2012 (11) TMI 1280 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of bad debts u/s 36(1)(vii).
2. Addition on account of suppression of sale price of debentures.

Summary:

Issue 1: Disallowance of Bad Debts u/s 36(1)(vii)
The Assessing Officer (AO) disallowed the bad debt of Rs. 1,46,289/- written off by the assessee, stating that the statutory condition for admissibility of bad debt u/s 36(1)(vii) was not fulfilled. The AO cited the ITAT Delhi Bench-B decision in Dy. CIT vs. India Thermit Corpn. Ltd., emphasizing that the debt must be established as bad. The CIT(A) deleted this disallowance, noting that the amended section 36(1)(vii) allows for the deduction of bad debts written off as irrecoverable in the accounts. The Tribunal directed the AO to decide the matter afresh in light of the Supreme Court decision in T.R.F. Ltd. vs. CIT, after verifying whether the amount was ever offered as income.

Issue 2: Addition on Account of Suppression of Sale Price of Debentures
The AO added Rs. 14,14,06,326/- based on the difference between the estimated market value and the disclosed sale price of Arvind Mills Ltd. debentures. The AO doubted the genuineness of the contracts dated November 1993, suggesting the sales occurred in February 1994 when the market value was higher. The CIT(A) deleted this addition, accepting the assessee's claim that the transactions were genuine and conducted at arm's length. The CIT(A) also noted that the market value of the debentures on 31.3.1994 was Rs. 720 per debenture, close to the average price realized by the assessee. The Tribunal upheld the CIT(A)'s decision, referencing the Calcutta High Court decision in CIT vs. Smt. Nandini Nopany and the Gujarat High Court decision in Marghabhai Kishabhai Patel & Co., confirming that only real income can be taxed and there was no evidence of understatement of value or sham transactions.

Conclusion:
The Tribunal partly allowed the Revenue's appeal for statistical purposes, directing a fresh decision on the bad debt issue and upholding the deletion of the addition regarding the suppression of sale price of debentures.