M/S MALNAD FINANCE CORPORATION (R),BANGALORE vs. ASST.C.I.T., BANGALORE

All these 4 appeals are filed by the assessee which are directed against 4 separate orders of learned CIT (Appeals), Bengaluru-2, Bengaluru dated 04.11.2015, for the assessment years 1998-99, 2001-02 to 2003-04.

All these appeals were heard together and are being disposed by way of this common order for the sake of convenience.

In the AY 1998-99, although the assessee has raised 5 grounds of appeal, the effective grievances of the assessee is regarding addition of Rs.4,01,000/- which is made by the AO under section 68 and consequent disallowance of interest of Rs.72,180/- in respect of the deposits. In this manner, total addition made in this year is Rs.4,72,180/-.

It was submitted by learned AR of the assessee that addresses of the persons from whom deposits were received was provided by the assessee to the AO but AO did not make efforts to make verification from these persons. At this juncture, a query was raised by the bench as to whether the assessee had fulfilled its obligations of establishing the identity and credit worthiness of the persons from whom the cash credit was received and establishing the genuineness of the transactions as required under section 68. In reply, the learned AR of the assessee could not produce anything in respect of identity and credit worthiness of the persons from whom cash credit in question was received. Regarding the 2nd issue i.e., writing off of bad debts, it was submitted by learned AR of the assessee that the books of accounts of the -124/Bang/2016 Page 4 of 6 assessee were impounded in September, 2003 and therefore, the assessee could not make entries in the books of accounts for writing off of bad debts. He submitted that copy of Balance Sheet and P & L Accounts for all the 4 years are available on pages 1-22 of the paper book and from the same, it can be seen that in each of the year where the assessee has claimed deduction on account of write off of bad debts, debit has been made in the P&L account as bad and doubtful debts of Rs.16,65,400/- in AY 2001-02 as per page 8 of paper book, of Rs.36,54,400/- in 2002-03 in page 12 of paper book and Rs.16,44,820/- in AY 2003-04 as per page 22 of paper book. He has also submitted that the assessee is following cash system of accounting.

When a query was raised by the bench regarding effect of writing off of bad debts in the balance sheet, he submitted that in the balance sheet, net amount of deposit after writing off is appearing. He placed reliance on the judgment of Hon’ble Gujarat High Court rendered in the case of Vithaldas Dhanjibhari v. Commissioner of Income Tax 130 ITR 95 and pointed out that it was held by Hon’ble Gujarat High Court in this case that if an amount of bad debt is debited to P&L account by debit to P&L account and crediting Bad Debts Reserve account, it amounts to write off of bad debts. At this juncture, it was pointed out by the bench that this judgment dated 20.08.1980 is involving AY 1967-68 and 1969-70 but there are amendments in the provisions of section 36(1)(vii) and 36(2) w.e.f. 01.04.1989 and therefore, how this judgment is applicable in the present year. In reply, learned AR of the assessee had nothing to say. Learned DR of the revenue supported the orders of the authorities below. -124/Bang/2016 Page 5 of 6

I have considered the rival submissions on both the issues. Regarding the 1st issue i.e., addition made by the AO under section 68 in respect of cash credit on account of receipt of deposits by the assessee and consequent disallowance of interest on such cash credit, I find that this is a settled position of law by now that for the purpose of section 68, the burden is on the assessee to establish identity of the cash credit or and his credit worthiness and genuineness of the transactions. In the present case, the assessee has failed to carry out his obligations and hence, the burden cannot be shifted to the revenue to find out from the creditors about their identity and credit worthiness after receiving the names and addresses of the creditors. Hence, in the facts of the present case, I find no infirmity in the orders of the authorities below on this issue.

In the present case, it is seen that the books of accounts of the assessee were impounded in the month of September 2003 and therefore, the entries could be made in all the 4 years which are in dispute before me because the books of accounts were very much available with the assessee during relevant time and it is not shown by the assessee that the assessee has written off the bad debts in the books -124/Bang/2016 Page 6 of 6 of accounts. Hence, after amendments in the provision of section 36(1)(vii) w.e.f. 1.40.1989, the claim of the assessee is not allowable in the absence of actual write off in the books of accounts. The judgment of Hon’ble Gujarat High Court rendered in the case of Vithaldas Dhanjibhari v. Commissioner of Income Tax (supra) on which reliance has been placed by the learned AR of the assessee is not applicable in the present case because this judgment is for a period prior to the amendment in section 36(1)(vii). Hence, on this issue also, I find no reason to interfere in the order of the CIT(A).

In the result, all the 4 appeals of the assessee are dismissed.