9911796707
TMI Blog2006 (12) TMI 106X X X X Extracts X X X X X X X X Extracts X X X X ..... other loans. On a perusal of its Profit and Loss Account the Assessing Officer(AO) noted that the assessed had written off Rupees Six Crores as bad debts - Rupees Two Crores from S. Kumar Nation Wide Foundation Ltd.; and Rupees Four Crores from Shithir Housing and Construction (P) Ltd. Since the CIT(A) had allowed the claim pertaining to the former, we are only concerned with the latter transaction which comprised of a loan of Rupees Two Crores extended on 4.12.2002 and another sum of Rupees Two Crores, granted on 5.12.2002, both of which have been written off as bad debts on 31.3.2003 by the assessed in its Books of Account. Mr. C.S. Aggarwal, learned Senior Counsel appearing for the assessed, has laid emphasis on the fact that it has not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h interest accrued thereon, holding inter alias that their writing off as bad was not predicated on an honest opinion formed by the assessed and further that the provisions could not be used as a carte blanche to treat any debt as bad during the year in which it had become exigible to tax. By the time the matter came up for consideration of the CIT(A) prosecution under the Negotiable Instruments Act had also commenced. The CIT(A) had expressed the self-evident opinion that the provisions of Section 36(1)(vii) read with Section 36(2) of the IT Act would come into play only if (1) the amount of loan or part thereof which is claimed as a deduction should be established to have become bad and (2) the amount should shown to have become irrecover ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Shithir Housing and Construction (P) Ltd. The ITAT, in the impugned Order, has deleted the dis-allowance of the said amount of Rupees Four Crores treating it to be irrecoverable. It further held that since the principal is not recoverable, there is no reason or justification to charge interest on this sum. 5. A conjoint reading of Section 36(2) and Section 36(i)(vii) makes it clear that the assessed would be entitled to a deduction of the amount of any bad debt which has been written off as irrecoverable in its Accounts for the previous year. Any lingering doubt would vanish on a careful reading of Circular Number 551 dated 23.1.1990, the relevant portion of which reads as follows: 6.6 The old provisions of Clause (vii) of Sub-section( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ttention of the Gujarat High Court in Commissioner of Income Tax v. Girish Bhagwatprasad [2002] 256 ITR 772(Guj) with which we are in respectful agreement. Our learned Brothers had pointedly observed that the genuineness of the claim predicated on Section 36(1)(vii) of the IT Act was not in doubt. Where the loan transaction is itself shrouded in uncertainty other provision of the statute would immediately come into play. Our learned Brothers further observed that prior to the amendment from April 1, 1989, the allowance under the said section was confined to debts and loans which had become irrecoverable in the Accounting Year. Without adverting to the above extracted Circular, it was opined that with effect from April 1, 1989 'all that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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