Judgment :- D.V. Shylendra Kumar, J. These two set of appeals under section 260-A of the Income Tax Act, 1961 [for short 'the Act'] are by the revenue directed against the common order dated 20.07.2001 passed by the Income Tax Appellate Tribunal, Bangalore Bench in so far as it relates to ITA No.680/B/99 with reference to the assessment year 1996-97 and order relating to ITA No.916/B/2000 referable to the assessment year 1997-98. 2. The respondent – assessee is a public limited company essentially carrying on the activity of manufacture and sale of alcoholic beverage 'beer' and in terms of the Memorandum of Association of the company while this activity constitutes the main activity for which the company M/s. United Breweries Limited, as the very name suggests, had been established, incidentally also had the object of related activities as indicated in the memorandum of association of the company which read as under: 3. The objects for which the Company is established are:- (a) Primarily and without prejudice to the generality of the other objects of the Company, to purchase or otherwise acquire and take over as going concerns the businesses of Brewers and otherwise heretofore carried on under the names of the Bangalore Brewery Company at Bangalore and elsewhere, the Rose and Crown Brewery at Kaity in the District of Nilgiris and elsewhere, the Madras B.B.B. Brewery Company Limited at Madras and elsewhere, and all or any of the assets and liabilities in connection therewith, and with a view thereto to enter into and carry into effect (either with or without modification) certain articles of agreement (referred to in Article VIII of the Additions and Modifications of the Company's Articles of Association) as being proposed to be made between John Oakshott Robinson of the one part and the Company of the other part. (b) To carry on the business of Brewers and Maltsters in all its branches. (c) To carry on all or any of the business of hop merchants and growers, timber merchants and growers, malt factors, corn merchants, wine and spirit merchants, either as exporters or importers and distillers, coopers and bottlers, bottle makers, bottle stopper makers, potters, manufacturers of and dealers in aerated and mineral waters and other drinks, licensed victuallers, beer house keepers, yeast dealers, grain and produce growers, sellers and driers, isinglass merchants and printers. (c-1) To manufacture, repair, alter, improve, process, buy, sell, import, export or otherwise deal in: (i) Electrical or other equipment, appliances, accessories, tools, utensils, products and articles meant for industrial, domestic or other purposes. (ii) Cycles and motor-cycles of all sorts and all components and accessories pertaining to them. (iii) Surgical, electro-therapeutic and other instruments, appliances, apparatus, materials and articles. (iv) Screws, nails, bolts, nuts, hinges, windows, louvres, doors, frames and all other such articles, materials, appliances and products, whether metallic or wooden or plastic or of any other sort whatsoever. (v) All sorts of chemicals, drugs, perfumes, essences, pigments, colours, varnishes and polishes. (c-2) To prepare, compound, blend, process, can, bottle and render marketable vegetables, fruits, fish, meat, grains, pulses, spices, condiments and other food and culinary products. (d) To buy, sell, manipulate and deal both wholesale and retail in commodities, articles and things of all kinds which can conveniently be dealt in by the Company in connection with any of its objects. (e) To carry on any other business whether manufacturing or otherwise which may seem to the Company capable of being conveniently carried on in connection with any of the above business or objects or calculated directly or indirectly to enhance the value of, or render profitable any of the Company's property or rights for the time being. (f) To purchase or otherwise acquire and undertake the whole or any part of the business, property and liabilities of any person, corporation or Company, carrying on any business which this Company is authorized to carry on, or possessed of property suitable for the purposes of this Company. (g) To acquire by purchase or otherwise for the business of the Company in India or elsewhere, any lands, manufactories, buildings, mills, plant, engines, machinery and other things and to erect and maintain or reconstruct and adapt buildings, mills, plant, engines, machinery and other things found necessary or convenient for the purposes of the Company. (h) To enter into partnership or into any agreement for sharing profits, union of interest, co-operation, joint adventure, reciprocal concession, or otherwise, with any person or Company, carrying on or engaged in, or about to carry on or engage in any business or transaction which this Company is authorized to carry on, or to engage in any business or transaction, capable of being conduced so as directly or indirectly to benefit this Company. (i) To purchase or otherwise acquire any patents, brevets d'invention, licenses, concessions, and the like, conferring any exclusive or non-exclusive or limited right to use any invention or privilege which may seem capable of being used for any of the purposes of the Company, or the acquisition of which may seem calculated, directly or indirectly, to benefit this Company, and to use, exercise, develop or grant licences in respect thereof, or otherwise turn to account the property and rights so acquired. (j) To construct, improve and maintain manufactories, warehouses, shops, stores and other works and conveniences which may seem calculated, directly or indirectly, to advance the Company's interests. (k) To sell, exchange, mortgage (with or without a power of sale) assign, lease, sublet, and generally otherwise deal with the whole or any part of the business, estates, property or undertaking of the company, as a going concern or otherwise, to any person or persons, association or associations, or otherwise, for such consideration as the Company may think fit, and either for cash or for shares, debentures or securities of any other Company having objects altogether or in part, similar to the objects of this Company, and to hold or distribute among the Members in specie or otherwise the whole or part of the consideration for such sale. (l) To promote any Company or Companies for the purpose of acquiring all or any of the property or liabilities of this Company or for any other purpose which may seem directly or indirectly calculated to benefit this Company. (m) To borrow or raise money by the issue of or upon bonds, debentures, debenture stock, perpetual or otherwise, charged upon or by mortgage, charge, hypothecation, or pledge, of all or any of the Company's property (both present and future), including its uncalled capital, or in such other manner as the Company may think fit, and upon any terms or conditions. (n) To amalgamate with any other Company having objects altogether or in part similar to those of this Company. (o) To distribute any of the properties of the Company among the Members in specie or otherwise, but so that no distribution amounting to a reduction in capital be made without the sanction (if any) for the time being required by law. (o) To distribute any of the properties of the Company among the Members in specie or otherwise, but so that no distribution amounting to a reduction in capital be made without the sanction (if any) for the time being required by law. (p) To make, draw, accept, endorse and execute promissory notes, bills of exchange, charter parties, bills of lading, warrants, debentures and other negotiable or transferable instruments. (q) To invest and deal with the moneys of the Company not immediately required upon such securities and in such manner as may from time to time be determined. (r) To receive money on deposit at interest or otherwise, and to lend money, and in particular to customers and others having dealings with the Company, and to guarantee the performance of contracts by any such persons. (s) To subscribe for, purchase, take, or otherwise acquire and hold shares, stocks, debentures, or any other interest in any other Company, whether British, Colonial, or Foreign, in which the liability of the Members is limited by shares. (t) To lend money to any Company, partnership, person, or association upon security to their or his undertaking, property, estate, assets and effects, or any part thereof, upon such terms as may be deemed expedient, and take such security, either in the shape of mortgages, mortgage debentures, or debentures, or in any other form. (u) To remunerate any person or Company for services rendered in placing or assisting to place or guaranteeing the placing of any shares or debentures or other securities of this Company or any other Company promoted wholly or in part by this Company. (v) To manage, improve, develop and turn to account, or otherwise deal with all or any part of the property of the Company. (w) To enter into arrangements with any authorities, municipal, local, or otherwise, that many seem conducive to the company's objects, or any of them, and to obtain from any such authority, any rights, privileges, and concessions which the Company may think it desirable to obtain, and to carry out, exercise and comply with any such arrangements, rights, privileges and concessions. (w) To enter into arrangements with any authorities, municipal, local, or otherwise, that many seem conducive to the company's objects, or any of them, and to obtain from any such authority, any rights, privileges, and concessions which the Company may think it desirable to obtain, and to carry out, exercise and comply with any such arrangements, rights, privileges and concessions. (x) To do all or any of the above things, in any part of the world, and as principals, agents, contractors, trustees or otherwise, and by or through trustees, agents or otherwise, and either alone or in conjunction, with any other person or association, and to contract for the carrying on of any operation connected with the Company's business by any person or other association. (y) To do all such other things as are incidental or conducive to the attainment of the above objects. (c-3) To carry on business of exploration, extraction, manufacture, production, distribution and sale of oil and all oil products of every description. (c-4) To search for, inspect, examine, carry out drilling and other prospective operations, geological and geophysical surveys to prove and estimate reserves of petroleum, work, take on lease, purchase, construct, erect and commission, hire, charter, purchase or lease oil drilling rigs or platforms and other works and conveniences suitable for the purpose. (c-5) To carry on the business of producers, refiners, storers, suppliers and distributors of petroleum and petroleum products in all its branches. (c-6) To construct, set up, maintain, manage and control any oil drilling rigs or platforms whether offshore or onshore and everything incidental or ancillary to the exploration, search, development, production, transport, refining and acquisition of solid, liquid and gaseous hydro-carbon and their products and by-products. (c-7) To hire, purchase, otherwise acquire and work ships and vessels of any class, and to establish and maintain lines or regular services of ships or other vessels and to generally carry on the business of ship-owners, and of providing marine services covering marine transportation, offshore engineering, including installations and repairs of platforms, chartering of vessels, rigs, towages, port operations, salvage and underwater services, and to enter into contracts for the carriage of mail, passengers and goods by means of either by its own vessels or otherwise. (c-8) To repair ships and vessels of every description and to keep and maintain ship building, repair and breaking yards. (c-8) To repair ships and vessels of every description and to keep and maintain ship building, repair and breaking yards. To maintain for the use of the Company, or for letting out on hire any other conveniences for the repairing or docking of ships and other vessels and to aid in or contribute to the aforesaid activity. (c-9) To manufacture, buy, sell, deal in, import and export television sets of all types and descriptions and its components, all electric goods, radios, radiograms, loudspeakers, phonograms, cassette and radio cassette players and decks, recording tapes of all kinds, compact disc and video cassette players, amplifiers, personal stereo cassette players of whatever description, dictaphones, all sorts of electric and wireless sets and equipment, radio receiving of transmitting sets of all types. (c-10) To manufacture, install, maintain, repair, buy, sell, deal in, import and export all types of electronic articles/instruments, components, and equipment including transmitters, receivers, walkie-talkie sets, systems circuits required in military and commercial, electrical and electronic industry, including heavy duty weather-proof communications, EPABX and PABX sets and systems, telecommunication and intercommunication sets and systems of all kinds and varieties, key telephones systems, automatic message recording telephone answering devices, radio frequency microphones, computer rack and panel printed circuits, microswitches and trimmers, including computers, computer peripherals, computer software, hard disc, floppy discs and diskettes, test and measuring instruments, materials for electronics, broadcasting equipment, control instrumentation and industrial and professional electronics and communication equipment. (c-11) To act as consultants and provide advice, services, consultancy in various fields of financial, taxation, management consultancy, mechanical and electrical engineering, electronics, computer and computer soft-ware, pollution control, oil exploration and material handling systems and any business which the Company is entitled to carry on. (c-12) To carry on the business of manufacturers, importers, exporters and to sell and deal in drugs and pharmaceuticals, bulk drugs, medicines, biologicals, industrial products, chemicals and petro-chemicals of all types including inorganic and organic chemicals and fine and photographic chemicals, man made fibres and films, petroleum and petroleum products, soaps, cosmetics and toilet preparations and all kinds of medical and surgical appliances including electrical, chemical, photographical and scientific apparatus and materials". 3. The respondent – company is a regular assessee under the provisions of the Act and is being assessed in the status of a resident company. 3. The respondent – company is a regular assessee under the provisions of the Act and is being assessed in the status of a resident company. In the returns filed for the assessment year 1996-97 and for the assessment year 1997-98, the assessee had claimed various deductions in the course of computation of the profits of the business which profit becomes taxable as income under the provisions of the Act and in so far as these two appeals are concerned, we are essentially examining the claims of the assessee relating to the claim in nature of a written off irrecoverable debt which is also characterized as 'bad debt' in terms of section 36(1)(vii) of the Act. 4. The assessee, it appears had in the course of its activity of manufacture and sale of beer had furnished guarantee for repayment of certain loans and advances which its subsidiary companies and other business associates to the subsidiary companies had raised from banks and other financial institutions and on the failure of subsidiary companies or its business associates to repay the amount on the premise that they have become incapable of repayment, had reimbursed the guarantee amount to the creditors and had claimed that amount as an expenditure in terms of the provisions of section 37 of the Act and as to whether an expenditure of this nature qualifies for deduction. 5. One question relating to the claim towards 'legal expenses' incurred for obtaining certain advice and by way of consultation and as to whether it qualifies for deduction under section 37 of the Act is a question related to the assessment year 1996-97 and the other question relating to the interest which had accrued to the assessee – company in respect of the amounts advanced to its business associates, whether could be construed as 'not real income' and therefore not taxable, notwithstanding the provisions of section 5 of the Act is a question which arises for the assessment year 1997-98. 6. 6. In respect of the questions involving these three aspects, while the adjudicating authority had answered all questions relatable to these issues against the assessee and the first appellate authority – the Commissioner of Income Tax (Appeals) has affirmed this view of the adjudicating authority and all questions covering these three aspects were held against the assessee in terms of the findings recorded by the first appellate authority also, it is the second appellate authority – the Income Tax Appellate Tribunal which has reversed the findings of the first two authorities covering all three aspects and for the two assessment years and the effect on the revenue is that an amount of Rs.5,38,28,633/- had come to be reduced from the total income of the assessee in respect of the return relevant for the assessment year 1996-97 which according to the assessee was an amount representing what is known as 'bad debts' and a further amount of Rs.54,27,363/- had been reduced from the total income as an amount allowable by way of deduction under section 37 of the Act being the amount spent by the assessee for honoring the guarantee it had provided in favour of M/s. Tamilnadu Alkaline Batteries Limited for a sum of Rs.26,43,204.33/- which was a company owned by two subsidiary companies of the assessee – company, namely, M/s. Golden Investments Limited and M/s. East Coast Investments Limited and M/s. Tamilnadu Alkaline Batteries Limited having taken loan of Rs.16 lakhs from M/s. Tamilnadu Investments Corporation for repayment of which loan, the two subsidiaries of the assessee - company had guaranteed which it appears had subsequently amalgamated with the assessee – company with effect from 1.4.1994 and therefore it was the case of the assessee that during the period relevant for the assessment year 1995-96, the original guarantee issued by its subsidiaries in favour of M/s. Tamilnadu Alkaline Batteries Limited in the year 1990 had been honoured in favour of the financiers of M/s. Tamilnadu Alkaline Batteries Limited. 