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Issues involved: The appeal involves the question of whether bad debts claimed by the assessee can be allowed as a deduction under sec.36(1)(vii) of the Income-tax Act, 1961.
Summary: 1. Background: The assessee had taken over debts from its sister concern and claimed a part of it as bad debts for the assessment year 2007-08. 2. Initial Rejection: The Assessing Officer rejected the bad debts claim, stating that the conditions specified in sec.36(1)(vii) were not fulfilled as the debts were not incurred by the assessee but by its sister concern. 3. First Appeal: The Commissioner of Income-tax(Appeals) upheld the rejection, citing that the assessee had not offered the amounts as income in any earlier assessment year and was not in the field of finance business. 4. Grounds Raised: The assessee raised grounds related to the irrecoverability of the bad debts, offering sums recovered as income, being in the business of money lending, and claiming the deduction under sec.37(1). 5. Tribunal Decision: The ITAT Chennai remitted the issue back to the Commissioner of Income-tax(Appeals) to consider the deduction under sec.37(1) based on an alternate ground raised by the assessee. 6. Reconsideration: The Commissioner of Income-tax(Appeals) again rejected the claim, leading to a second appeal before the Tribunal. 7. Tribunal's Decision: The Tribunal found that the debts were part of the assessee's business design and should be allowed as a deduction under sec.37(1) as they were not collected and partook the character of business loss. 8. Final Ruling: The Tribunal directed the Assessing Officer to allow the deduction for the bad debts claimed by the assessee as a business loss, emphasizing that it is not necessary to focus on the term 'bad debt' but to recognize it as a business loss. 9. Conclusion: The appeal filed by the assessee was allowed, and the deduction for bad debts as a business loss was permitted.
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