1994 (11) TMI 164 - AT - Income Tax

Summary

Issues: Disallowance of claim of bad debts

In this case, the only effective ground of appeal pertains to the disallowance of a claim of bad debts amounting to Rs. 67,226 in the account of M/s Gian Chand Amir Chand for the assessment year 1986-87. The assessee initially did not make this claim in the return of income filed on 30th July 1986 but raised it during the assessment proceedings. The Assessing Officer did not address this issue in the assessment order, and the learned CIT(A) did not receive comments from the Assessing Officer. The assessee argued that the debt had been decreed in their favor initially but was reversed on appeal by the District Judge. The CIT(A) held that a bad debt is deductible only if it was written off in the previous year, directing the Assessing Officer to allow the deduction in the year of write-off. The counsel for the assessee contended that the debt was bad, had been written off in a subsequent year, and should be allowed as a deduction for the relevant year. The Departmental Representative supported the impugned order.

Upon careful consideration, the tribunal found merit in the assessee's submissions. It was acknowledged that the debt had indeed become bad, but the CIT(A) disallowed the deduction because it was not written off in the relevant year. The tribunal deemed this approach hyper-technical, emphasizing that if a debt is written off in a subsequent year but was determined to be bad in an earlier year, a rectificatory order must be passed to allow the deduction under the relevant provision. As the debt was written off in the subsequent year and had become bad in the year under consideration, the tribunal directed the Assessing Officer to allow the bad debt of Rs. 67,226 as a deduction for the assessment year 1986-87. Consequently, the appeal was allowed.