2010 (7) TMI 1192 - HC - Income Tax

Tax Court affirms deduction for bad debts under Income Tax Act, emphasizing write-off status.

Commissioner of Income Tax Versus K. Raheja Development Corpn.

Commissioner of Income Tax Versus K. Raheja Development Corpn. - TMI Issues involved: Appeal challenging order granting deduction under 'bad debts' u/s 36 of Income Tax Act, 1961.Summary:1. The Assessee entered into agreements with Vinayaka Enterprises for land development. After termination of the agreements, a debt of Rs. 19,24,09,280 remained unpaid. The Assessee claimed this amount as a bad debt written off in their income tax return for the assessment year 2001-02.2. The Assessing Officer disallowed the claim stating the debtor had resources to pay and legal proceedings were initiated. The Commissioner of Income Tax upheld this decision. The Tribunal, however, held that the debt should be considered bad as on the date of write-off, not based on future recovery possibilities. Legal proceedings post write-off do not affect the claim.3. The Tribunal's decision was challenged by the revenue, arguing the debtor's capacity to repay and the Assessee's intention to reduce tax liability. The Respondent-Assessee justified the claim, stating the debt was genuinely written off as bad when recovery seemed remote.4. The Court found the Assessee had fulfilled the conditions u/s 36(1)(vii) and Sub-section (2) of the Act by writing off the debt as bad and irrecoverable after showing it in their returns and paying tax on it. The subsequent recovery efforts and legal proceedings did not invalidate the claim.5. The Court dismissed the revenue's appeal, upholding the Tribunal's decision to grant the deduction under 'bad debts' u/s 36 of the Income Tax Act, 1961.