7. 7. Likewise, another amount of Rs.26,63,001/- had been paid by the assessee to M/s. Nagarjuna Finance Limited, M/s. Vysya Bank Leasing Limited and M/s. Excel Finance Limited, which again is said to be an amount borrowed by M/s. Unitel Communications Limited from these financial institutions and the said M/s. Unitel Communications which had been promoted amongst others by the assessee – company, having fallen sick, the assessee – company by way of nursing the sick company had honoured its guarantee by repaying the loan that the said sick company had raised from the three financial institutions and had claimed this amount also as deductible business expenditure under section 37 of the Act. 8. While the first two authorities, namely, adjudicating authority and the first appellate authority had disallowed this amount, the Tribunal has reversed the findings and allowed the deduction of this amount, also by reducing it from the total taxable income of the assessee for the assessment year in question. 9. The third claim for deduction which had been declined by the first authorities and allowed by the Appellate Tribunal was a sum of Rs.15 lakhs which had been paid by the assessee – company by way of 'legal fee' to M/s. Fraser & Ross, a chartered accountant firm who incidentally also happen to be the auditors of the assessee – company and which amount had been paid to them for eliciting their opinion about the feasibility of the assessee – company taking over a foreign company, namely, M/s. National Sirghum Brewery – a company located in South Africa and being of the view that the consultation fee paid to M/s. Fraser & Ross is an expenditure incurred by way of 'revenue expenditure' and not as part of 'capital expenditure' as had been opined by the two lower authorities. 10. It is for answering these substantial questions which have been mentioned in paragraphs 29 to 37 of the memorandum of appeal, ITA No.492 of 2001 relating to the assessment year 1996-97 this appeal had been admitted and the said questions read as under: 1. Whether the Tribunal was correct in holding that a sum of Rs.43,77,633/- should be treated as a bad debt when this amount was paid to M/s Pharmacia United Limited for purchase of share capital by the assessee who had failed to deliver the share and therefore should be treated as a capital loss? 2. Whether the Tribunal was correct in holding that a sum of Rs.43,77,633/- should be treated as a bad debt when this amount was paid to M/s Pharmacia United Limited for purchase of share capital by the assessee who had failed to deliver the share and therefore should be treated as a capital loss? 2. Whether the Tribunal was correct in arriving at a conclusion that a sum of Rs.18.48 Lakhs claimed by the assessee as wastage on account of defective stock during the assessment year 1994-95 could be written off during the assessment year i.e. 1996-97 when it is following mercantile system of accounting? 3. Whether the Tribunal was correct in holding that the payment made by the assessee of Rs.264.75 Lakhs to M/s UB Elastomers Limited to start a Butyl Rubber Project which failed to take off was a revenue loss when this payment made to a different entity to acquire a new business is a capital loss investment and consequently a capital loss. 4. Whether the Tribunal was correct in holding that a sum of Rs.32.76 Lakhs paid to M/s Tamil Nadu Alkaline Batteries Limited, could be written off as liability as the two subsidiary companies M/s Golden Investments Limited and East Court Limited of M/s Tamilnadu Alkaline Batteries Ltd has merged with the assessee company, by ignoring the essential principle that the trading activity of the assessee and that of M/s Tamil Nadu Alkaline Batteries Limited were entirely distinct and both these companies were separate legal entities. 5. Whether the Tribunal was correct in holding that a sum of Rs.32.73 Lakhs paid to M/s. Marine Products to export shrimps which is not supported by any evidence could be treated as expense allowable to the assessee under section 37 of the Act as it was incurred wholly and exclusively for the purchase of its business when admittedly the business activity carried out by the assessee is the manufacture and sale of beer. 6. Whether the Tribunal was correct in holding that a sum of Rs.145.79 Lakhs payable by M/s. Sunny Enterprises could be treated as an irrecoverable debt when the assessee has not produced any proof for supplying goods nor any exchange of correspondence between the assessee and M/s. Sunny Enterprises nor initiating any legal action to recover the same. 7. 6. Whether the Tribunal was correct in holding that a sum of Rs.145.79 Lakhs payable by M/s. Sunny Enterprises could be treated as an irrecoverable debt when the assessee has not produced any proof for supplying goods nor any exchange of correspondence between the assessee and M/s. Sunny Enterprises nor initiating any legal action to recover the same. 7. Whether the Tribunal was correct in allowing the assessee's claim to treat the various amounts claimed by it as bad debt and allowed it as deduction under section 36(1)(vii) when there was no proof for making such payment and there was no effort to recover the debt nor an explanation given as to supervening impossibility on the part of the debtor to pay. 8. Whether the Tribunal was correct that once the assessee enters into an agreement to stand guarantee and in the case of default such payments made would automatically be in the course of business, even though the party is a separate legal entity carrying on a distinct business without receiving any guarantee commission nor disclosing the profit on account of standing such surety. 9. Whether the sum of Rs.15,00,000/- paid to M/s. Frazer and Ross for obtaining the feasibility/viability report for purchasing Natural Sirghum Breweries, South Africa was a business expenditure allowable under section 37(1) of the Act as held by the Tribunal as a capital investment as held by the assessing officer". 11. We may mention here itself that in so far as the substantial question No.8 mentioned hereinabove and raised at paragraphp-36 of the appeal was concerned, the tribunal had answered this question purporting to follow the Judgment of this court on identical question for the assessment year 1995-96 in terms of a reported Judgment of this court in the case of 'Commissioner of Income Tax vs. United Breweries Ltd., And Another' reported in 292 ITR 188 in respect of ITA Nos.24 and 25 of 2000 as per Judgment dated 25.1.2007. 12. 12. In so far as the assessment year 1997-98 is concerned, that part of the order of the tribunal relevant for this assessment year in the common order dated 20.07.2001, constitutes the subject matter of ITA No.89 of 2003 which is an appeal filed later by the revenue, but which had earlier been part of the memorandum of appeal in ITA No.492 of 2001 and covering both the assessment years and the questions relating to this assessment years and the questions relating to this assessment year which figured as questions mentioned in paragraphs – 38 to 42 of the memorandum of appeal in ITA No.492 of 2001, are identical questions figuring at paragraphs 14 to 18 of the memorandum of appeal in ITA No.89 of 2003 and reads as under: 10. "Whether the Tribunal was correct in holding that the payment of Rs.13,93,404/- for acquiring M/s Western India Enterprises was allowable under section 37(1) of the Act when the object of acquisition was capital in nature by erroneously laying emphasis on the clause in the Memorandum of Association of Assessee Company which permitted money lending. 11. Whether the sum of Rs.10,50,000/- paid by the assessee company to M/s Best and Cromption Engineering Limited a separate legal entity under the Act and the Companies Act carrying on different business activity without any arrangement of profit sharing could be treated as an associated company and the payment made by the assessee on behalf of that company treated as an expenditure in the hands of the assessee. 12. Whether the Payment of Rs.14,85,820/- made in favour of M/s. Sivan and Company for purchase of shares was a capital payment not allowable under Section 36 of the Act on failure to deliver the shares especially in view of the nature of business of manufacturing and sale of beer carried on by the assessee. 13. Whether the Tribunal was correct in holding the a sum of Rs.73,13,726/- could treated as bad debt despite the fact that there was absolutely no material to show that these debts arise out of the business of manufacturing beer or that their payment was made towards advance for supply or for carrying on the business of the assessee. 14. 13. Whether the Tribunal was correct in holding the a sum of Rs.73,13,726/- could treated as bad debt despite the fact that there was absolutely no material to show that these debts arise out of the business of manufacturing beer or that their payment was made towards advance for supply or for carrying on the business of the assessee. 14. Whether the Tribunal was correct in holding that a sum of Rs.74.75 Lakhs should be excluded on the principle of real income in accordance with the decision of the Apex Court in 236 ITR 315, when the interest income had accrued and reflected in the Profit and Loss Account in the present case and the judgment was not applicable to the facts of the present case". 13. Out of these questions, question no.14 alone is a question raised afresh for the assessment year 1997-98 on the theory of 'no real income' to the assessee though on accrual basis the income whether it has been realized or not, becomes taxable under the provisions of the Act and the question has to be independently considered and answered for this assessment year. 14. It is covering questions from 1 to 14 mentioned at paragraphs 29 to 42 of the memorandum of appeal in ITA No.492 of 2001 which are the questions relating to the two assessment years on which elaborate submissions have been made by Sri. Seshachala, learned senior standing counsel for the appellant – revenue and if not more equally as elaborate submissions are made by Sri Parthasarathi, learned counsel appearing for the respondent – assessee. 15. We have been taken through the orders in question in great detail and learned counsel for the parties have also placed before us several authorities in support of their respective contentions on behalf of their clients. 16. We shall consider the submissions made at the Bar by the learned counsel and the authorities relied upon in support of such submissions in seriatim. 17. In so far as the first aspect of the questions relating to the assessee's claim for writing off certain amount by way of 'bad debts', the details are as under: Sl.No Borrowers Amount 1 Pharmacia United Limited 43,77,633 2 Premier Enterprises 18,48,000 3 U.B. Elastomers Ltd., 2,64,75,000 4 T.N. Alkaline Batteries Ltd., 32,76,000 5 Marine Products 32,73,000 6 Sunny Enterprises 1,45,79,000 Total 5,38,28,633 18. In respect of these claims which had been specifically disallowed by the adjudicating authority and affirmed in appeal by the Appellate Commissioner who had given elaborate reasons for doing so and while detailed discussion of the adjudicating authority for doing so and while detailed discussion of the adjudicating authority for not allowing the claim of the assessee under section 36(1)(vii) of the Act in terms of the assessment year is as under: "(i) Bad debts claimed in respect of M/s. Pharmacia United Limited: On necessary enquiry, it was found that PUL was assessed to tax with JCIT, Special Range-3, Bangalore. Hence a letter was written to the said JCIT to send the copies of the correspondence relating to the amounts owed by M/s. PUL to this assessee as furnished before her during the assessment proceedings. Accordingly, the copy of the letter furnished by the Authorized Representative of M/s. PUL dt.04.09.98 was obtained. The said letter states as under: "Share advance form U.B. Limited – There was a sum of Rs.61,85,257/- under advance against share capital from U.B. Limited in the books of assessee company at the beginning of the asst. year. During the asst. year 1996-97, the assessee company by mutual agreement paid to U.B. Limited Rs.18,07,624/- as full and final settlement against the amount received towards share capital. Confirmation letter from U.B. Limited to this effect is enclosed herewith. Difference between the book balance against U.B. Limited i.e. Rs.61,85,257/- and the amount settled Rs.18,07,624/- i.e. 43,77,633/-was credited to the capital reserve account". Thus from the above submissions made by M/s. PUL before its assessing officer, it was very clear that the loss was not a revenue loss as the amounts given by the assessee company was towards share application money and not towards trade advances as claimed by the assessee company in its return. The copy of the said letter was made available to the authorized representative of the assessee company to give an opportunity to make their submissions in this regard. The assessee company vide letter dt.11.3.99 submitted as under: "The point to be noted here is at the time when the original advance was made, it constituted a trade advance in our books as it was part of the pharmaceutical portfolio of the U.B. Group. The assessee company vide letter dt.11.3.99 submitted as under: "The point to be noted here is at the time when the original advance was made, it constituted a trade advance in our books as it was part of the pharmaceutical portfolio of the U.B. Group. At the same time, when the joint venture came to an end, the loss being UBL's share had to be absorbed as the new company was unable to repay, owing to the losses accumulated by it. If it is assumed that what we have incurred above is a capital loss, we submit that the same should be set off against the capital gain made by the company". The assessee company did not produce any evidence in support of their claim that the original advance was a trade advance. At the same time, the PUL has been claiming in its letter that it was an advance against the share capital. The copies of the ledger extracts furnished form F.Y. 1990-91 has the entry of Balance Brought Down. Therefore, the account of the PUL was debited earlier to that period. The Original Entry as appearing in the books at the time of giving the advance was not produced in spite of the sufficient opportunity was given to the assessee company in support of their claim. And hence I treat Rs.43,77,633/-claimed by the assessee co. as a bad debt of capital nature, which cannot be allowed as deduction u/s.36 or 37 of the I.T. Act. Therefore the bad debt claimed by the assessee co. is hereby disallowed. (ii) Debts written off to M/s. Premier Enterprises, Secunderabad amounting to 18.48 lakhs: After obtaining the address of this company from the assessee company a letter u/s.133 (6) was written calling for the details. M/s. Premier Enterprises stated in its letter dt.28.2.99 that as on 31.3.96, they do not owe any amount to M/s. U.B. Ltd. The copy of this letter was made available to the assessee company to file their submissions, if any. In letter dt.17.3.99, the assessee company submitted as under: "As per the books of our Hyderabad Brewery, the balance outstanding as of 1.4.94 was Rs.38.78 lakhs from Premier Enterprises. However, from this sum, the credit note issued to the dealer on account of annual turnover bonus of Rs.16.36 lakhs is deducted. In letter dt.17.3.99, the assessee company submitted as under: "As per the books of our Hyderabad Brewery, the balance outstanding as of 1.4.94 was Rs.38.78 lakhs from Premier Enterprises. However, from this sum, the credit note issued to the dealer on account of annual turnover bonus of Rs.16.36 lakhs is deducted. Further, during 1993-94, there was a claim by the dealer amounting to Rs.15.40 lakhs on account of sedimented beer supplied to him. It may be recalled that during that period there was a prohibition in A.P. due to which we could not despatch our goods in time. We have now obtained the confirmation of balance from the party which proves that the amount outstanding is Rs.3.61 lakhs, after adjusting for the claim made on account of sedimented stock and also the bonus due to him. Under the circumstances, we request that instead of treating the amount as bad debts written off we may request that it may be considered as process wastage/claims paid on account of defective stock. At the same time, we also request that the amount of claim may be restricted to Rs.14.87 lakhs". From the above reply, it is very much clear that the assessee company had written off the amount due from M/s. Premier Enterprises without making any efforts to collect the same. As per the