtful debts in the P&L account and rightly added back the same while computing the income as the same is not allowable under section 36 of the Act and thus rejected the claim of the assessee.
In the appellate proceedings, the Ld. CIT(A) dismissed the appeal of the assessee by holding that the assessee has never written off the debts which has been claimed as bad in the books of accounts nor proved that it was offered for taxation in the earlier year. The Ld. CIT(A) observed that assessee has only made provision for bad debts and it was not proved by the assessee that debt has actually become bad during the year and thus dismissed the appeal of the assessee.
After hearing both the parties and perusing the material on record, we observe that though the assessee has debited the provision for doubtful debts of Rs.67,94,635/- under the head “Other expenses” detail whereof is filed at page No.24 of the paper book but the same was reduced from the trade receivable
5 M/s. BLB Ball Management Co. Pvt. Ltd. in schedule 13 filed at page No.22 of the paper book. In other words the assessee has reduced the trade receivable by the corresponding amount and shown the net amount in the balance sheet. We further find from the perusal of page No.54 to 59 which are the details in respect of 20 parties qua whom these debts were due and recoverable but written off in the books of accounts when the assessee lost the hope of recovery after making due efforts. The assessee has also given the period for which these amounts were outstanding and reasons for writing off along with the efforts made for recovery. It is also proved that the said items of claim have already been routed through P&L account in the earlier years. The case of the assessee also finds favour from the decision of the Apex Court in the case of Vijay Bank vs. CIT (2010) 323 ITR 166 and accordingly under these circumstances, we are not in agreement with the conclusion drawn by the Ld. CIT(A) that these can not be allowed when the assessee has claimed these as provision for debts. In our opinion these are the actual debts written off by the assessee during the year as is apparent from the audited financial statements of the assessee and therefore are allowable as bad debts. Accordingly, we set aside the order of Ld. CIT(A) and direct the AO to allow these bad debts.
Appeal is partly allowed for statistical purposes.
Order pronounced in the open court on 09.08.2019.