2010 (12) TMI 858 - HC - Income Tax

Deduction u/s 36(i)(vi)- Whether Tribunal was legally justified to hold the sundry debts of trading receipts as bad debt to allow its deduction u/s 36(1) (vii) of I.T. Act - The decision in the case of Taylor Instrument Co. India Ltd. Vs. CIT 2001 -TMI - 12853 - DELHI High Court wherein on similar facts and circumstances the issue was held to be allowable as bad debt supports the case of the assessee - The CIT(A) had recorded a finding of fact that the amount had become irrecoverable and therefore was bad debt - The said finding had been affirmed by the Tribunal - Decided in favour of assesee.

Summary

Issues:
1. Whether the Income Tax Appellate Tribunal was legally justified in holding the sundry debts of trading receipts as bad debt to allow its deduction under section 36(1)(vii) of the Income Tax Act.

Analysis:
The case involved an appeal under Section 260A of the Income-Tax Act, 1961, filed by the Revenue against an order passed by the Income Tax Appellate Tribunal related to the assessment year 1997-98. The main question for determination was whether the Tribunal was justified in allowing the deduction of sundry debts as bad debt under Section 36(1)(vii) of the Act. The assessee had claimed bad debts written off amounting to Rs. 12,52,350, which was disallowed initially but later allowed by the Commissioner of Income-tax (Appeals) and upheld by the Tribunal.

The Tribunal, after considering the facts and arguments presented, concluded that the assessee had the authority to determine if the debt was genuinely bad, not the department. The Tribunal highlighted an amendment in the proviso to Section 36(1)(vii) which allowed bad debts written off in the books of accounts to be considered as irrecoverable. The Tribunal cited relevant case laws to support the allowance of bad debt in similar circumstances. It was noted that the Assessing Officer did not question the conditions for allowing bad debts, and the assessee had even filed an FIR with the Police Station regarding the matter.

The Commissioner of Income-tax (Appeals) had found that the amount in question had become irrecoverable and was thus classified as bad debt, a finding that was upheld by the Tribunal. The Court, after reviewing the arguments and findings, dismissed the appeal by the Revenue as no fault was found in the reasoning provided by the Tribunal. The Court found no basis for interference based on illegality or perversity in the impugned order, thereby upholding the decision to allow the deduction of bad debts as claimed by the assessee.