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of <h1>ITAT Upholds CIT(A) Decisions on Bad Debt & Deemed Income</h1> <h3>D.C.I.T., Circle-5, Ahmedabad Versus Ratnamani Metals & Tubes Pvt. Ltd.</h3> D.C.I.T., Circle-5, Ahmedabad Versus Ratnamani Metals & Tubes Pvt. Ltd. - TMI Issues Involved: 1. Disallowance of bad debt u/s 36(1)(vii) of the IT Act.2. Addition made on account of deemed income u/s 41(1) of the IT Act.Issue 1: Disallowance of Bad Debt u/s 36(1)(vii) of the IT Act:- The AO disallowed the sum on account of bad debt, contending that the conditions u/s 36(1)(vii) were not fulfilled.- Assessee argued that the amount written off as bad debt pertained to sales made to Gujarat Water & Sewerage Board, which remained unrecovered despite efforts.- CIT(A) noted the debt was over 3 years old and difficult to recover, thus allowing the claim based on the Supreme Court's decision in T. R. F. Ltd. Vs CIT 323 ITR 397.- ITAT upheld CIT(A)'s decision, stating that the debt was written off as irrecoverable, entitling the assessee to claim deduction under section 36(1)(vii).Issue 2: Addition on Account of Deemed Income u/s 41(1) of the IT Act:- AO made an addition u/s 41(1) of the IT Act, alleging cessation of liability regarding the purchase of building material.- Assessee contended that no benefit was obtained as the matter was under dispute and liability remained unsettled.- CIT(A) held that as long as the liability was not settled, there was no cessation of liability, thus deleting the addition.- ITAT supported CIT(A)'s decision, citing precedents from Madras High Court and Punjab and Haryana High Court, emphasizing the necessity of a cessation of liability for section 41(1) to apply.- The ITAT dismissed the appeal, confirming that the assessee had not gained due to the alleged cessation of liability.Conclusion:- The ITAT dismissed the revenue's appeal on both grounds, upholding the CIT(A)'s decisions regarding the disallowance of bad debt u/s 36(1)(vii) and the addition made on account of deemed income u/s 41(1) of the IT Act.
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