SPECTOMS ENGINEERING PVT.LTD.,,BARODA vs. THE INCOME TAX OFFICER,WARD-4(3),, BARODA

The assessee has raised following grounds of appeal:- ITA NO. 06/Ahd/2011 Assessment Year 2006-07 “1.0 The learned Commissioner of Income Tax (Appeals) erred in law and on facts has restricted the disallowance on account of Bad Debts to Rs.33,90,768/-under section 36(1)(vii) of the I T Act. The learned Commissioner of Income Tax (Appeals) ought to have appreciated that the appellant has actually written off the debts as bad in its books of account during the year.

0 The learned Commissioner of Income Tax (Appeals) erred in law and on facts has confirmed the disallowance on account of interest on loans to associate concerns to the extent of Rs. 12,04,742/- without considering the facts of the case in right spirit.

0 The learned Commissioner of Income Tax (Appeals) has erred in law and on facts in confirming the additions to the extent of Rs.25,000/- out of total additions of Rs.50,000/- made on account of General Expenses on estimated basis.

0 The learned Commissioner of Income Tax (Appeals) erred in law and on facts has dismissed the ground relating to the initiation of penalty proceedings under section 271 (1)(c) of the I T Act.

0 The learned Commissioner of Income Tax (Appeals) has erred in law and on facts in confirming the charging of interest under section 234B, 234C and 234D of the Income Tax Act, 1961.”

The brief facts of the case as per the issue involved in the grounds of appeal are as under:-

The assessee has filed return of income declaring income of Rs.15,160/-.During the course of assessment proceedings u/s. 143(3) the assessing officer noticed that assessee has claimed bad debt to the amount of Rs. 66,90,942/-. The assessing officer has declined the claim amount of bad debt on the ground that the assessee failed to prove that the debt has become bad in that particular year. Therefore, bad debt claim was disallowed. Aggrieved assessee filed

We have heard rival contention and perused the material on record carefully. The assessing officer has disallowed the bad debt claim of the assessee of Rs. 66,90,942/- on the ground that assessee had failed to provide sufficient reasons for writing off this debt as bad

During the course of assessment proceedings the assessing officer noticed that assessee had given loan and advances to its sister concerns to the tune of Rs. 1,33,33,689/- as on 31st March, 2007 but not charged any interest. Therefore, the assessing officer has charged notional interest @ 12% of Rs.16,00,763 on the balance of outstanding loan on the ground that interest bearing funds were advanced to its sister concerns.

Aggrieved assessee preferred appeal before the ld. CIT(A). The ld. CIT(A) has sustained the addition to the extent of Rs. 12,04,742/- after excluding the interest charged of Rs.1,56,262 on the customer balance representing sale made earlier year of Rs. 13,02,182/-.The ld. CIT(A) has sustained the part of the addition on the ground that assessee had given interest bearing funds to its sister concerns on which it was paying interest to the bank.

We have heard rival contentions and perused the material on record carefully. We observed that assessee has provided a loan to its sister concern as supra in this order of Rs. 1,33,39,689/-. The assessee has charged interest on the above loan from the assessment year 2002-03 to 2005-06. The assessee has stopped charging interest on the aforesaid loan on the reasoning that preceding year interest was not recovered. On an analysis of the accounts, it came to our notice that assessee has availed loan from the banks and forwarded this loan to sister concern from whom it has not recognized the interest income on the ground that sister concern has stopped paying any interest to the assessee. It is pertinent to observe that the assessing officer has not doubted the genuineness of the transaction i.e. taking loan from the banks and forwarding it to the sister concern. The assessing officer has not made any inquiry whether interest expenditure relatable to the loan’s deduction from the accounts and given to the sister concern is an allowable deduction or not in the present scenario? We further find that assessee has been following mercantile system of accounting and agreed that system while recognizing the interest income on accrual basis. In the past, it has been recognized interest income, however, on account of its non-realization, assessee has claimed bad debt of those interest incomes which have been recognized on accrual basis and included in the taxable income as bad debt of the assessee of those interest incomes has been allowed by the ld. CIT(A) and not disputed by the revenue in further appeal. In assessment year and subsequent years, assessee has stopped

During the course of assessment proceedings, the assessing officer has made lump sum addition of Rs. 50,000/- out of general expenses on the ground of inadequacy of evidences. The ld. CIT(A) has deleted the addition to the extent of Rs. 25,000/- by stating that ITA Nos. 836/Ahd/2012, 06/Ahd/2011, 2627/Ahd/2012 & 562/Ahd/201 Page No 8 the assessing officer has made the disallowance without any foundation and merely on estimation basis. We have heard rival contention and the claim of the assessee that all the transactions were duly supported by documentary evidences. In view of above and after considering that the ld. assessing officer has verified the entire books of accounts, bills, vouchers etc. and not pointed out any discrepancy in unaccounted sale, expenditure etc. Therefore, we restrict the disallowance out of general expenses to Rs.10,000/- only.

Grounds of appeal no. 4&5 are of general and consequential nature therefore, same are not adjudicated.

The assessee has raised the following grounds of appeals for the other assessment years:- ITA No. 836/Ahd/2012 Assessment Year 2007-08 “1.0 The learned Commissioner of Income Tax (Appeals) erred in law and on facts has confirmed the addition on account of interest on loans to associate concerns to the extent of Rs.10,87,560/- out of the total addition of Rs.17,34,120/- without considering the facts of the case in right spirit.” ITA No. 2627/Ahd/2012 Assessment Year 2009-10 “1. The learned Commissioner of Income Tax (Appeals) erred in law and on facts has confirmed the addition on account of interest on loans to associate concerns to the extent of Rs. 8,75,437/- without considering the facts of the case in right spirit.

The learned Commissioner of Income Tax (Appeals) erred in law and on facts has dismissed the ground relating to the initiation of penalty proceedings under section 271(1)(c) of the I T Act.

The learned Commissioner of Income Tax (Appeals) has erred in law and on facts in confirming the charging of interest under section 234A, 234B, 234C and 234D of the Income Tax Act, 1961. ITA No. 562/Ahd/2014 Assessment Year 2010-11

0 The learned Commissioner of Income Tax (Appeals) has erred in law and on facts in confirming the restriction of the claim of brought forward and set off of unabsorbed business losses of the A.Y. 2008-09 to Rs. 21,38,605/-without considering the appellate orders for the said year.

0 The learned Commissioner of Income Tax (Appeals) erred in law and on acts has initiated penalty proceedings under section 271(1)(c) of the Income Tax Act, 1961 for the alleged concealment and/or furnishing of inaccurate particulars of income.

0 The learned Commissioner of Income Tax (Appeals) has erred in law and on facts in charging interest under section 234A, 234B, 234C and 234D of the Income Tax Act, 1961.”

All the above grounds of appeals except ground of appeal number 2 of ITA No. 562/Ahd/2014 are identical arising from the similar facts, therefore, our findings of adjudication as supra made on the impugned additions in the case of ITA No. 06/Ahd/2011 will be applicable to these grounds of appeal of the assessee. In respect of ground of appeal number 2 of ITA No.562/Ahd/2014, we find that ld. CIT(A) has directed the assessing officer to determine the claim of brought forward and set off of unabsorbed business loss for assessment year 2008-09 after giving effect to the appellate order. We restore this matter to the file of assessing officer to decide it afresh after examination of the claim of the assessee as per law.

In the result, all the appeals of the assessee are partly allowed.