DAHANUKAR M L AND CO PVT LIMITED Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) TWO questions have been referred to our decision under S. 66(2) of the Indian IT Act. They are as follows :

(2.) THE assessee is a private limited company, M.L. Dahanukar and Co. Pvt. Ltd. This company is, so to say, the central organisation of a number of companies which one M.L. Dahanukar and his sons own and control. In all the group of companies the controlling interest is that of the Dahanukar family. It will be convenient therefore to refer to this group of companies as the Dahanukars. In 1948, the Dahanukars promoted the Worli Chemicals Works Ltd. (hereinafter referred to as the Worli company) and in that company the assessee -company owned 662 shares, M.L. Dahanukar owned 11 shares and his son, D.M. Dahanukar, owned 330 shares, thus making a total of 1,003 shares. Of the share capital of this company, only 50% has been called up. The directors of the assessee -company and the Worli company are common. From time to time the assessee -company used to finance the Worli company. It is not in dispute that the assessee -company carries on the business not merely of managing agents but from time to time finances all the other companies of the family and is engaged in lending moneys to them and borrowing moneys from the members of the family. Whether that was done as a matter of business was one of the points raised before the AAC but it is not in dispute before us that the transactions between the assessee -company and the Worli company were transactions in the course of the business of the assessee. The Worli company is engaged in the manufacture of chemical products including chemical medicinal products. In the course of their business they required finance and the assessee - company from time to time used to finance the Worli company. At the commencement of Samvat year 2008 the Worli company owned to the assessee -company a sum of Rs. 5,85,413 -1 -3. There were several transactions during this year between the two companies to which we shall presently refer but on 17th Oct., 1952, i.e., one day before close of the Divali year S.Y. 2008 the assessee - company wrote off a sum of Rs. 2 lakhs out of the indebtedness of the Worli company to them. Taking into account the other transactions the books of the assessee -company showed that the Worli company was indebted to them in the sum of Rs. 4,97,200 -14 -6.

(3.) WHEN the matter came under the scrutiny of the CIT, he felt that the order passed by the ITO was erroneous and prejudicial to the interests of the Revenue. Therefore, after hearing the assessee, the CIT took action under his revisional powers under S. 33B of the IT Act. The CIT in his order held in favour of the assessee that the transactions were in the course of the money - lending business of the assessee -company and to that extent the lending of moneys by assessee -company was justified. Then he considered the question whether the debt to the extent of Rs. 2 lakhs was bad in the particular year in which the same was written off and he pointed out a number of circumstances upon which he came to the conclusion that it could not be said that there was no reasonable expectation of recovering the whole debt on the date on which it was written off by the assessee -company. He pointed to several transactions which the assessee -company continued to have with the Worli company even after the sum of Rs. 2 lakhs was written off and observed that