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3. As per the provisions of The Companies Act 1956, a private limited company is not allowed to issue a prospectus as it cannot invite the public for subscription. In view of the fact that all the OCDs were issued by private limited companies there would be no requirement of a prospectus in such cases. The OCDs are issued by private limited companies usually on a private placement basis.

4. As the OCDs were issued long back and since matured became a non performing debt, provided for and written off, the copies of certificates are not readily traceable. However, the matured debentures regularly appeared in balance sheet of the company and details ate enclosed herewith.

7. Assessee preferred an appeal before the FAA. After considering the submissions of the assessee and the arguments of the AO, he held that the assessee had not stated certain facts correctly in the assessment proceedings, that OCDs were purchased by Jindal Vijaynagar Steel Limited in the year 1994, that OCDs were to be converted into shares or to be redeemed after the expiry of 7 years from the date of allotment, that these OCDs were allotted to the appellant on the merger of M/s JIndal Vijaynagar Steel Limited in financial year 2004-05, that these OCDs were matured in the year 2001, that these assets were classified as mature debentures by the Jindal Vijaynagar Steel Limited, that the claim of the assessee about acquiring the OCDs in the year 2003-04, 2004-05 & 2005-06 was not correct. He held that the claim of the assessee about reversal of interest income of non-performing assets could not be accepted, that the guidelines issued by the RBI to NFBC were only disclosure guidelines, that the said guidelines did not override the provisions of the Act. Relying upon the order of the Hon'ble Supreme Court delivered in the case of M/s Southern Technologies Limited, in ITA 1337/2003, he held that the assessee was not entitled to deduction on account of provisions of NPA, even though the provisions was made as per the RBI guidelines. He further held that there was no provisions under the Act to allow deduction on account of reversal of income shown in the earlier years unless there was crystallization of liability to return income. He held that as far as interest amounting to Rs.7.47 lakhs was concerned, it was allowable expenditure for the year under consideration. He reduced the disallowance by Rs.7.47 lakhs. Assessee-company has filed the appeal against the disallowance made by the FAA, whereas AO has challenged the relief given by him i.e. Rs.7.47 lakhs.

18. A perusal of the above order which sums up the facts relevant to the aforesaid issue revealed that OCDs were purchased by Jindal Vijaynagar Steel Ltd (JVSL). These OCDs matured in the year 2001 and these assets were classified as Matured Debentures by JVSL and it was part of its OCDs. Pursuant to the Scheme of Arrangement and Amalgamation between Jindal Iron & Steel Ltd (JIST) and JVSL, the investment division consisting of investments and loans & advances was transferred to the assessee company w.e.f. 1.4.2003, which included the OCDs in question amounting to Rs. 2.50 cores. In view of the long overdue status of these OCDs, the assessee company made provisions for these OCDs in financial year 2005-06 and financial year 2006-07 being non-performing assets (NPA). During the year under consideration, the assessee company has written of these NPAs in the books and claimed as bad debts written off in the return of income. The interest on the aforesaid OCDs for financial year 2003-04 and financial year 2004-05 was provided for on accrual basis and the same were offered for taxation during the relevant assessment year. The assessee company was declared Non-banking Financial Institution in the assessment year 2006-07. The assessee company had written off all the aforesaid interest dues as irrecoverable and debited the same to the profit and loss account during the assessment year 2006-07. The Tribunal observed that the assessee had fulfilled all the requirements of Clause (vii) of sub clause (1) of section 36 of the Act. The Tribunal observed that since the assessee had offered the said amount of interest as income which was subsequently written off, because of its non-recovery and that the same was in accordance with the prescribed guidelines. Now the question before us is that, even if, the said interest has been allowed to be written off, whether the said OCDs are allowable for deduction as bad debts written off. The relevant clause (vii) of section 36(1) of the Act which deals with the bad debts is reproduced as under:-

(ii) ......................."

19. In our view, the claim of the assessee regarding the aforesaid OCDs claimed as 'bad debts written off' is hit by clause (i) of sub section (2) of section 36 of the Act. The aforesaid OCDs have not been taken into account in computing the income of the assessee in any previous year. The said OCDs were part of investment portfolio of JVSL, the status on merger of the said OCDs is required to be given the same treatment in the hands of the successor. Since the aforesaid OCDs were part of the investments of the predecessor holder and, hence, it cannot be said that the same were business assets of the predecessor holder or that the said OCDs has been taken into account in computing the income of the predecessor holder of any previous year. Hence, it cannot be said that the assessee has acquired any right of the predecessor company to claim deduction on account of bad debts written off in respect of such write off of OCDs, because such rights were not available even to predecessor holder of these OCDs. Nor the said OCDs represents money lent in the ordinary course of business of mone y lending carried on by the assessee. Admittedly, the assessee was not a NBFC at the time of acquiring the said OCDs, hence, it cannot be said that the OCDs were part of the money lent in the ordinary course of business, though later on the assessee company had offered interest on such OCDs as its business income. The said OCDs neither represent the debt or part thereof which has been taken into account in computing the income of the assessee in any earlier previous year nor the same represents the money lent in the ordinary course of business of money lending carried on by the assessee.