2008 (12) TMI 674 - HC - Income Tax

Whether on the facts and in the circumstances of the case the Tribunal was right in holding that the amounts of loans and advances outstanding written off by the appellant as not recoverable is not deductible while computing its income? Whether on the facts and in the circumstances of the case the Tribunal ought to have appreciated that the appellant had properly evaluated and assessed the recoverability of the loans while arriving on the amount which in their opinion is not recoverable and hence was not right in holding that the debts written off have not become bad during the year ? Held that - The disallowance of the claim for write off is more on the basis of surmise and not on the basis of evidence available. Therefore we remand the matter to the Assessing Officer who will examine whether after the assessee had taken possession of the unit any recovery had been made. As regards claim No. 1 non-owner driven case the matter has already been remanded to the Assessing Officer to determine in which of the cases the loans are recoverable and whether any guarantor has been proceeded against. In these circumstances we are not answering the question of law and remanding the matter to the Assessing Officer .

Summary

Issues:
1. Deductibility of written off loans and advances.
2. Evaluation of recoverability of loans and bad debts.

Analysis:
The case involved the deduction claimed by the assessee for writing off bad debts. The Assessing Officer partially allowed the claim, which was partly upheld by the Commissioner of Income-tax (Appeals) and the Tribunal. However, specific claims were remanded for further examination. For instance, the Tribunal remanded the issue of fishing trawlers to the Assessing Officer for detailed scrutiny based on the note from the legal cell. The claim related to investments was upheld by the Tribunal. In the case of companies under liquidation, the Tribunal agreed with the assessee's write-off claim of 90% of the outstanding amount, considering the lengthy liquidation process.

Regarding the joint finance case, where the assessee had advanced loans with other entities for a project, the Assessing Officer and the Commissioner of Income-tax (Appeals) did not allow the deduction, suggesting that the recovery value and the directors' guarantees should cover the outstanding amount. However, the High Court found the disallowance to be speculative and lacking evidence. Consequently, the matter was remanded to the Assessing Officer to assess any recoveries made after the assessee took possession of the unit.

In the case of non-owner driven cases, the High Court remanded the matter to the Assessing Officer to determine the recoverability of loans and the status of any guarantors pursued by the assessee. The Court emphasized the need for evidence-based decisions and directed the Assessing Officer to evaluate the claims in accordance with the law. The assessee was given the opportunity to provide supporting evidence for the write-offs claimed, ensuring a fair assessment by the tax authorities.