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Issues involved: Interpretation of u/s 36(1)(vii) of the Income-tax Act, 1961 regarding writing off a bad debt by the assessee.
In the present case, the High Court of Delhi considered an appeal by the revenue against an order of the Income-tax Appellate Tribunal related to the assessment year 1995-96. The main issue was the writing off of a bad debt by the assessee, governed by u/s 36(1)(vii) of the Income-tax Act, 1961. The revenue contended that there should be evidence to prove that the debt was bad before it could be written off as irrecoverable. However, the Court opined that a prudent businessman would not write off a debt he hopes to recover. In the absence of any contrary evidence, the debt written off as irrecoverable should be presumed to be a bad debt. The Court also referred to a previous judgment by another Division Bench of the same Court, which highlighted Circular No. 551 issued by the Central Board of Direct Taxes. The Circular aimed to eliminate litigation regarding the allowability of bad debts by amending the statute to enable assessee to write off a debt as irrecoverable and claim deduction, thus indicating the legislative intent behind u/s 36(1)(vii). Ultimately, the Court found no substantial question of law requiring consideration and dismissed the appeal.
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