said letter, M/s. Premier Enterprises have accepted a debt of Rs.3.61 lakhs and to that extent the assessee company's claim of bad debt warrants disallowance. As regards, the process wastage/claims paid on account of defective stock, the assessee company has not produced any documents/correspondence in this regard. Further, if the claim was relating to A.Y.1994-95 (relevant to previous year 1993-94) then the assessee company should have accepted the claim of the assessee or rejected in the same A.Y. As the assessee company is following the mercantile system of accounting, any loss pertaining to Asst. Year 1994-95 cannot be allowed in this Asst. Year. Therefore, the loss claimed on account of wastage/defective stocks amounting to Rs.14.87 lakhs is hereby disallowed and added to the total income/reduced from the loss returned. The total disallowance is Rs.18.48 lakhs. (iii) Debts written off in case of M/s. U.B. Elastomers Ltd.: During the course of assessment proceedings, the assessee furnished the details of bad debts written off as on 31.3.1996. They are as under: 1. UBIME -11.94 Lakhs 2. The total disallowance is Rs.18.48 lakhs. (iii) Debts written off in case of M/s. U.B. Elastomers Ltd.: During the course of assessment proceedings, the assessee furnished the details of bad debts written off as on 31.3.1996. They are as under: 1. UBIME -11.94 Lakhs 2. U.B. Elastomers Ltd. – 264.75 Lakhs 3. Tamil Nadu Alkaline Batteries Ltd. – 32.76 Lakhs The assessee company was asked to produce the addresses of the said concerns along with their ledger extracts in the year in which their accounts were debited. However, till date the assessee company has not been able to produce their addresses in case of all the concerns referred above. As regards, Pharmacia United Ltd, it has been found that the debt written off was in the nature of share application money and hence it is not a revenue loss as discussed in the earlier part of this order. However, in their letter dt.24.12.98 the assessee company has stated as under: "With regard to advances written off pertaining to U.B. Elastomers Ltd., Pharmacia United Ltd. and Tamil Nadu Alkaline Batteries Ltd. we would like to submit, these companies were sick companies and hence the amounts are not recoverable". Further, vide letter dt.04.03.1999, the assessee company submitted that due to the inability of UBEL to pay to the lenders, the guarantees given by the assessee company were invoked and the same were settled by the latter. The assessee company enclosed the ledger extracts of UBEL in their books and also furnished the audited P&L Account and Balance sheet of UBEL. The ledger extract of UBEL very clearly show that the assessee company was paying for the business needs of UBEL, which did not derive any trading or business gain for the assessee company. The payments made by the assessee company to various parties on behalf of UBEL, have been accounted by UBEL as "Advances received for future issue of shares" in its balance sheet dt.31.3.96. This itself shows that whatever payments were made by the assessee company on behalf of UBEL were in the nature of advances for issue of shares in UBEL. Further, as regards, U.B. Elastomers Ltd. the assessee company had produce necessary details during the course of the assessment proceedings for the A.Y. 199596 before the Assessing Officer as well as the CIT (Appeals). Further, as regards, U.B. Elastomers Ltd. the assessee company had produce necessary details during the course of the assessment proceedings for the A.Y. 199596 before the Assessing Officer as well as the CIT (Appeals). From the said details produced, it is found that the U.B. Group wanted to enter the field of petrochemicals and more specifically wanted to start a Butyl Rubber Project and the said project was to be started by M/s. U.B. Elastomers Ltd. The later company entered into collaboration with few companies abroad for importing of technology for their proposed plant. However, the project could not be implemented because of financial reasons and also because of some disagreements with the foreign collaborators. Though the agreement for the project was finally signed with some foreign collaborator in February 89, but due to foreign exchange crisis in 1991 and also due to new policy of economic liberalization and consequent reduction in the import duties in line with the international standards, made the project unviable and thus had to be given up. During the course of formulation of the project of U.B. Elastomers Ltd. the assessee company has made some advances which have been written off during the previous year relevant to this asst. year. Any advances given to a company which is totally a different entity and which is dealing in a product which is totally different from the products dealt by the assessee company, in that case it is very much clear that the advance given is in the nature of capital advance and not in the nature of trade advance as claimed by the assessee company. Here I would like to rely upon the decision of the Calcutta High Court in Hashimara Industries (P) Ltd. vs. C.I.T. 184 ITR 174 (1990). In the said case advance made to a mill which was taken over on lease by the assessee for modernization of mills plant became irrecoverable as the mill went into liquidation. The Calcutta High Court held that the loss was not a trading loss and hence cannot be claimed as a bad debt. I also rely on the decision of the Delhi High Court in Narang Industries Ltd. vs. C.I.T. (1967) 66 ITR 316. Therefore, the assessee cannot claim it as a bad debt in its P&L Account. The Calcutta High Court held that the loss was not a trading loss and hence cannot be claimed as a bad debt. I also rely on the decision of the Delhi High Court in Narang Industries Ltd. vs. C.I.T. (1967) 66 ITR 316. Therefore, the assessee cannot claim it as a bad debt in its P&L Account. It is in the nature of capital loss and hence the assessee's claim of bad debt of Rs.264.75 lakhs is fully disallowed. (iv) Debts written off in case of M/s. Tamil Nadu Alkaline Batteries Ltd: During the assessment proceedings, the assessee company was asked to produce the ledge extracts of TNABL in its books to ascertain the nature of advance and transactions between the two companies. Vide letter dt.4.3.99, the assessee company pleaded that the debts of TNABL came to its books upon merger of two investment companies with it. The assessee company also expressed its inability to produce the ledge extracts as the books of accounts of the erstwhile companies were maintained at Chennai. As being discussed under the heard "Guarantee Obligation", TNABL was a small scale industry at Chennai manufacturing batteries. As discussed in the case of U.B. Elastomers Ltd. this company also did not have any trade relations as the products dealt by the assessee company are totally different from those dealt by TNABL and therefore any amount of advance given by the assessee company cannot be in the regular course of the assessee company's business. It has to be in the nature of capital advance and hence cannot be claimed as a bad debt in the P&L account. Thus the bad debt written off amounting to Rs.32.76 lakhs is hereby disallowed. (vi) Debts written off in case of M/s. Marine Products Rs.32.73 lakhs: During the course of assessment proceedings, it was pleaded that the marine advances were made to suppliers of shrimp which was exported by the assessee company. Due to the slump in the market, the business was disrupted and the advance made to suppliers became doubtful and the assessee company did not receive the money back till 31.3.96. The assessee company is basically engaged in the manufacture and sale of beer. It wanted to venture into a new line of business of marine export. The assessee company has claimed that they have exported the marine product for which no evidence as produced during the assessment proceedings. The assessee company is basically engaged in the manufacture and sale of beer. It wanted to venture into a new line of business of marine export. The assessee company has claimed that they have exported the marine product for which no evidence as produced during the assessment proceedings. Therefore, I feel that these advance were made by the assessee company for a totally new line of business and therefore it cannot be claimed as a bad debt of revenue nature. This was decided by the Calcutta High Court in Hashimara Industries (P) Ltd. vs. C.I.T. 184 ITR 174 (1990). In the said case advance made to a mill which was taken over on lease by the assessee for modernization of mills plant became irrecoverable as the mill went into liquidation. The Calcutta High Court held that the loss was not a trading loss and hence cannot be claimed as a bad debt. I also rely on the decision of the Delhi High Court in Narang Industries Ltd. vs. C.I.T. (1967) 66 ITR 316. During the assessment proceedings, the assessee company relied upon the decision of the Supreme Court in C.I.T. vs. Mysore Sugar Company Ltd. (1962) 46 ITR 649 in support of its claim. The facts of the said case are totally different from that of the assessee company as Mysore Sugar Company had given advances to the farmers of sugarcane which is their basic raw material of the business already established and thus it was held as a bad debt in the nature of revenue loss. However, in the case of the assessee company, the advances given are to a new venture which has not materialized or is yet to be set up. It was not in the regular course of the assessee's existing business and therefore on the facts, the assessee's case is not comparable with that of M/s. Mysore Sugar Company Ltd. Hence, Rs.32.73 Lakhs claimed by the assessee company as bad debt is disallowed. (vii) Debts written off in case of M/s. Sunny Enterprises Rs.145.79 lakhs: In this case, a letter was written to M/s. Sunny Enterprises after obtaining the address of the assessee company calling for the information u/s. 133(6). However, till this date the required information has not come from the said concern. (vii) Debts written off in case of M/s. Sunny Enterprises Rs.145.79 lakhs: In this case, a letter was written to M/s. Sunny Enterprises after obtaining the address of the assessee company calling for the information u/s. 133(6). However, till this date the required information has not come from the said concern. Therefore, during the assessment proceedings, the assessee company was asked to produce the correspondence with the said company and steps taken by the assessee company to recover the debts outstanding. To this the assessee company vide their letter dt.4.3.1999 stated that consequent to introduction of prohibition in Andhra Pradesh the outstanding debt could not be recovered from M/s. Sunny Enterprises as majority of the customers went out of the business. Due to closure of business the assessee company could not initiate legal steps for recovery of the debts outstanding. The explanation given by the assessee company cannot be accepted in this regard for the following reasons: 1. The amount of debt involved is quite substantial and if the assessee company intended it could have definitely taken legal steps to recover the amount outstanding. The reasons given for non-initiation of legal steps are vague, unproved and not convincing. 2. The policy of prohibition does not stop anybody from recovering the debt which is so to say covered by the contract act and has noting to do with the prohibition policy. 3. The customer owed Rs.145.79 lakhs to the assessee company itself shows that the volume of turnover of the said customer M/s. Sunny Enterprises was quite huge and he cannot just go out of the business taking all his assets overnight as claimed by the assessee company. Therefore, I am of the opinion that the assessee company has not satisfactorily proved the circumstances in which the debts relating to M/s. Sunny Enterprises have become bad and irrecoverable. The burden of proof lies on the assessee company to clearly establish and furnish all the particulars regarding the claim made in the return of income. No such particulars were filed nor any documents were produced to show that the debt has really become bad and its efforts to recover did not bear fruit. Therefore, the bad debt claim Rs.145.79 lakhs is hereby disallowed. In this regard, I rely upon the following three decisions in support of my view: 1. C.I.T. vs. Radhakrishna Ramnath AIR (1929) NAG 153. 2. Therefore, the bad debt claim Rs.145.79 lakhs is hereby disallowed. In this regard, I rely upon the following three decisions in support of my view: 1. C.I.T. vs. Radhakrishna Ramnath AIR (1929) NAG 153. 2. C.I.T. vs. Calcutta Agencies Ltd., (1951) 19 ITR 191 SC. 3. Mannalal Ratanlal vs. C.I.T. (1965) 58 ITR 84 CAL" and in so far as for the assessment year 1997-98 relating to disallowances of the claim towards bad debts is concerned, the discussion of the adjudicating authority is to be found in paragraph – 9 of the order of adjudicating authority. The first appellate authority in the following discussion affirmed this finding which reads as under: "Issue No.6: Bad Debts Written Off .. Rs.1,34,75,416/- 18. The assessee claimed various sums aggregating to Rs.1,41,27,379/- as expenditure by way of bad debts written off. In the letter dated 27.2.2000, the assessee gave the break-up of the bad advances written off as follows: Rs (i) Western India Entertainment 1,393,404 (ii) Blue Mountain Training Centre 2,232,466 (iii) Best & Crompton Engg. Ltd 1,050,000 (iv) Sivan & Company 1,485,820 (v) WIE Digital Electronics 2,500,000 (vi) Vipin Industries 1,100,000 (vii) Eagle Electricals 3,200,000 (viii) Rita Bottling 257,375 (ix) L & T Food Division 18,013 (x) Advance to employee – written off consequent to death of the employee 13,493,430 The Assessing Officer disallowed the claim of deduction in respect of items (i) to (ix) above aggregating to Rs.1,34,75,416/- and the appellant objects to this. Each of the case is discussed below: (i) M/s. Western India Enterprises .. Rs.13,93,404/- 19. Vide letter dated 15.02.2000, the assessee company explained the reason for the claim, under the caption "Reason for writing off of Bad Advances" as follows: "This amount was advanced way back in 1989 at the time of acquisition of this company to tide over temporary liquidity problems. Later the company was declared as a sick company by the BIFR. Thus, during the F.Y. 96-97, we have written off the entire amount, as we are of the view that no recovery can be made in respect of this advance". 19.2. The Assessing officer noted that for allowing a claim as bad debt written off, the item must be one which can be called a trading debt, i.e., a debt of the trade which goes into computation of profit, as held by Supreme Court in the case report at 30 ITR 174. 19.2. The Assessing officer noted that for allowing a claim as bad debt written off, the item must be one which can be called a trading debt, i.e., a debt of the trade which goes into computation of profit, as held by Supreme Court in the case report at 30 ITR 174. A capital loss cannot be claimed as bad debt by writing off. A debt which has already gone into the balance sheet as a trading debt in the business or trade of the assessee can be claimed as deduction [77 ITR 751 SC]. The funds were given to Western India Enterprises not in connection with trade, but to enable the latter to tide over liquidity problem. It is not allowable u/s. 36 of the I.T. Act. 20. The appellant objects to this. Though no specific written argument was given, Sri Parthasarathi told that the assessee was doing money lending business and therefore, this should be considered as incurred in course of money lending business. 21. In this relevance, I requested the Authorized Representative to submit evidence to substantiate this claim by showing the debt as a part of business turnover in the year in which the amount was advanced, the rate of interest if any, agreed on such loan alleged to be given during the course of money lending business, and the interest charged accounted as part of income of the business. (The assessee was following mercantile system of accounting, as the details filed for every year shows). No material or evidence was submitted in this regard. In fact, the accounts for asst. years 1991-92 to date which I have examined does not show that the assessee accounted any amount as interest. The claim of the assessee in this regard is not substantiated and is against available facts. 21.2. Merely because the debt is irrecoverable and written off, it is not allowable as deduction. Section 36(2) is clear that no deduction for bad debts or part thereof shall be allowed unless such debt or part thereof has been taken into account in computing the income of the assessee of the previous year in which the amount is written off or in any earlier previous year. The assessee has not fulfilled these conditions. I would, therefore, uphold the disallowance of this item. (ii) M/s. Best & Crompton Engg. Ltd. . Rs.10,50,000/- 22. The assessee has not fulfilled these conditions. I would, therefore, uphold the disallowance of this item. (ii) M/s. Best & Crompton Engg. Ltd. . Rs.10,50,000/- 22. The assessee submitted before the Assessing Officer that it approached ICRA, a reputed Credit Rating Agency, for obtaining a rating as to enable further equity / debt instruments. ICRA indicated that another group company viz, Best & Crompton Engg. Ltd. (herein after referred to as B & C) did not pay them some dues and without clearing of the dues they would not certify the credit worthiness of the assessee. It was decided that for the purpose of protecting the reputation of the company, the amount due by B & C should be paid. The amount was shown as advance due from B & C. Subsequently, liquidation proceedings were initiated against B & C by many creditors and the assessee came to the conclusion that this amount may not be recovered at all. In the circumstance, the assessee wrote off the sum of Rs.10,50,000/-. The assessee relied on the decision of House of Lords in Lawson vs. Johnson Matthey Pic. 209 ITR 761. and the payment was originally made to ICRA to obtain credit rating which is very crucial for the purpose of raising additional long term debts and since the credit rating agency. Stipulated that unless the payment due to them by B & C was cleared they would not be in a position to offer any credit ratings in spite of the fact that they have completed the entire analysis to be carried out in this regard. Therefore, the entire expenditure should be allowed as a revenue deduction. 