2006 (12) TMI 106 - DELHI HIGH COURT

Addition on account of bad debts written off - bad debts u/s 36(1)(vii) read with section 36(2) - money-lending by way of inter-corporate deposits (ICDs) - The Tribunal, in the impugned order, has deleted the disallowance of the amount treating it to be irrecoverable. It further held that since the principal is not recoverable, there is no reason or justification to charge interest on this sum - HELD THAT:- A conjoint reading of section 36(2) and section 36(1)(vii) makes it clear that the assessee would be entitled to a deduction of the amount of any bad debt which has been written off as irrecoverable in its accounts for the previous year. Any lingering doubt would vanish on a careful reading of Circular Number 551.

Thus, In our view that the Circular Number 551 leaves no scope for debate since it specifically notices the previous practice of having to establish that a debt had become bad in the previous year, which had generated enormous litigation on the question of allowability of bad debt in a particular year. The circular expressed the hope that this litigation would be eliminated by permitting a debt to be treated as a bad or irrecoverable no sooner it was written off in the books of the assessee concerned.

In these circumstances no substantial question of law arises in the present case. Dismissed.