2009 (2) TMI 138 - HC - Income Tax

Bad Debts - Revenue contended that the loss have been shown as bad debt for the financial year 1993-94 and not for the assessment year 1999-2000 - the amount became irrecoverable when the assessee wrote it off in its books of account and that, therefore, the assessee was entitled to claim the amount - even if duty drawback was available for the previous assessment year, what will be relevant was when the same is treated as bad debt by the assessee in his books of account the fact that there was no income in the course of assessment year 1999-2000 would not disentitle the assessee from claiming the business expenditure in the said assessment year claim of bad debts allowed.

Summary

Issues:
1. Justification of allowing the assessee's claim of non-refund of customs duty as business loss under section 37(1).
2. Allowance of above expenditure as business expenditure under section 37(1) in the assessment year 1999-2000 when the assessee had no business during the year.

Analysis:

Issue 1:
The appellant, an exporter, exported goods which were returned and re-exported without necessary documents due to loss of records in a building collapse. The appellant treated the unrecovered amount as bad debt for the assessment year 1996-97. The Assessing Officer disallowed the claim, but the Commissioner (Appeals) allowed it. The Revenue appealed, which was dismissed. The main contention was the timing of showing the loss as bad debt. The court referenced Lord's Dairy Farm Ltd. v. CIT, stating that when the amount is treated as bad debt in the books of account is crucial. The court held that even if duty drawback was available earlier, the relevant point is when it is treated as bad debt. Following this precedent, the court found no fault in the decisions of the Commissioner of Income-tax (Appeals) and the Income-tax Appellate Tribunal. Thus, the appeal was dismissed.

Issue 2:
Regarding the second question, the absence of income during the assessment year 1999-2000 does not preclude the assessee from claiming business expenditure. The court found no issue with the decisions of the Commissioner of Income-tax (Appeals) and the Income-tax Appellate Tribunal in allowing the expenditure as business expenditure. Therefore, the court concluded that the absence of income in that year does not bar the assessee from claiming business expenditure. As a result, the appeal was dismissed, upholding the decisions of the lower authorities.

In conclusion, the court upheld the decisions of the lower authorities regarding both issues, emphasizing the timing of treating the loss as bad debt and clarifying that the absence of income in a specific year does not hinder the claim of business expenditure.