2010 (6) TMI 839 - AT - Income Tax

Summary

Issues Involved:
1. Deferment of Sales Tax Liability u/s 43B.
2. Claim of Bad Debt u/s 36(1)(vii).

Summary:

1. Deferment of Sales Tax Liability u/s 43B:
The Revenue challenged the deletion of additions made on account of deferment of Sales Tax Liability u/s 43B amounting to Rs. 87,34,303/- for A.Y. 2005-06 and Rs. 1,24,85,236/- for A.Y. 2006-07. The assessee, engaged in manufacturing Maize Starch and other chemicals, had shown sales-tax liability as outstanding under "Sales-tax Deferment." The ITAT Ahmedabad, referring to its earlier decision in the assessee's case for A.Y. 2003-04, upheld the CIT(A)'s order. The Karnataka Government had amended the Sales Tax Act to treat deferred sales tax as a loan, and the assessee had fulfilled all conditions for deferment. Thus, the ITAT dismissed the Revenue's ground, affirming that the deferred sales tax liability should be treated as paid.

2. Claim of Bad Debt u/s 36(1)(vii):
The Revenue contested the deletion of additions made on account of bad debts amounting to Rs. 36,57,405/-. The Assessing Officer had disallowed the bad debt claim, arguing that the assessee failed to prove the debtors' capacity and the adequacy of recovery measures. The CIT(A) allowed the claim, following the ITAT's earlier decisions in the assessee's favor for previous years. The ITAT referenced the Special Bench decision in DCIT vs. Oman International Bank and the Hon'ble Supreme Court's ruling in T.R.F. Ltd. vs. CIT, which established that post-01/04/1989, it is sufficient for the assessee to write off the debt as irrecoverable in the accounts. The ITAT upheld the CIT(A)'s order, dismissing the Revenue's ground and directing the allowance of the bad debt claim.

Conclusion:
Both appeals of the Revenue were dismissed, and the orders of the CIT(A) were upheld. The ITAT confirmed that the deferment of sales tax liability and the claim of bad debts were correctly allowed by the CIT(A), following established legal precedents.