2014 (3) TMI 1157 - HC - Income Tax

Deduction by way of bonds debentures under section 36 (i) (vii) read with section 36 (2) - HELD THAT - From June 2003 to August 2003 the company made certain payments and in August 2003 when the amount receivable from the sub-broker was 26.93 lacs it finally conveyed to the assessee-company that it is not possible to pay any further money. It is at that stage the Assessee company claimed that it was a bad debt. The Tribunal referred to the fact that one Mr.Harshad P.Chokshi is holding substantial shares in the assessee-company and also in SNFPL. This shows that there was a book entry wherein the assessee claimed bad debts as a means to reduce taxable profits. The reasons assigned in para 12 of the order of the Tribunal therefore are essentially in the backdrop of the peculiar facts and circumstances emerging from the record. No substantial questions of law arising for determination and consideration in this Appeal. This is not a case where there is a controversy or the debt written off as bad in the accounts being required to be established as indeed bad debt. This is a controversy where the claim of bad debts was raised to avoid tax liability. That having been proved and the entire version is termed as a mere eye-wash that this is not a fit case where substantial questions of law arise for determination in this Appeal.

Summary

Issues Involved:
1. Deduction of bonds and debentures under section 36 of the Income Tax Act, 1961.

Analysis:
The judgment delivered by the High Court of Bombay pertains to an appeal challenging the order passed by the Income Tax Appellate Tribunal regarding the deduction of Rs. 27,07,130/- by way of bonds and debentures under section 36 of the Income Tax Act, 1961 for the Assessment year 2004-05. The appellant contended that the Tribunal erred in denying the deduction. The appellant argued that the debt had been written off as bad in the accounts and cited a previous judgment where a similar claim was allowed. However, the court found that the claim was an attempt to avoid tax liability on taxable profits. The court noted that the transactions were aimed at reducing taxable profits through questionable dealings with related entities. The Tribunal found that the claim of bad debts was raised as a means to avoid tax liability rather than due to genuine bad debts. The court concluded that no substantial questions of law arose in this case, as the claim was deemed to be an attempt to evade tax rather than a legitimate deduction. Therefore, the appeal was dismissed as lacking merit.

In summary, the High Court of Bombay dismissed the appeal challenging the denial of deduction for bonds and debentures under section 36 of the Income Tax Act, 1961. The court found that the claim was made to avoid tax liability on taxable profits through questionable dealings with related entities. The court concluded that the claim of bad debts was not genuine and was merely an attempt to reduce taxable profits. As a result, the court held that no substantial questions of law arose in the case, and the appeal was dismissed for lack of merit.