Deferred sales tax and bad debt deductions: deemed payment under incentive scheme and bona fide write-off in accounts were accepted.

Deferred sales tax liability under the Karnataka incentive scheme was treated as a deemed loan and, where the scheme deemed payment on fulfilment of its conditions, it was not disallowable under section 43B; the assessee's claim succeeded. For bad debts, the Tribunal applied the settled post-1 April 1989 position that a write-off in the accounts as irrecoverable is sufficient for deduction under section 36(1)(vii), without proving actual irrecoverability in that year; the deduction was allowed. The Revenue's challenge to both additions therefore failed and the appellate order was sustained.

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Issues: (i) Whether sales tax liability deferred under the State incentive scheme was liable to be disallowed under section 43B of the Income-tax Act, 1961. (ii) Whether the amount written off as bad debt was deductible under section 36(1)(vii) of the Income-tax Act, 1961.

Issue (i): Whether sales tax liability deferred under the State incentive scheme was liable to be disallowed under section 43B of the Income-tax Act, 1961.

Analysis: The deferred sales tax liability arose under the Karnataka sales tax incentive scheme, where the statutory framework treated the tax deferment as a deemed loan and contemplated that, on fulfilment of the prescribed conditions, the tax would be regarded as paid in public interest. The Tribunal followed its earlier decision in the assessee's own case on identical facts and held that the incentive scheme satisfied the conditions for exclusion of the deferred liability from disallowance under section 43B.

Conclusion: The disallowance under section 43B was not sustainable and the issue was decided in favour of the assessee.

Issue (ii): Whether the amount written off as bad debt was deductible under section 36(1)(vii) of the Income-tax Act, 1961.

Analysis: The Tribunal applied the settled legal position that, after 1 April 1989, it is sufficient if the assessee writes off the debt as irrecoverable in its accounts, and it is not necessary to prove that the debt had in fact become bad in that year. Relying on the Supreme Court's formulation of the law, the Tribunal held that the assessee's write-off was enough for deduction and that no further proof of actual irrecoverability was required.

Conclusion: The bad debt claim was allowable and the issue was decided in favour of the assessee.

Final Conclusion: The Revenue's challenges to both additions failed, and the common order of the first appellate authority was sustained in full.

Ratio Decidendi: For bad debts, a bona fide write-off in the accounts is sufficient after 1 April 1989, and a deferred sales tax liability covered by the statutory incentive scheme is not disallowable where the scheme treats the amount as deemed paid on satisfaction of its conditions.

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