22.2. The Assessing Officer observed that in the case relied on by the assessee, the holding company (M/s. Johnson Matthey) had to pay the debts of a subsidiary company which was a banking company and in financial difficulties. The Privy Council held that the insolvency of the subsidiary company would adversely affect the assessee company's trade and therefore the payment made by the holding company was allowable as a revenue expenditure. Thus, the criterion was that insolvency of the subsidiary banking company would have adversely affected the profit earning capacity of the said company. However, in the case of the assessee company, the non payment of M/s. Best & Crompton Engg. Ltd. would not have affected the profit earning capacity of the assessee company. Thus, the criterion was that insolvency of the subsidiary banking company would have adversely affected the profit earning capacity of the said company. However, in the case of the assessee company, the non payment of M/s. Best & Crompton Engg. Ltd. would not have affected the profit earning capacity of the assessee company. Therefore, the payment made on behalf of the assessee company is held as capital payment which cannot be allowed as a bad debt as claimed. 23. The appellant objects to this and reiterates the contentions before the Assessing Officer. 24. In this relevance, the following aspects are to be noted: (1) Best & Crompton Engg. Ltd. is not a subsidiary of the assessee and the assessee's responsibility to discharge liabilities of that company in that company is limited by the shares held. The case, therefore, cannot even be that clearing of the debts of Best & Crompton was on account of its position as holding company, or because the adverse financial position, if at all, of B & C would have affected the financial reputation of the assessee. (2) ICRA is not the only credit rating agency available. There are a number of well known concerns who enjoy reputation in credit rating. It is not as if the assessee was under compulsion to give the credit rating work only to ICRA and be bound by its dictates that unless the assessee clear the debt of Best & Crompton Engg. Ltd., it would not give the credit rating. If only the assessee did not pay the fees agreed to ICRA because of its failure to give the correct rating, not to speak of clearing of debts of B & C, the latter would have suffered. The assessee could have got credit rating from some other famous agency cheaper. On the basis of available material, I would hold that this payment was out of own choice of the assessee and was not dictated by any business compulsion of a genuine nature. (3) The origin of the expenditure as claimed by the assessee was as payment to ICRA and to get a credit rating to enable it to go for further equity/debt instruments and in some earlier year. (3) The origin of the expenditure as claimed by the assessee was as payment to ICRA and to get a credit rating to enable it to go for further equity/debt instruments and in some earlier year. Arguing without conceding that the expenditure was necessary for the purpose of obtaining credit rating so as to facilitate taking of loan or fixed deposit from public, such expenditure must have incurred in the year in which it had to make the payment. The amount is not available as an expenditure incurred during the year to procure loan in the current year. (4) The clearing of amount, if any, due by Best & Crompton Engg. Ltd. to ICRA was not at the request of B & C and was not as a loan given during the course of its business. If the assessee by its own violation made any payment attributing it as amount payable by B & C that does not create a debtor creditor relationship between assessee and B & C. It is not attributable to any money lending business, as it is not the case of the assessee that it was given to B & C or anybody else with a view to earn interest. (5) The amount involved or even interest thereon has not been taken into account in computing the income of the assessee of the previous year in which the amount was written off or some earlier year, nor does it represent money lent in the ordinary course of banking or money lending carrying on by the assessee. The claim does not satisfy the requirement of Sec.36(2)(i) and is to be disallowed for that reason. (iii) M/s. Sivan & Company .. Rs.14,85,820/- 25. The written explanation give by the assessee to the Assessing Officer vide letter dated 25.02.2000 is very brief and as follows: "The amount was written off as there was a dispute between the parties as to the amount to be paid to us in respect of certain shares". 25.2. The Assessing Officer has observed that M/s. Sivan & Company is a share broker and the amount written off by the assessee during the year was amount in dispute between the two. The advance given to the share broker was not having revenue nature, as the assessee is not a dealer in shares. 25.2. The Assessing Officer has observed that M/s. Sivan & Company is a share broker and the amount written off by the assessee during the year was amount in dispute between the two. The advance given to the share broker was not having revenue nature, as the assessee is not a dealer in shares. The advances given was payment towards capital payment and hence cannot be allowed u/s. 36 of the I.T. Act. He disallowed the claim. 26. The appellant objects to the disallowance. It has not added anything to clarify the position. 27. I would not that the assessee has been acquiring shares only as an investor and not as a trader. It has been showing profit and gains of transaction in shares under the head Capital Gains and not as profit of business. 27.2. Section 56(1) require that income from divided is to be assessed under the head Other Sources. Therefore, the expenditure, if any, has to fulfill the requirement of sec.57 and not section 36(1)(vii) read with sec.36(2) as such Section 57 does not have a provision similar to sec.36(1)(vii) r.w.sec.36(2). The claim for write off of expenses connected with earning of dividend has to go through the provision of sec.57(iii) which provide for deduction of "any other expenditure not being in the nature of capital expenditure laid out or expended wholly and exclusively for the purpose of making or earning such income". The expression 'for the purpose of Business' is wider than the expression 'for the purpose of earning such income". CIT vs. Birla Cotton & Spinning Mills Ltd. [1971] 82 ITR 166, 169 SC used in sec.37(1). Section 371(1) covers not only expenses for running of the business and its administration but also measures for the preservation of business and protection of its business properly. It follows from this that sec.57(iii) provides for allowance of only those expenses which are incurred for the purpose of earning the income. In the context of dividends, it is only the expenses incurred for earning the dividend income that is allowable. Section 57(iii) is also clear that the expenditure should not be of capital expenditure. It follows from this that sec.57(iii) provides for allowance of only those expenses which are incurred for the purpose of earning the income. In the context of dividends, it is only the expenses incurred for earning the dividend income that is allowable. Section 57(iii) is also clear that the expenditure should not be of capital expenditure. If certain amounts are due to the assessee from a share broker on account of money entrusted for purchase of shares, i.e., towards investment, it is amount due on account of capital payment/if the assessee writes off the amount or any part of it as irrecoverable, it is an expenditure of capital nature and obviously not allowable u/s. 57(iii). No other provisions of sec.57 is applicable in this case. 27.3. It may be mentioned that even if the claim is to be considered as bad debt of business, the assessee was not dealing in shares as a dealer and the amount due from Sivan & company was only in the context of investment in shares. The purchase and sale of shares do not form part of the business turnover of the assessee. The requirement of Sec.36(2) is not fulfilled, which is a must for deduction to be allowed as bad debt written off u/s. 36(1)(vii). 27.4. I am, thus, to hold that the assessee is not entitled to the deduction claimed. (iv) M/s. WIE Digital Electronics Rs.25,00,000/- (v) M/s. Vipin Industries Rs.11,00,000/- (vi) M/s. Eagle Electricals Rs.32,00,000/- (vii) M/s. Rita Bottling Rs.2,57,375/- (viii) M/s. L & T Food Division Rs.2,56,351/- Rs. 73,13,726/- 28. The assessee gave the following explanation regarding these items vide letter dated 15.02.2000 to the Assessing Officer: "WIE Digital Electronics, Vipin Industries, Eagle Electricals The details in this regard, if any, will be furnished to you shortly, as this is not readily available. Rita Bottling, L & T Food Division – Rs.2.57 lakhs & Rs.2.56 lakhs These are our suppliers of capital items and the amount has remained outstanding for a long time on account of certain disputes. During the year, it was decided that the amounts are written off". No further details were furnished to the Assessing Officer who has referred to the submissions of the assessee in the asst. order. 28.2. The Assessing Officer noted that the amounts were given as advance and not trading debts and are therefore not of revenue nature. During the year, it was decided that the amounts are written off". No further details were furnished to the Assessing Officer who has referred to the submissions of the assessee in the asst. order. 28.2. The Assessing Officer noted that the amounts were given as advance and not trading debts and are therefore not of revenue nature. For allowance of deduction as bad debt written off, the business or trading debts should spring directly from carrying on of a business or trade and should be incidental to it and cannot be just any loss sustained by the assessee even if it has some connection with the business indirectly as held by the apex court in Indian Aluminium Company vs. CIT (1971) 79 ITR 514 As the bad debts did not go to the balance sheet as trading debt in the business of the assessee, it cannot be allowed as deduction as held by the apex court in the case of CIT vs. Birla Brothers Pvt. Ltd. (1970) 77 ITR 751 29. The appellant objects to the disallowance of these items aggregating to Rs.73,13,726/-. However, it is not in a position to throw any light on the nature of these items. 30. This is a case of claim of deduction in the form of bad debts/advances written off. It is the onus of the assessee to prove how the conditions of Sec.36(1)(vii) read with sec.36(2) are fulfilled. The assessee has not done anything in this regard except to claim that these represent advances written off. The assessee has not shown how the conditions of subsection (2) of section 36, especially clause (i) of that subsection, is fulfilled. In the circumstances, I uphold the disallowance". and these findings of the adjudicating authority had been affirmed by the first appellate authority and having discussed each and every claim of the assessee as noticed in the order and had examined the correctness of the order of the adjudicating authority and affirmed the same in terms of the appellate order dated 15.9.1999 as noticed by the appellate order in paragraphs 4 to 34 of its order. 19. The Tribunal on its part has reversed the findings of the two lower authorities on this aspect of the claim of the assessee towards bad debts written off as irrecoverable amount is as under: "15. 19. The Tribunal on its part has reversed the findings of the two lower authorities on this aspect of the claim of the assessee towards bad debts written off as irrecoverable amount is as under: "15. We have examined the facts thoroughly and considered the arguments of both the sides. We are of the view that so far as the write off in the case of Sunny Enterprises, Premier Enterprises and UB International [ME], they fully satisfy the conditions for allowance under section 36(1)(vii) of the IT Act and the decision of the Calcutta High Court in 232 ITR 324 supports the case of the assessee and hence these write off should be allowed. 16. The advances given to Gautam Constructions and Fishers for procuring Marine Products amounting to Rs.32.3 lakhs is an allowable expenditure under s.37 as the same was incurred wholly and exclusively for the purpose of business. There is no doubt that it is a business loss and the same should be allowed under s.37. 17. So far as the write off in the case of UB Elastomers Ltd., Tamilnadu Alkaline Batteries and Unitel Communications Ltd., they are covered by the decision of the Tribunal in the assessee's own case for the Asst. Year 1995-96 and we rely on the same and direct the Assessing Officer to allow the claim. 18. Lastly, the write off in the case of Pharmacia United Limited having been advanced during the course of carrying on a money lending business, the same should be allowed under the IT Act. The department had not brought out any reason for denying the claim of the assessee. Hence, we direct the Assessing Officer to allow the entire claim of the assessee, amounting to Rs.554 lakhs. 19. Thus, the assessee succeeds on the issue of write off bad debts". 20. The department had not brought out any reason for denying the claim of the assessee. Hence, we direct the Assessing Officer to allow the entire claim of the assessee, amounting to Rs.554 lakhs. 19. Thus, the assessee succeeds on the issue of write off bad debts". 20. In so far as the aspect of honouring the guarantee issued by the assessee – company and as indicated above, the adjudicating authority was of the view that the assessee is not entitled to claim the amount by way of any expenditure under section 37 of the Act by indicating the reasons as under: "(a) Disallowance of expenses relating to M/s. Tamilnadu Alkaline Batteries Limited (TNABL): As per the assessee company, TNABL was engaged in manufacturing of Batteries at Chennai which was owned by two subsidiaries of U.B. Ltd. namely Golden Investments Ltd. and East Coast Investments Ltd. TNABL obtained a loan of Rs.16 lakhs from Tamil Nadu Investment Corporation for which Golden Investments Ltd. and East Coast Investments Ltd. were the guarantors by virtue of the deed executed on 10.10.1985. TNABL availed a loan from Bank of Madura Ltd. and the amount outstanding as on 8.11.1994 was Rs.60.34 lakhs. This amount was guaranteed by East Coast Investments Ltd. and Golden investments Ltd. which were the subsidiaries of the assessee company and were amalgamated with the assessee company w.e.f. 01.04.1994. On account of default on the part of TNABL, Bank of Madura filed a suit against the assesee company after invoking the guarantee. After negotiation, the amount was finally settled by the assessee company which was acknowledged by the bank vide its letter dt. 08.11.1994. Here it is relevant to note that the liability to pay the guarantees invoked which were undertaken by the assessee company were not as the original guarantors but which were the liabilities of the subsidiary company and only as a result of amalgamation it is claimed that the assessee company is liable to pay. In the case of M/s. Saraswati Industrial Syndicate Ltd. vs. C.I.T. (1990) 186 ITR, 283 (SC), it was held that the amalgamated company is not the same as the subsidiaries which had stood as guarantors for the loan availed by TNABL and that the nature of the liability in the hands of the amalgamating company need not be same as that of in the hands of the amalgamated company. As guarantees in question were given by the amalgamated companies prior to amalgamation and the default was committed by TNABL, the guarantees should have been invoked on the amalgamated companies long before the effective date of amalgamation. Whatever the assessee company claims now as deduction on account of discharge of guarantee obligations should have been claimed by the amalgamated companies in the computation of their income for the periods they existed as legal entities before the date of amalgamation. Hence it appears that the liability taken over and discharged by the assessee company is of a capital nature. It is immaterial as to whether the amalgamating companies would have been entitled to claim the said payments as expenditure if they had existed during the previous year relevant to the assessment year under consideration. Apart from the above, no documents were produced by the assessee company to show that TNABL had no assets left from which the assessee company could have made an attempt to recover the amounts paid by it in discharge of the guarantee obligation. It seems that the assessee company has made its claim without exhausting the remedies that the guarantor has to recover the amount from the assets of the