High Court affirms Tribunal decision on bad debt claim under Income Tax Act

The High Court upheld the Tribunal's decision, allowing the Assessee's claim of bad debts totaling &8377; 78,72,189 for Assessment Year 1998-99 under Section 36(1)(vii) of the Income Tax Act. The Court found no legal infirmity in the Tribunal's ruling, determining that the Assessee had met the requirements for the deduction as the debts were written off in the books of accounts. The Revenue's challenge was dismissed, with the Court stating that no substantial legal question arose for consideration.

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Issues involved: Challenge to the order allowing claim of bad debts under Section 36(1)(vii) read with Section 36(2) of the Income Tax Act, 1961 for Assessment Year 1998-99.

Assessee's Claim of Bad Debts:
The Assessee, engaged in providing loans, claimed bad debts written off totaling to &8377; 78,72,189/- from various parties. The Assessing Officer initially disallowed the claim citing the possibility of recovery since legal suits were filed. However, the Commissioner of Income Tax (Appeal) found no justification for the disallowance and directed its deletion.

Revenue's Challenge:
The Revenue challenged the Commissioner's order before the Tribunal, arguing that the provisions of Section 36(2) were not satisfied as the debts did not represent money lent in the ordinary course of business. The Revenue contended that the loan advanced was not in the course of business or money lending.

Legal Provisions and Tribunal's Finding:
Section 36(1)(vii) allows deduction for bad debts without the requirement of proving the debt has actually become bad in the relevant year, only necessitating the write-off in the books of accounts. The Tribunal found that since the amount was written off, the Assessee was entitled to the deduction, holding it as bona fide.

Judgment and Conclusion:
The High Court upheld the Tribunal's decision, stating that the Assessee was entitled to the deduction of &8377; 78,72,189/- for bad debts. It found no infirmity in the Tribunal's reasoning, concluding that no substantial question of law arose for consideration. The appeal by the Revenue was dismissed as not maintainable.

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