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2013 (1) TMI 291 - HC - Income TaxAddition being the loan written off as bad debt - ITAT deleted the addition relying on T.R.F. LTD. Versus CIT 2010 (2) TMI 211 - SUPREME COURT - revenue contested as he debt has not become bad and the assessee was not in the business of money lending - Held that - The Tribunal committed no error in deleting the addition as decided in T.R.F. LTD. Versus CIT (supra) it is not necessary for the assessee to establish that the debt, in fact, has become irrecoverable. It is enough if the bad debt is written off as irrecoverable in the accounts of the assessee. The objection of not in the business of money lending was overrulled by relying on CIT v. City Motor Service Ltd. 1965 (12) TMI 126 - MADRAS HIGH COURT Additional condition - the assessee had to fulfill to claim bad debt u/s 36(1)(vii) was to satisfy clause (i) of sub-section (2) of section 36 - Held that - Clause (i) of sub-section (2) of section 36 itself provides that the claim for deduction as bad debt would not be allowed unless such debt or part thereof has been taken into account in computing the income of the assessee of the previous year in which the amount of such debt or part thereof is written off or of an earlier previous year. It is not the case of the revenue that such condition was not satisfied - no question of law arises.
Issues:
- Whether the Tribunal was correct in deleting the addition of a loan written off by the assessee as a bad debt? - Whether the Tribunal was correct in applying the Apex Court's decision in a different case to the present scenario? - Whether the Tribunal was correct in taking a different view from an earlier Bench regarding the conditions for claiming bad debt? Analysis: 1. The primary issue in this case revolves around the claim of the assessee to write off a loan of Rs. 65 lakhs as a bad debt. The Tribunal initially ruled against the assessee, but upon a recall application, the Tribunal proceeded to hear the appeal afresh. In the fresh decision, the Tribunal favored the assessee, justifying the claim of bad debt. The Tribunal overruled objections from the Assessing Officer regarding the debt's bad and doubtful nature and the eligibility of the assessee for such deduction, citing relevant legal precedents. 2. The Tribunal's decision was based on the Supreme Court's ruling in the case of T.R.F. Ltd., where it was established that it is not necessary for the assessee to prove the debt is irrecoverable, but sufficient if it is written off as irrecoverable in the accounts. The Tribunal correctly applied this principle to the present case, where the assessee had written off the amount based on the inability to recover it despite legal actions. 3. Another condition for claiming bad debt under section 36(1)(vii) of the Act is to satisfy specific criteria mentioned in the Act. The Tribunal found that the assessee fulfilled these conditions, including the requirement that the debt had been taken into account in computing the income of the assessee in the relevant years. The revenue did not dispute this fulfillment of conditions. 4. The revenue contended that the Tribunal, having previously ruled against the assessee, could not change its decision. While the Tribunal does not have the power of review during rectification, in this case, the original order was passed in the absence of the assessee, and the subsequent recall was justified. Therefore, the Tribunal had the authority to decide the appeal afresh without limitations. 5. Ultimately, the High Court held that the Tribunal did not commit any error in its decision. As no legal question arose from the case, the Tax Appeal was dismissed, affirming the Tribunal's ruling in favor of the assessee regarding the claim of bad debt.
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