TNABL. In the light of the above discussion, I hereby disallow an amount of Rs.26,43,204.33 claimed by the assessee for discharge of guarantee obligation in respect of Tamilnadu Alkaline Batteries Ltd. (b) Disallowance of expenses relating to M/s. UNITEL Communications Ltd.: As per the details furnished by the assessee company, M/s. UNITEL Communications Ltd. (M/s. UCL) was a company promoted as a Joint Sector Company in the state of Orissa for manufacture of telecom equipments. The main shareholders were three wholly owned subsidiaries of U.B. Ltd. and Orissa State Industrial Development Corporation. The said company became sick and its revival became very difficult. When it approached the financial institutions for funds, the financial institutions insisted on the promoters to bring in more funds as capital for the revival of the company. It was at this juncture, that M/s. UCL approached U.B. Ltd. for guarantee to avail some lease finance and that is how the assessee company guaranteed to M/s. Nagarjuna Finance Ltd. Vysya Bank Leasing Ltd. and Excel Finance Ltd. during the F.Y. 1990-91. Thus from the above sequence of events, it is very much clear that M/s. UCL was a sick company financially. Thus from the above sequence of events, it is very much clear that M/s. UCL was a sick company financially. Any prudent guarantor would not have guaranteed the loans of M/s. UCL without properly protecting his own financial interest. However, inspite of knowing these facts, the assessee company stood as guarantors to M/s. UCL without any adequate consideration in return. In fact in 1994, M/s. UCL was declared a sick company by BIFR and the latter finally ordered to sell the assets of the company and for its winding up. It was also pleaded during the assessment proceedings that the guarantees were given for M/s. UCL as the companies in U.B. Group have substantial interest in M/s. UCL. Here it is pertinent to note that the business promoted by the subsidiaries cannot be said to be the business of the assessee company. A subsidy is totally different entity and as a separate existence than the holding company. The assessee company as such did not have any direct business connection with M/s. UCL. Moreover, the guarantees given by the assessee company have been proved to be without adequate consideration knowing fully well the unsound financial position of M/s. UCL. In view of the above, the assessee company's contention that standing guarantees for borrowings of UCL was wholly and exclusively for the purpose of the existing business of the assessee company cannot be accepted. Therefore, the payment made by the assessee company for invoking of guarantee is held to be not wholly and exclusively for the purposes of the assessee company's business and hence the amount of Rs.26,63,001/- is hereby disallowed". 21. While the adjudicating authority itself disallowed these two claims as business expenditure incurred by way of for honouring the guarantee issued by the subsidiaries of the assessee, the appellate authority affirmed this finding by recording its findings as under: "Issue No.2: Disallowance of Expenses relating to (A) M/s. Tamil Nadu Alkaline Batteries Ltd. .. Rs.26,43,204/-:- 35. According to the assessee, two of its subsidiaries, viz., Golden Investments Ltd. and East Coast Investments Ltd., owned Tamil Nadu Alkaline Batteries Ltd., (TNABL), a company engaged in manufacture of batteries. TNABL availed loan of Rs.16 lakhs from Tamilnadu Investment Corporation. For this loan the two subsidiaries mentioned above were the guarantors by virtue of deed executed on 10.10.1985. According to the assessee, two of its subsidiaries, viz., Golden Investments Ltd. and East Coast Investments Ltd., owned Tamil Nadu Alkaline Batteries Ltd., (TNABL), a company engaged in manufacture of batteries. TNABL availed loan of Rs.16 lakhs from Tamilnadu Investment Corporation. For this loan the two subsidiaries mentioned above were the guarantors by virtue of deed executed on 10.10.1985. TNABL also availed loan of Rs.60.34 lakhs from Bank of Madura Ltd. for which also these two subsidiaries stood as guarantors. The two subsidiaries got amalgamated with the assessee w.e.f. 1.4.1994. On default of TNABL, Bank of Madura filed a suit against the assessee company after invoking the guarantee provisions. After negotiation, the amount was settled by the assessee which was acknowledged by the bank vide its letter dated 8.11.1994. 36. The Assessing Officer noted in this context that the liability to pay the guarantee amounts arose not because the assessee was the original guarantors but only as a result of the amalgamation. In the case of Saraswati Industrial Syndicate Ltd. vs. CIT (1990) 186 ITR 283 SC, the apex court held that the amalgamated company is not the same as the subsidiaries which had stood as guarantors and the nature of the liability in the hands of amalgamating company need not be the same in hands of the amalgamated company. The guarantees were given by the amalgamating companies prior to amalgamation and once the default was committed by TNABL, guarantees should have been invoked on the amalgamating companies long before the date of amalgamation. Whatever the assessee claimed now as a deduction on account of discharge of guarantee obligation should have been claimed by the amalgamating companies in the computation of their income for the periods they existed as legal entities before the date of amalgamation. Hence, it appeared that the liability taken over and discharged by the assessee is of capital nature. It is immaterial whether the amalgamating companies would have been entitled to claim the said payments as expenditure if they had existed during the previous year relevant to the assessment year under consideration. The Assessing Officer also observed that apart from the above, no documents were produced by the assessee to show that TNABL had not assets left from which the assessee company could have made an attempt to recover the amounts paid by it in discharge of guarantee obligation. The Assessing Officer also observed that apart from the above, no documents were produced by the assessee to show that TNABL had not assets left from which the assessee company could have made an attempt to recover the amounts paid by it in discharge of guarantee obligation. It seemed that the assessee made the claim without exhausting the remedies that the guarantor has to recover the amount from the assets of TNABL. For the reasons given above, the Assessing Officer disallowed the claim of Rs.26,43,204/- claimed by the assessee as expenses towards discharge of guarantee obligation in respect of TNABL. 37. The appellant objects to the disallowance. It is submitted that the assessee, through its subsidiaries, took over the management and control of TNABL which is a sick industrial company, in 1985. In order to revive the company, UB group executed a guarantee and a letter of comfort in respect of principal lender, viz., Bank of Madura and also Financial Institutions like Industrial Reconstruction Bank of India, Tamilnadu Industrial Investment Corporation Ltd. Inspite of the best efforts, TNABL continued to incur losses. It was on this account that Bank of Madura and IRBI recalled their loans and also invoked the guarantees. After a great deal of negotiations between the lender and the UB group companies, it was finally decided that the entire loan will be repaid by way of one time settlement. It is pleaded that the entire amount of Rs.26,43,204/-paid consequently as outstanding to IDBI on account of guarantees should be allowed as a deduction. The assessee relies on the decision of the Supreme Court in the case of CIT vs. Amalgamations Ltd. (1997) 226 ITR 188. 38. If one go carefully through the presentation of facts by the assessee, it would be seen that the assessee uses expressions like guarantee given "by UB group of companies", negotiation between "UB group of companies and lenders, etc". The assessee has avoided mentioning, when and against which company in the UB group the lenders invoked the guarantee obligation provisions originally. This, I consider to be deliberate to distract attention from the fact that the guarantee must have been given by Golden Investments Ltd. and East Coast Investment Ltd., or some other concern and the default by TNABL on the loan availed in the year 1984, should have occurred long time before the previous year relevant to asst. This, I consider to be deliberate to distract attention from the fact that the guarantee must have been given by Golden Investments Ltd. and East Coast Investment Ltd., or some other concern and the default by TNABL on the loan availed in the year 1984, should have occurred long time before the previous year relevant to asst. year 1995-96 and that the lenders could and would have invoked the guarantee provisions only before recovery became barred by limitation. The date on which the lenders invoked guarantee provision in respect of default of loan given in the year 1984/1985 must have been years before the two companies merged with the assessee. Arguing, without conceding, that the liability on account of guarantee obligations is an allowable expenditure on the ground that the facts are similar to those of Amalgamation Ltd., it is to be noted that could have been an allowable expenditure only in the hands of those two companies for the previous year in which the creditors invoked the guarantee provisions, on mercantile basis followed by them. The relevant previous year had to end years ahead of 1.4.1994, which is the date of amalgamation. As the details are not given, it is not clear whether the subsidiaries claimed the loss in the previous year in which the lender invoked the guarantee provision. Any way, one thing that is clear is that if the liability is allowable as an expenditure, that would be an expenditure only in the hands of the subsidiaries for a previous year prior to 1.4.1994, the date of amalgamation. 38.2. The amalgamating subsidiaries appear to have been having carried forward loss at the time of amalgamation. If the expenses were not claimed/allowed and was to be allowed in their hands, in the previous years before amalgamation it would have added to the accumulated loss to be carried forward. There are restrictions in Sec.72A(2) of the I.T. Act against carried forward and set off of accumulated loss and unabsorbed depreciation of amalgamating company in case of amalgamation, and only if the conditions mentioned therein are proved to exist, the assessee can claim set off of carried forward loss and depreciation. The assessee has no such case and is obviously not entitled to set off of such losses. The assessee has no such case and is obviously not entitled to set off of such losses. It would appear that the assessee has invented a short cut for this, i.e., to claim the expenditure as its own liability on account of settlement of guarantee obligation in the year and rely on the decision of apex court in the case of Amalgamations Ltd. to contend that expenses on discharge of guarantee obligations. I think that the assessee has deliberately avoided giving the crucial facts which would show that the expenses if at all was to be allowed in somebody else's hands and in some other previous year and the assessee is only a pretender to the claims. 38.3. If the assessee has a real case that the liability to discharge the guarantee provision was not invoked by the creditors on the amalgamating subsidiaries before the amalgamation effective from 1.4.1994, and that the guarantee provisions could have been and was invoked for the first time on the assessee only during the previous year ended 31.3.1996, relevant to the asst. year, nothing prevented the assessee from coming out with details and evidence in support of the same. It is the onus of the assessee to disclose the details and prove its case of deduction. The relevant materials throwing full light on the transactions have to be in the possession of the 'assessee as the successor to the business of the amalgamating subsidiaries. That it dos not produce the details lead to the presumption under the general rules of evidence that the materials and evidence if produced would go against its contentions. 39. In view of the above discussions, I would hold that (1) The liability on account of contractual obligations arises in the year in which the liabilities are accepted, and not in the year in which the payment is effected. In the hands of the amalgamating subsidiaries, (or whichever company gave the guarantee) the liability on account of the guarantee provisions which they had undertaken to discharge, the moment the creditor invoked the guarantee provisions and its allowability or otherwise has to be considered in that previous year. Even if the expenditure is to be allowed as of revenue nature, it could be allowed only in the hands of the amalgamating companies in the year in which the lenders invoked guarantee provisions. Even if the expenditure is to be allowed as of revenue nature, it could be allowed only in the hands of the amalgamating companies in the year in which the lenders invoked guarantee provisions. (2) In the hands of the assessee, the liability arose only from 1.4.1994 the effect date of amalgamation, on account of this became its liability. Long before that time the liability had crystallized in the hands of the amalgamating companies on mercantile basis. Even if the expenditure was allowable and of revenue nature in the hands of the amalgamating companies, it could have been a revenue expenditure only of some earlier year. The assessee incurred the liability on mercantile basis on 1.4.1994 when it took over the liabilities on amalgamation and the liability was of capital nature in its hands. Further, the assessee incurred the same in the previous year relevant to asst. year 1995-96 and not the asst. year under consideration. The expenditure claimed is, thus, not allowable in the computation of income of the asst. year. 40. The full details have not been supplied to show that the guarantee obligation expenses has the nature of an allowable expenditure as per the decisions in the case of Amalgamation Ltd. Anyway, a finding as to the allowability of such expenditure on the basis of the decision of apex court in the case of Amalgamation Ltd. is only of academic value, as I have already held that the claim of expenditure is to be disallowed for other reasons. Issue No.3: Disallowance of expenses related to Guarantee Obligations in respect of M/s. UNITEL Communications Ltd. .. Rs.26,63,001/-: 41. The background of the case as explained in connection with similar claim of asst. year 1995-96 and recorded at para 11 of appellate order ITA. 110/CC-II/CIT(A)-I/98-99 dated 08.09.1998 are as follows: M/s. UNITEL Communications Ltd. (hereinafter referred to as UNITEL) was a company promoted as a joint sector company in the State of Orissa for manufacture of telecom equipments. The main share holders of the company are: three wholly owned subsidiaries of UB Ltd. and Orissa State Industrial Development Corporation Ltd. (OSIDC). UNITEL also availed huge loans from Financial Institutions and Banks. Due to high gearing and other factors, the company became sick and all the efforts to revive the business did not bear fruit. The main share holders of the company are: three wholly owned subsidiaries of UB Ltd. and Orissa State Industrial Development Corporation Ltd. (OSIDC). UNITEL also availed huge loans from Financial Institutions and Banks. Due to high gearing and other factors, the company became sick and all the efforts to revive the business did not bear fruit. Under the circumstance it was decided that UNITEL will once again approach the FIs for a rehabilitation loan. The FIs, on the other hand, insisted that the promoters should infuse more funds for the revival of the company. In the meanwhile, UNITEL required some assets and also funds for its operations. It approached UB Ltd. for a guarantee so that it can independently avail some lease finance from various leasing companies as per details given below: Name of the Leasing Company Date of Guarantee by UBL Nagarjuna Finance Ltd. 18-02-91 Vysya Bank Leasing Ltd. 16-01-91 Vysya Bank Leasing Ltd. 01-12-90 Vysya Bank Leasing Ltd. 15-11-90 Excel Finance Ltd. 11-03-91 Consequent to the erosion of net worth, UNITEL was declared as a sick company by BIFR. BIFR finally ordered in 1994, to sell assets of the company and ordered the company to be wound up. The assessee claimed deduction of Rs.67,23,565/-and Rs.26,63,001/- paid to Nagarjuna Finance Ltd., Excel Finance Ltd. and Vysya Bank Ltd. as paid in discharge of guarantee obligation during the years ended 31.3.1995 and 31.3.1996 respectively relevant for the asst. years 1995-96 and 1996-97. 42. In the asst. order for the asst. year 1995-96, the Assessing Officer reasoned that it was clear that UNITEL was a sick company (when the guarantee was given). No prudent person would have guaranteed the loans of M/s. UNITEL without properly protecting his own financial interest. In fact, in 1994 UNITEL was declared a sick company by BIFR and later it was ordered to sell the assets of the company and to wind up. 43. The assessee also contended during the course of assessment proceedings that the guarantees were given for UNITEL as companies in UB group had substantial interest in that company. 43.2. In this context, the Assessing Officer noted that the business promoted by the subsidiaries cannot be said to be the business of the holding company, as a subsidiary is a different entity having separate business. The assessee as such did not have any direct business connection with UNITEL. 