Written-off interest deduction: book write-off of irrecoverable debt is sufficient under the amended tax rule.

Under the mercantile system, interest earlier credited as income may be deducted when later written off as irrecoverable in the accounts. The Tribunal treated the write-off as a reversal of income after settlement or waiver affected recoverability, rather than a fresh claim for expenditure. Applying the amended section 36(1)(vii), the governing principle was that a debt written off in the books is sufficient and the Assessing Officer need not establish actual irrecoverability. On that basis, the deduction was upheld and the Revenue's challenge failed.

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Issues: Whether the Tribunal was justified in allowing deduction of the written-off interest amount on the footing that the loss had not crystallized during the year.

Analysis: The assessee had consistently followed the mercantile system and the disputed interest had earlier been credited as income in its books. The Tribunal found that the amount was later reversed on settlement, waiver, or other events affecting recoverability, and that the entry represented reversal of income rather than a fresh claim for expenditure. The governing principle applied was that, after the amendment to section 36(1)(vii), it is sufficient if the debt is written off as irrecoverable in the accounts, and the Assessing Officer is not required to further prove actual irrecoverability. The Court found no error in the Tribunal's appreciation of the facts or the legal position.

Conclusion: The deduction was rightly allowed and the Revenue's challenge failed.

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