Bad Debt Claim Under Section 36(1)(vii) Rejected as Group Company Transaction Deemed Colorable Device to Evade Tax

HC reversed ITAT's ruling on allowance of bad debts under Section 36(1)(vii) of the Act. The court found that Assessee's claim failed to meet statutory requirements as the debt was neither accounted for in computing prior year income nor represented money lent in ordinary course of banking/lending business. HC determined the arrangement between Assessee and CIPL (group company) was a deliberate device to transfer losses from loss-making entity to profit-making entity within same group. Evidence showed CIPL had financial capacity to partially settle dues, demonstrated by its Rs. 10 crore donation. The court concluded this was a colorable device to reduce tax liability, with CIPL benefiting from liability write-off while being tax-exempt due to losses. .....

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