43.3. 43.2. In this context, the Assessing Officer noted that the business promoted by the subsidiaries cannot be said to be the business of the holding company, as a subsidiary is a different entity having separate business. The assessee as such did not have any direct business connection with UNITEL. 43.3. For the reasons given above, the Assessing Officer rejected the contention of the appellant that the expenditure of Rs.26,63,101/-on account of guarantee obligations was wholly and exclusively for the purpose of the existing business of the company and disallowed the claim. 44. The appellant objects to the disallowance and reiterates the contentions before the Assessing Officer. 45. I have discussed appeal against disallowance of similar claim for the asst. year 1995-96 in my order ITA. 110/CC-II/CIT(A)-I/98-99 dated 08.09.1998. As mentioned at para 12 of that order, I am of the view that subsidiary is an entity different from the assessee. The business of subsidiary is different from that of the assessee. The appellant admittedly had no direct business connection with UNITEL. The business connection was with its subsidiaries. Even if the assessee had the business of standing guarantor, in this case there is no case that the assessee stood as guarantor for any consideration. Further, when the assessee gave its name as guarantor, UNITEL had already become sick. The assessee had clear access to information about the affairs of UNITEL through its wholly owned subsidiaries. That is, the assessee entered into the transaction with the clear knowledge that only loss and liability would arise to it from the guarantee. If in such a situation the assessee ventured to give guarantee for Lease Finance Ltd, it could not have been with the intention of making any gain from the venture, but with the deliberate intention of courting loss. It is possible that considerations like there being no use of such loss for the subsidiaries which had accumulated loss by that time must have weighed with the assessee to stand as guarantor instead of subsidiaries with the aim of earning loss to set off against its own income for the purpose of income-tax. Considerations of reducing profit so as to avoid tax liability cannot be taken to be genuine business consideration". 22. Considerations of reducing profit so as to avoid tax liability cannot be taken to be genuine business consideration". 22. The Tribunal on this aspect of the matter, has allowed the claims of the assessee for claiming the amount as deductible expenditure under section 37 of the Act by recording as under: "As far as guarantee obligation is concerned, this issue is fully covered by the decision of the ITAT rendered in assessee's own case for the asst. year 1995-96 in ITA No.947/BNG/1998 referred to supra. Hence, we direct relief of these sums aggregating to Rs.53.06 lakhs". purporting to follow its own view taken in respect of the very assessee for the assessment year 1995-96. 23. The third question relating to 'legal expenses' is a question answered by the Tribunal being of the view that it is a 'revenue expenditure' whereas the earlier two authorities were of the view that it was more in the nature of 'capital expenditure' as the expenditure had been incurred in the context of acquiring a 'capital asset'. 24. Yet another question which had been raised for the assessment year 1997-98 relating to the income attributable to the interest which had accrued to the assessee on the amount lent by the assessee – company to its business associates has been discussed by the assessing authority, was the subject matter of appeal of this court in respect of the very assessee is an amount which, in fact, has been indicated in the return and as an amount which has accrued by way of interest to the assessee, the assessee it appears by way of a note appended at the bottom of the return which reads as under: "Note 1: Interest income of Rs.74,75,000 accrued on inter corporate loan of Rs.3,25,00,000 given to Bangur group is excluded on 'real income' principles as the Company is of the view that the amount will not be realisable as the borrower has defaulted. Proof of the correspondence and copy of a cheque returned and cheque returned advices enclosed". and while the assessing authority and the first appellate authority had not accepted this claim, the appellate tribunal on the following discussion as found in paragraphs 51 to 53 which read as under: "51. Proof of the correspondence and copy of a cheque returned and cheque returned advices enclosed". and while the assessing authority and the first appellate authority had not accepted this claim, the appellate tribunal on the following discussion as found in paragraphs 51 to 53 which read as under: "51. From the facts, it appears that although nationally the assessee included the aforesaid sum of Rs.74.75 lakhs as income by crediting the profit and loss account, at the time of filing of the income tax return, the assessee excluded the same on real income principles. The assessee also stated that the cheques issued by the parties were dishonoured by the Banks and some of the Directors of the borrower companies were also jailed in between. It was also pointed out by the learned advocate that even till date, no amount had been recovered from the parties concerned. The learned advocate contended that this case is squarely covered by the decision of the Hon'ble Supreme Court in CIT vs. Bokaro Steels Ltd., in 236 ITR 315. 52. The learned DR as well as the Assessing Officer contended that the only way in which the assessee could have claimed is to write off the sum and then claim it as an expenditure rather than excluding it. For this learned Advocate for the assessee submitted that as decided by the Hon'ble Supreme Court in various cases, the taxability or otherwise of an income or an expenditure should be considered only from the point of view of the IT Act and not on the basis of entries which the assessee had passed in the books. In the Bokaro Steels Ltd., Case cited by the assessee, we find a direct support. The relevant paragraph as appearing in page 324 is reproduced below. "In the present case also the entry which was initially made as interest was reversed in the next year because in fact the nature of the transaction was changed and the assessee did not receive any real income. The High Court has therefore, rightly held this entry as a not reflecting the real income of the assessee and hence not eligible to income tax". 53. The High Court has therefore, rightly held this entry as a not reflecting the real income of the assessee and hence not eligible to income tax". 53. In the light of the above and relying on the decision of the Hon'ble Supreme Court mentioned supra, we hold the decision in favour of the assessee and delete the addition of Rs.74.75 lakhs and assessee succeeds on this issue. 54. Ground No.18 is not pressed by the assessee and hence dismissed". has allowed this claim of the assessee to permit the deletion of addition of Rs.74.75 lakhs which was an addition by the assessing authority and which had been claimed by the assessee as 'not real income' though on accrual basis it was an amount which had accrued to the assessee during the accounting period relevant for the assessment year. 25. Submission of Sri Seshachala, learned senior standing counsel appearing for the appellant – revenue is that the appellate tribunal has without any reason and without any material on record, has reversed the well considered findings of the original authority and the first appellate authority; that there is absolutely no discussion of the reasonings given by the two lower authorities for reversing the findings of the lower authorities and the basis for reversal is also not forthcoming except for noticing that the contentions of the assessee merits acceptance. 26. The finding recorded by the Tribunal leading to the conclusion to allow the appeal are as under: "3. The first issue raised by the assessee in ground Nos.1 to 4 of this appeal is against confirmation of disallowance of bad debts claimed by the assessee in respect of the amounts due from M/s. Pharmacia United India Ltd., M/s. Premier Enterprises, M/s. Sunny Enterprises, M/s. UB Elastomers Ltd., M/s. Tamil Nadu Alkaline Batteries Ltd., and M/s. Marine Produces. It is the contention of the assessee that the amounts outstanding were on account of advances given or the transactions made in the course of business and no part of the amounts outstanding were recoverable and accordingly they had been written off and claimed as bad debts by the assessee. It is the further contention the assessee that even if the claim of the assessee was not allowed under section 36(2), still the irrecoverable amount represented the business loss and accordingly liable to be allowed as a deduction. It is the further contention the assessee that even if the claim of the assessee was not allowed under section 36(2), still the irrecoverable amount represented the business loss and accordingly liable to be allowed as a deduction. It is also the contention of the assessee that the persons from whom debts were claimed as irrecoverable have become incapacitated and there is sufficient evidence to this effect. 4. The second issue in ground Nos.5 and 6 is against the disallowance of expenses towards discharge of guarantee obligation in respect of M/s. Tamil Nadu Alkaline Batteries Ltd., and UNITEL Communications Ltd.,. According to the assessee the Bangalore Bench of the Tribunal in the assessee's own case for the earlier year had allowed the guarantee obligation. 7. The fifth issue relates to legal fees paid to M/s. Fraser and Ross as revenue expenditure under section 37(1) of the Act. 9. The final issue raised by the assessee is that the CIT(A) should have adjudicated on the ground instead of holding that the issue has become final under section 143(1)(a) and could not be agitated in the regular assessment under s.143(3)". 27. The submission relating to the acceptance of deduction by way of 'bad debts' by the tribunal are to be found at paragraphs 10 and 11 of the order of tribunal which read as under: "10. The facts of the case are that the assessee UB Ltd., had an export division engaged mainly in the export of goods and articles. During the course of business the assessee gave advances to certain individuals who were operating in the coastal line of Vishakapatnam, Andhra Pradesh. Assessee had entered into an agreement with M/s. Gautam Constructions and Fisheries Limited to the effect that they would identify the boat owners and agents and recommend their names to UB and would remain as guarantor on behalf of the boat owners and agents. Out of the advances, an amount of Rs.32.69 lakhs was written off as it became irrecoverable. The company filed suit against the said GCFL for recovery of the amounts due to it. The said Gautam Constructions and Fishers Ltd., Wen to BIFR for its reconstruction. Therefore, there was no hope of recovery of any sums either from the debtors or from the mediator. Hence the amounts were written off as bad debts. The company filed suit against the said GCFL for recovery of the amounts due to it. The said Gautam Constructions and Fishers Ltd., Wen to BIFR for its reconstruction. Therefore, there was no hope of recovery of any sums either from the debtors or from the mediator. Hence the amounts were written off as bad debts. The second set of bad debts relates to Sunney Enterprises, Hyderabad for an amount of Rs.145.79 lakhs. Sunny Enterprises was a dealer of the assessee at Hyderabad. The assessee was supplying its products on credit basis. During the year under appeal there was prohibition in Andhra Pradesh, which resulted in heavy losses to the debtor. Inspite of best efforts, the assessee could not recover the dues from the said debtor. Therefore, it had written off this amount. Similarly, the assessee could not recover the dues from Premier Enterprises on the same set of facts. Another amount written of relates to bad debt in the case of UB International (ME) Ltd.,. UB International (ME) Ltd., is a division of the assessee – company, exported during the year 1993 certain electrodes which were bad in quality. Consequent to this, the outstanding amount due could not be recovered. This amount was written off in the books. A copy of the correspondence with the party along with the letter from British Bank of ME addressed to Vysya Bank on account of the non-receipt of the proceedings of the bills were also enclosed. However, the assessee claimed relief under s.36(vii) of the IT Act. Another amount written off is the debt from Pharmacia United Ltd. The assessee had been advancing moneys to its joint venture company known as Pharmacia United Ltd., which had a joint venture between the assessee company and Pharmacia United, Sweden. The advances were made during the course of the assessee's carrying on of business activity of money lending. Due to various developments, the joint venture project was abandoned and consequently, a sum of Rs.54.77 lakhs with Pharmacia United Ltd., could not be recovered. The financial position of this company also did not permit any payment. Hence, the assessee had written off this sum as non-recoverable. The assessee's contention is that it had accounted large income from money lending operations/guarantee obligation which one of its main activities. The financial position of this company also did not permit any payment. Hence, the assessee had written off this sum as non-recoverable. The assessee's contention is that it had accounted large income from money lending operations/guarantee obligation which one of its main activities. Hence, the advance to pharmacia United Ltd., which was made during the course of money-lending business and which could not be recovered, is an allowable deduction under the IT Act and accordingly the assessee prayed for allowing the same. 11. The next bad debt written off relates UB Elastomers Ltd. The assessee during the course of carrying on its money lending business had advanced a sum of Rs.264.75 lakhs to one of its group companies called M/s. UB Elastomers Ltd.,. The details facts of UB Elastomers had been dealt by ITAT, Bangalore Bench in the assessee's own case in ITA No.947/BNG/98 for the asst. year 1995-96 on the issue of writing off of guarantee obligation. The assessee claimed that following the decision of the Tribunal cited above, the entire claim should be allowed". 28. Submissions relating to payments towards 'guarantee obligation' are to be found in paragraphs 12 and 13 of the order of the Tribunal which read as under: "12. The next item of bad debt relates to Tamilnadu Alkaline Batteries Ltd.,. In this case, the assessee had advanced 32.67 lakhs which could not be recovered and a guarantee obligation of Rs.26.43 lakhs. According to the assessee, similar claim had been allowed by the Tribunal in the assessee's own case for the Asst. Year. 1995-96 in ITA No.947/BNG. The assessee prayed that this order should be followed and the assessee's claim should be allowed. 13. Another item of bad debt relates to Unitel Communications Ltd., in respect of guarantee obligation invoked amounting to Rs.26.63 lakhs which had been written off in the books the assessee submitted that the facts in this year are also identical to the facts for the asst. year 1995-96 in assessee's own case and the issue is covered by the decision of the ITAT is assessee's favour. Therefore, according to the assessee, it should be allowed". 29. year 1995-96 in assessee's own case and the issue is covered by the decision of the ITAT is assessee's favour. Therefore, according to the assessee, it should be allowed". 29. The finding with respect to these aspects are found at paragraph-15 of the order of the Tribunal relating to substantial question No.6 as stated (supra) which is at paragraph-34 of the memorandum of appeal in ITA No.492 of 2001 and in paragraph – 17 relating to substantial question Nos.3 & 4 as stated [supra] relatable to paragraphs 31 & 32 of the memorandum of appeal in ITA No.492 of 2001 in respect of the amount claimed by way of 'bad debts' or advances in favour of M/s. UB Elastomers Ltd., and M/s. Tamilnadu Alkaline Batteries Limited and in respect of M/s. Pharmacia United Limited regarding substantial question No.1 as stated [supra] relatable to paragraph 29 of the memorandum of appeal in ITA No.492 of 2001 as contained in paragraph-18 of the order of the Tribunal. Such paragraphs 15, 17 & 18 of the Order of the Tribunal referred to supra. 30. Even the finding relating to 'guarantee obligation' are to be found in paragraph-20 of the order of the Tribunal which is by way of following the order passed for the earlier assessment year. 31. Such paragraphs 15, 17 & 18 of the Order of the Tribunal referred to supra. 30. Even the finding relating to 'guarantee obligation' are to be found in paragraph-20 of the order of the Tribunal which is by way of following the order passed for the earlier assessment year. 31. Submission of Sri Seshachala, learned counsel for the appellant – revenue on these aspects, is that the order of the Tribunal is totally perverse, not supported by either facts or in law; that the assessee had not produced any supporting material in the first instance to indicate that the amounts constituted a 'debt' owed to the company by the persons in whose favour advances were sought to be written off; that even if it is to be a 'debt', for claiming it as 'bad debt' in terms of section 36(1)(vii) of the Act, the assessee should have produced proof of the efforts made on the part of the assessee to recover the amount and it is only when such efforts have failed and it is impossible to recover the amount that it can be claimed as irrecoverable debt and therefore a 'bad debt' can be claimed as an amount to be written off and as a deduction in computing the profits of the year in which it is so written off; that such is the requirement even in terms of section 36(1)(vii) of the Act which reads as under: "36.