2014 (3) TMI 899 - AT - Income Tax

Bad debts not allowed - Sale of immovable property Written off non receipt of deposit Held that - revenue contended that it is a capital loss which cannot be claimed either u/s. 37 as business loss or as bad debt u/s.36(1)(vii) of the Act - the assessee had taken possession on immovable property i.e. residential house in earlier years which was sold during the year and claimed loss on account of sale of the immovable property - The assessee had shown these assets in the balance sheet as capital assets - loss incurred on sale of capital assets is not allowable u/s. 36 (1)(vii) of the Act as bad debt written off as well as business loss u/s. 37 of the Act because it is a capital loss - the assessee made deposit for booking car to M/s. Pal Peugot Ltd. which was not recovered from it and deposit was for capital assets - No income against this debt had been disclosed by the assessee in past thus, there is no reason to intervene in the order of the CIT(A) Decided against Assessee.

Summary

Issues:
1. Disallowance of bad debts claim of Rs.25,00,000.
2. Disallowance of claim for writing off non-receipt of deposit of Rs.50,000 from PAL Peugeot Ltd.

Analysis:
1. The assessee claimed bad debts of Rs.25.5 lacs due to the sale of immovable property, which was disallowed by the Assessing Officer (A.O.). The A.O. reasoned that the loss from the sale of capital assets cannot be considered as bad debts. The CIT(A) upheld this decision, stating that since the debtor's account was closed after receiving immovable assets in settlement, no new amount could be written off. The Tribunal agreed, emphasizing that the loss on the sale of immovable property is capital in nature and not allowable as bad debts or business loss under the IT Act.

2. Regarding the claim for writing off the non-receipt of a deposit of Rs.50,000 from PAL Peugeot Ltd., the A.O. rejected it as the amount was not shown as income in previous years and did not meet the conditions of Section 36(2) of the IT Act. The CIT(A) confirmed this disallowance, stating that the loss was not proven to be incidental to business. The Tribunal concurred, highlighting that the deposit for a capital asset and the absence of income disclosure in the past rendered the claim invalid.

3. The appellant argued that the bad debts were irrecoverable and should be allowed based on previous decisions. However, the Tribunal found no merit in the appeal as the losses were related to the sale of capital assets and deposits for capital assets, making them ineligible for deduction under the IT Act. The Tribunal dismissed the appeal, upholding the decisions of the A.O. and CIT(A) on both issues.