(1)(vii). Subject to the provisions of sub-section (2), the amount of any bad debt or part thereof which is written off as irrecoverable in the accounts of the assessee for the previous year Provided that in the case of an assessee to which clause (viia) applies, the amount of the deduction relating to any such debt or part thereof shall be limited to the amount by which such debt or part thereof exceeds the credit balance in the provision for bad and doubtful debts account made under that clause. Explanation – For the purposes of this clause, any bad debt or part thereof written off as irrecoverable in the accounts of the assessee shall not include any provision for bad and doubtful debts made in the accounts of the assessee." and in the absence of any material either to indicate that it was a 'debt' in the first instance or that any efforts had been made on the part of the assessee to recover the amount, there was never any question of permitting the assessee to write off in its books of accounts and claim it by way of deduction etc.,. 32. Further, Sri Seshachala, learned senior standing counsel appearing for the appellant – revenue would also point out that a deduction in terms of section 36(1)(vii) of the Act being subject to section 36(2) of the Act will become an allowable deduction only if the amount sought to be claimed by way of deduction as a written off debt is an amount which has already been offered by way of income and has suffered tax in the earlier years or current year and not otherwise and with the assessee not having shown that the amount in fact had been offered to tax in any earlier years or current year, there is no question of claiming the amount by way of bad debts as the bad debt can only be an amount which has come to the assessee from out of profit out of which amount is lent and otherwise if it had not been offered to tax by way of income, there is no question of allowing the amount even it had been an irrecoverable debt in the wake of the embargo imposed on section 36(2) of the Act. 33. With regard to the question of guarantee obligation being discharged, Sri Seshachala, learned senior standing counsel for the appellant has placed reliance on the Judgment of the Supreme Court in the case of 'A.V. Thomas & Co. 33. With regard to the question of guarantee obligation being discharged, Sri Seshachala, learned senior standing counsel for the appellant has placed reliance on the Judgment of the Supreme Court in the case of 'A.V. Thomas & Co. Ltd vs. Commissioner of Income Tax' reported in 48 ITR 67 in support of his submission that for claiming the amount as a 'business expenditure' by way of 'bad debt', the amount should have been a debt incurred in the course of carrying on the business activity of the assessee and in the present state of facts, the assessee had never made good as to how the amount had become a 'debt' as an amount either lent on any terms or for the necessity of the business and under what commitment and what terms it should have been repaid etc.,. 34. The fact that these amounts had never been reflected in the books of accounts of the assessee for the earlier years and also that no income by way of interest had been offered to tax is also a circumstance pointed out by Sri Seshachala, learned senior standing counsel for the appellant – revenue to submit that the claim by way of 'debt' itself is not tenable and to further claim that it is a 'written off bad debt' is something which is incomprehensible and therefore the order passed by the tribunal in reversing the findings of the two lower authorities on this aspect is nothing short of perverse finding, liable to be reversed and these questions to be answered in favour of the revenue. 35. It is also pointed out by Sri Seshachala, learned senior standing counsel appearing for the revenue that the assessee cannot blow hot and cold and claim it as either under section 36(1)(vii) of the Act as a bad debt written off or if it is not so possible to claim as deductible expenditure in terms of section 37 of the Act. 36. 36. In this regard, it is submitted that what does not pass muster in terms of the statutory stipulations of section 36(1)(vii) of the Act to claim it as an irrecoverable bad debt, cannot be brought back for claiming a deduction through the back door of section 37 of the Act; that which is not permissible directly and in fact prohibited cannot be achieved through the back door method of section 37 of the Act and it is only such expenditures which are not expressly covered or expressly excluded under any of the earlier provisions and which fails to so qualify, that can be relegated to the residuary provision for claiming as a deductible business expenditure as provided in section 37 of the Act, if it is in the nature of a revenue expenditure and incidental and necessary to be incurred for the business of the assessee. 37. With regard to the allowances towards offering a guarantee, submission is that the obligations are not as a result of direct commitment or obligation rendered by the assessee itself and as part of a business necessity, but more by way of a gratuitous undertaking by the assessee – company even when there was no legal compulsion on the part of the assessee to honour such guarantees. Here again, it is pointed out that the assessee had never made any efforts to claim reimbursement nor the real obligation but for honouring which obligation the assessee – company would have been put to any loss of its business reputation etc.,. 38. Sri Seshachala, learned senior standing counsel for the appellant, would also submit that the reliance placed by the tribunal on the decision of this court for the earlier year cannot be of any avail for more than one reason. 39. It is firstly submitted that it is a well settled principle in the understanding and working of Taxation Laws, that each assessment year is different and the finding of an earlier assessment year cannot be ipso facto called in aid by way of the legal principle precedents and therefore the ratio is required to be applied in all subsequent assessment years. It is submitted that the principle of res judicata does not automatically apply to taxation matters and in support of this submission has placed reliance on the decision of the Supreme Court in the case of 'Bharat Sanchar Nigam Ltd., & Another vs. Union of India & Others' reported in 282 ITR 273, particularly with reference to the observations made at paragraph – 15 which reads as under: "15. The decisions cited have uniformly held that res judicata does not apply to matters pertaining to tax for different assessment years because res judicata applies to debar Courts from entertaining issues on the same cause of action whereas the cause of action for each assessment year is distinct. The Courts will generally adopt an earlier pronouncement of the law or a conclusion of fact unless there is a new ground urged or a material change in the factual position. The reason why Courts have held parties to the opinion expressed in a decision in one assessment year to the same opinion in a subsequent year is not because of any principle of res judicata but because of the theory of precedent or the precedential value of the earlier pronouncement. Where facts and law in a subsequent assessment year are the same no authority whether quasi judicial or judicial can generally be permitted to take a different view. This mandate is subject only to the usual gateways of distinguishing the earlier decision or where the earlier decision is per incuriam. However, these are letters only on a co-ordinate Bench which, failing the possibility of availing of either of these gateways may yet differ with the view expressed and refer the matter to a Bench of superior strength or in some cases to a Bench of superior jurisdiction". 40. However, these are letters only on a co-ordinate Bench which, failing the possibility of availing of either of these gateways may yet differ with the view expressed and refer the matter to a Bench of superior strength or in some cases to a Bench of superior jurisdiction". 40. It is submitted this proposition is well supported by a good number of other authorities and therefore the finding of the Tribunal that the assessee was entitled to claim deduction in respect of expenditure said to be incurred for honouring the guarantee on behalf of the subsidiary company, does not qualify for deduction under section 37 of the Act when the question is examined independently for the assessment year in question and therefore the finding of the Tribunal on this aspect requires to be reversed and the substantial question of Law at Serial No.8 referred to [supra] and raised in paragraph-36 of the memorandum of appeal in ITA No.492 of 2001 is required to be answered in favour of the revenue and against the assessee. 41. In so far as the expenditure allowed by way of deduction towards 'legal expenses' which had been disallowed by the lower authorities and allowed by the tribunal as being in the nature of 'revenue expenditure', submission is that this is an expenditure incurred in the context of acquiring a capital asset and therefore has to be necessarily added as part of the expenditure incurred for acquiring a capital asset and accordingly the tribunal should not have interfered with this aspect of the matter and should have affirmed the order of the two lower authorities and the substantial question No.9, raised in paragraph-37 of the memorandum of appeal in ITA No.492 of 2001 should be necessarily answered in favour of the revenue and against the assessee by reversing this finding also. 42. 42. In so far as the question relating to 'real income' arising for the assessment year 1997-98 is concerned, submission is that the concept of 'no real income' which is more in the nature of an abstract concept should not have been called in aid by the Tribunal to bail out the assessee from the liability of tax as not necessarily accrued, more so when the assessee had first offered the amount by way of income and if at all it could have been claimed by way of irrecoverable debt etc., and not by simply saying it is not a real income and therefore deserves to be excluded even when the assessee itself had reflected the amount in its books of accounts and the balance sheet for the relevant period, following the mercantile system of accounting adopted by the assessee and which balance sheet in fact had been placed before the shareholders at its Annual General Meeting to substantiate the claim of the assessee – company, with regard to the profits earned by the company for the year in question. 43. It is therefore submitted this finding is not sustainable at all both in law and on facts and based on the relevant statutory provisions and in support of this submission, reliance is placed on the decision of the Supreme Court in the case of 'State Bank of Travancore vs. Commissioner of Income Tax' reported in 158 ITR 102 and particular reliance is placed on paragraph – 31 which reads as under: "31. The concept of reality of the income and the actuality of the situation are relevant factors which go to the making up of the accrual of income but once accrual takes place and income accrues, the same cannot be defeated by any theory of re: Income. Reference may be made to Calcutta Co. Ltd., vs. CIT (1959) 37 ITR 1 (SC): TC1R.197". 44. Reference may be made to Calcutta Co. Ltd., vs. CIT (1959) 37 ITR 1 (SC): TC1R.197". 44. Further submission of Sri Seshachala on this aspect is that when once the assessee has adopted the mercantile system of accounting, interest income has to be necessarily brought to tax on accrual basis and there was no escape for the assessee, but to offer the amount by way of income and even if it was not realized later to put forth claims thereafter in terms of the statutory provisions and not by excluding the amount itself from the income of the assessee for the year in question. 45. Reliance is placed on the Judgment of the Supreme Court in the case of 'Commissioner of Income Tax vs. Shiv Prakash Janak Raj & Co. Pvt. Ltd.,' reported in 222 ITR 583 in support of the submission regarding the consequences that follow if an assessee had adopted mercantile system of accounting and our attention is drawn to paragraph – 9 of this Judgment which reads as under: "Sri G.C. Sharma submitted that, applying the real income theory, it must be held that no interest had really accrued to or received by the assessee for the said three asst. yrs [1969-70, 1970-71 and 1971-72] and that indeed, no such entries were made in the account books of the assessee. He submitted that, as a fact, no income was received and that the assessee cannot be asked to pay tax on income which it had not received. We answer this contention by repeating the words of Sabyasachi Mukharji, J., in State Bank of Travancore, which we have extracted hereinabove. The concept of real income cannot be employed so as to defeat the provisions of the Act and the Rules. Where the provisions of the act and the Rules apply, it is only those provisions which must be applied and followed. There is no room nor would be permissible for the court to import the concept of real income so as to whittle down, qualify or defeat the provisions of the Act and the Rules". 46. Where the provisions of the act and the Rules apply, it is only those provisions which must be applied and followed. There is no room nor would be permissible for the court to import the concept of real income so as to whittle down, qualify or defeat the provisions of the Act and the Rules". 46. Countering such submissions, Sri Parthasarathi, learned counsel appearing on behalf of the assessee, who had been fully enabled to be assisted by Sri Ramanujam, Vice President for Taxation of the assessee – company on facts etc., has while fairly conceded that the tribunal has definitely not spelt out any reasons for reversing the findings recorded by the assessing authority and the first appellate authority and that the impugned order of the tribunal does suffer from the vice of being of non-speaking order, would nevertheless submit that the questions should not necessarily be answered against the assessee and in favour of the revenue only for this reason and if at all the matter deserves to be remanded to the Tribunal for recording proper findings on all aspects of the matter. 47. Sri. 47. Sri. Parthasarathi, elaborating his submissions would further contend that the amounts claimed by way of 'bad debt' in terms section 36(1)(vii) of the Act are all advances made either to the business associates of the company or business associates of the subsidiary of the assessee – company; that such advances were inevitable having regard to the nature of the business of the assessee, namely, one of vending beer; that in this line of business providing its product by way of credit is an inevitable course of business activity and impossibility of realizing certain advances is also a real and a concomitant incidence of such business activity and when the assessee had in fact demonstrated that all the companies in whose favour the assessee – company had advanced the amount had become either sick or have become defunct or have gone out of existence and with there being no possibility of realizing the advances given to its business associates, irrespective of any other material or evidence being not produced by the assessee, the amount should necessarily be allowed as a 'bad debt' under section 36(1)(vii) of the Act and if the Tribunal has done the very same thing, there is need for interfering with such an order of the Tribunal to the detriment of the assessee and therefore submits the question should be answered against the revenue and appeals should be dismissed. 48. It is submitted that the amount written off as bad debt were all inevitably part of the business transaction and therefore amount did qualify for claiming deduction in terms of section 36(1)(vii) of the Act and even with regard to the expenditure incurred towards honouring the guarantee, submission is that furnishing such guarantee or standing surety for borrowings of the business associate is also inevitable and incidental to the business that the assessee was carrying on and but for such indulgent and extravagant manner of carrying on the business, the assessee's business cannot flourish and it is the business prudence of the assessee company and when the amount is not realizable, inevitably has to be deducted as business expenditure, it cannot be fitted into any of the earlier enumerated statutory provision starting from section 28 of the Act. 49. 49. In support of the submission that the expenditure incurred for honouring the guarantees furnished in favour of the business associates of the assessee or its subsidiaries is an amount which the Tribunal has rightly permitted to be claimed under section 37 of the Act, Mr. Parthasarathi, learned counsel for the respondent – assessee has placed strong reliance on the Judgment of this court in respect of the very assessee referred to [supra] by Sri Seshachala. 50. Mr. Parthasarathi, learned counsel for the respondent – assessee would also place reliance on the decision of the Supreme Court in the case of 'Commissioner of Income Tax vs. Bokaro Steel Ltd.,' reported in 236 ITR 315 to submit that an income which has never reached or which never reaches an assessee cannot be taken to be real income and if this principle is to be applied, the income earned by way of interest on advances made to the business associate of the assessee – company which is an illusory income and not real income as when there was no possibility of recovering the capital itself, recovering any interest is too far fetched and therefore the acceptance of the real income theory and the income being not real in the hands of the assessee by the tribunal was warranted in law and should be sustained and the questions posed on this aspect should be answered against the revenue and in favour of the assessee. 51. We have not only perused the orders, but have perused the record also and given our anxious consideration to the submissions made at the Bar by the learned standing counsel for the revenue and learned counsel for the respondent – assessee and examined the authorities relied upon by the respective counsel. 52. With regard to the first request made by Sri Parthasarathi, learned counsel for the respondent for remanding the matter to the tribunal to record a proper finding and with reasons, we find that a request of this nature cannot be acceded to for the reason that a remand is not for the sake of remand but only when it is warranted and when a finding of fact is conspicuously absent notwithstanding there being supporting material or evidence to arrive at a finding on facts, based on the evidence available on record. 53. 53. In so far as the evidence/proof to constitute the supporting material for the claim of the assessee towards written off bad debts in terms of section 36(1)(vii) of the Act is concerned, we find that the record does not disclose any material at all to support either that the assessee had incurred a debt or that it had become irrecoverable for any reason, particularly, after the assessee had put in some efforts in this regard for recovery and had failed. 54. Except for the correspondence and letters written to the assessing authority and other subsidiary or other business associates and a letter written directly by the business associate of the company to the assessing authority, there is no other material forthcoming. Such letters do not constitute a material or evidence to support the finding of fact as letters by itself do not constitute evidence and more so when letter is written by the assessee itself or its business associates claiming certain things. 55. In the absence of any material on appreciation of which material the finding is required to be recorded, there is no question of the matter being remanded to the Tribunal as the Tribunal will not be able to record a finding in the absence of any material. The conclusion of the tribunal to reverse the well considered and well recorded findings of the assessing authority and the first appellate authority on disallowing claim towards written off bad debts in terms of section 36(1)(vii) of the Act is concerned, it is nothing short of perverse conclusion as it is no conclusion based on any material on record nor after giving any reasons to reverse the findings of the assessing authority and the first appellate authority who have given well supported reasons and discussed the material available. 56. Even on the accepted legal principles, a 'debt' is an expression well known in legal parlance and is an amount which is a legal obligation which if not discharged will give rise to a claim in favour of the creditor. The word 'debt' as defined under the various dictionaries are as under: ACCORDING TO RAMANATHA IYER'S LAW LEXICON DEBT : A sum of money due under an express or implied agreement (as) a bond or bill or note; amount due or payable from one person to another in return for money, services, goods, or other obligation. The word 'debt' as defined under the various dictionaries are as under: ACCORDING TO RAMANATHA IYER'S LAW LEXICON DEBT : A sum of money due under an express or implied agreement (as) a bond or bill or note; amount due or payable from one person to another in return for money, services, goods, or other obligation. A debt is a sum payable in respect of a money demand recoverable by action. In common parlance it is a sum of money due from one person to another. The word debt is of large import, including not only debts of record or judgment, and debts by speciality, but also obligations arising under simple contract, to a very vide extent, and in its popular sense includes all that is due to a man under any form of obligation of promise. BAD DEBT: Debt which cannot reasonably be collected. A debt about which there is no reasonable expectation of recovery; debt believed to be unrecoverable [S.6(1), Interest-tax Act]; [S.36(1)(vii), Income-tax Act]. ACCORDING TO BLACK'S LAW DICTIONARY DEBT: A sum of money due by certain and express agreement. A specified sum of money owing to one person from another, including not only obligation of debtor to pay but right of creditor to receive and enforce payment. BAD DEBT: Uncorrectable account receivable. Under National Bank Act, an unsecured debt on which interest or payment is past due for at least six months. A debt which is uncollectible; a permissible deduction for tax purposes in arriving at taxable income. Different tax treatment is afforded business and non-business bad debs. A business debt is defined by the Internal Revenue Code as a debt created or acquired in connection with a trade or business of the taxpayer, or a debt which becomes worthless in the taxpayer's trade or business. Loans between related parties (family members) generally are classified as non-business. A deduction is permitted if a business account receivable subsequently becomes worthless providing the income arising from the debt was previously included in income. The deduction is allowed only in the year of worthlessness. ACCORDING TO CHAMBERS 21ST CENTURY DICTIONARY DEBT: 1 something which is owed. 2 the state of owing something in someone's debt under an obligation, not necessarily financial, to them". 57. The deduction is allowed only in the year of worthlessness. ACCORDING TO CHAMBERS 21ST CENTURY DICTIONARY DEBT: 1 something which is owed. 2 the state of owing something in someone's debt under an obligation, not necessarily financial, to them". 57. As the phrase and word of technical and legal content and meaning and an amount which is said to be simply advanced for helping a business associate definitely cannot constitute a debt when the assessee had not placed any material to indicate that the business associate or any associate of the subsidiary of the assessee had a legal obligation for repayment of the amount. 58. Even here, the amount advanced are more towards the issue of shares in future if a company is to be brought into existence and in the hope of getting share allotted in the company. 59. An expenditure incurred for securing shares per se is a 'capital expenditure' and never 'revenue expenditure' and therefore the amount never qualifies for deduction either under section 36 or section 37 of the Act. 60. An expenditure in the nature of 'capital expenditure' straight away goes out of the purview of section 37 of the Act unless the amount fully qualifies in terms of the other statutory provisions and in the instant case, in terms of section 36(1)(vii) of the Act, there is no question of 'written of irrecoverable debts' which claim inevitably fails and the matter does not warrant interference even for a remand for recording a finding on nonexistent material and therefore we reject this claim and answer the questions regarding written off bad debts i.e., substantial question Nos.1 to 7 referred to [supra] corresponding to paragraphs 29 to 35 in the memorandum of appeal in ITA No.492 of 2001 in favour of the revenue and against the assessee. 61. 61. Even with regard to the finding of the tribunal that the amount paid by the assessee as part of discharge of its accumulated obligations and being allowed by the tribunal relating to substantial question No.8 for the assessment year 1996-97 it is to be answered in favour of the revenue and against the assessee for the reason that while the Tribunal does not refer to any supporting material or reasoning to reverse the well considered and well recorded finding of the assessing authority and the first appellate authority, the so called obligations on the part of the assessee are too far fetched and not having any direct proximity or relationship to the business transaction of the assessee. The Judgment of this court in the case of the very assessee is not one which is required to be applied and followed for the year 1996-97 also for the reason that in taxation matters, it does not constitute res judicata as each assessment year is different and on this aspect, reliance placed by Sri Seshachala, learned senior standing counsel appearing for the revenue on the decision of the Supreme Court in the case of 'Commissioner of Income Tax [Central], Calcutta vs. Birla Bros. P. Ltd.,' reported in 77 ITR 751. Each and every expenditure incurred cannot be characterized as a legal obligation and a necessary expenditure incurred by the assessee when it has a remote proximity to the business necessities of the assessee and therefore while the expenditure claimed by way of discharge legal obligation cannot be allowed, we find that the Judgment of this court in fact does not positively spell out the reasons but only indicates that no error was found in the order of the Tribunal. 62. In fact, the Judgment of the Supreme Court in BIRLA BROS case referred to [supra] was not brought to the notice of this court on the earlier occasion and therefore the Judgment of this court in the case of the very assessee for the assessment year 199596 reported in 292 ITR 188 has also to be characterized as a decision rendered per incuriam decision of the Supreme Court. 63. It is therefore we follow the binding decision of the Supreme Court in 'Commissioner of Income Tax [Central], Calcutta vs. Birla Bros. 63. It is therefore we follow the binding decision of the Supreme Court in 'Commissioner of Income Tax [Central], Calcutta vs. Birla Bros. P. Ltd.,' reported in 77 ITR 751 and applying this decision, we have to inevitably answer substantial question No.8 equivalent to paragraph-36 of the memorandum of appeal in ITA No.492 of 2001 against the assessee and in favour of the revenue. 64. In so far as the contention that the Tribunal has gone wrong on the premise that the interest income was not real, a theory put forth by the assessee and accepted by the Tribunal, submission of Sri Seshachala, learned senior standing counsel for the appellant with reference to the statutory provision merits acceptance. The concept of 'real income' or 'no real income' can never be a concept which can work if it is at variance with the statutory provisions. If the statute indicates that a particular receipt is in the nature of income receipt and a particular amount is to be brought to tax on the basis of accrual or receipt etc., and if it is a fact that interest accrued with the lapse of time on the basis of the agreement between the assessee – company and its business associates, particularly, agreement indicating that the assessee was entitled to claim the amount at 21% interest per annum, income automatically accrues with the lapse of time and there is no question of the amount being whisked away as not income by calling in aid the theory of no real income etc.,. 65. The Judgment of the Supreme Court relied upon by Sri. Seshachala, learned senior standing counsel appearing for the revenue in State Bank of Travancore's case referred to [supra] also fully covers this aspect of the issue against the assessee and in favour of the revenue. 66. It is only such income which dissipates midway and will never reach the assessee that can be characterized as not income accruing or arising to an assessee and not because even though the assessee gets a right to claim that, the amount in reality does not reach the assessee for any reason. 67. While the observations of the Supreme Court in State Bank of Travancore's case and in Shiv Prakash Janak Raj & Co. 67. While the observations of the Supreme Court in State Bank of Travancore's case and in Shiv Prakash Janak Raj & Co. Pvt. Ltd.,'s case referred to [supra] are very apt on this aspect, reliance placed by Sri Parthasarathi, learned counsel for the respondent – assessee on the decision of the Supreme Court in Bokaro Steel Ltd.,'s case referred to [supra] to the effect that the income being not one reaching the assessee and therefore 'no real income' is not attracted to the facts of the case as in the case decided by the Supreme Court, on facts, it had been demonstrated by the assessee that the entire nature of transaction had been changed and therefore the income ceased to exist in favour of the assessee as the very agreement became non est and it was substituted by some other agreement which in legal parlance can be called as novation and if so it is such part of the income which is attributable to the substituted contract which can be looked into for the purpose of taxation and not a contract which had ceased to exist and operate in law. But, in the present case, while even admittedly, the transaction between the assessee and its business associate in whose favour amount had been advanced was required to be repaid with 21% interest, continued to remain in operation and the assessee had not taken any steps to terminate the contract or writing off of principal amount by way of bad debt, nevertheless, claiming the accrued interest as not real income does not work in law as section 5 of the Act takes care of the situation and the moment there is an accrual of income by way of interest income, it has to be inevitably offered to tax and even if it is not so offered, it is the duty of the income tax authorities to bring it to tax. It may be a different aspect that the amount if not realized, it can be claimed as a bad debt in the later year. But, that situation does not arise in the present case. It may be a different aspect that the amount if not realized, it can be claimed as a bad debt in the later year. But, that situation does not arise in the present case. In this regard, we have also answered the very question against the assessee and in favour of the revenue in ITA No.138 of 2001 disposed of on 4.1.2010 and following the same and even as discussed above, this question also is answered in favour of the revenue and against the assessee as it occurs in substantial question No.14 relatable to paragraph-42 of the memorandum of appeal in ITA No.492 of 2001. 68. That leaves us with the other question, namely, as to whether the Tribunal was right in allowing the 'legal expenses' of Rs.15 lakhs incurred towards obtaining advice and by way of consultation fees paid to the auditors of the assessee – company as to the feasibility of acquiring a brewery unit in South Africa. 69. As the revenue has not disputed that the assessee had in fact incurred this expenditure and though Sri Seshachala, learned senior standing counsel appearing for the appellant – revenue would bring to our notice the relevant statutory provision, namely, section 35D of the Act as it prevailed at the relevant point of time and submits that any expenditure incurred by way of expansion of business undertaking or in connection with the setting up of new industrial unit etc., is to be amortized as part of the investments, we are not impressed either by the submissions that it is in the nature of 'capital expenditure' or that section 35D of the Act is attracted to the facts of the present case. 70. 70. We say so for the reason that an expenditure incurred even in connection with acquiring a capital asset which is in the nature of a fee paid towards consultation for the business expansion, as the expenditure incurred may or may not result in the acquisition of the capital asset itself, it is for the very purpose of finding out the prudence or feasibility of acquiring the asset the assessee seeks an expert opinion on that and an expenditure incurred for such purpose and therefore in our considered view, this expenditure can never partake the character of 'capital expenditure' but is only a 'revenue expenditure' and the tribunal has rightly allowed this amount as 'deductible expenditure' though has not spelt out the reason either elaborately or succinctly in its order. Be that as it may, we answer question No.9 relatable to paragraph No.37 of the memorandum of appeal in ITA No.492 of 2001 in favour of the assessee and against the revenue. 71. In the wake of our findings above, except for question occurring at paragraph-37 of the memorandum of appeal in ITA No.492 of 2001 which is substantial question No.9 referred to above and relating to assessment year 1996-97, all other questions for this assessment year and all questions for the assessment year 1997-98 are answered in favour of the revenue and against the assessee. 72. The order of the assessing authority as affirmed by the first appellate authority in so far as it relates to all other findings other than finding relating to the fee towards obtaining feasibility report for acquiring brewery unit at South Africa are all restored and affirmed. The order of the Tribunal is reversed to the extent indicated above. 73. While ITA No.492 of 2001 is allowed in part levying cost of Rs.10,000/-on the respondent in favour of the revenue, ITA No.89 of 2003 is allowed in full levying cost of Rs.5,000/- on the respondent in favour of the revenue. 74. Cost to be paid within four weeks from today, failing which the revenue can realize the amount as part of recovery on its own.