2025 (1) TMI 709 - SCH - Income Tax

Supreme Court dismisses Department's petition; precedent in 'CIT vs. HCL Comnet' applies despite Section 115JA amendment.

The SC dismissed the petition filed by the petitioner-Department, determining that the issue had been resolved against the Department in the case ... MAT computation - Entitlement to claim interest paid on borrowed capital - As submitted there was an amendment made with retrospective effect to Section 115JA of the Income Tax Act, 1961 the import of which is that the bad debts would ultimately be written off and they cannot be construed as a liability in the hands of the person who is to receive the outstanding dues. HELD THAT:- This Court in the case of “VIJAYA BANK [2010 (4) TMI 46 - SUPREME COURT] observed that ultimately a bad debt can only be written off in its books of account by way of a debit to profit and loss account and simultaneously reducing corresponding amounts from loans and advances to debtors effected on the assets side in the balance sheet at the close of the year. Consequently, the assessee would be entitled to deduction under Section 36(1)(7) of the Act. The issue which has been raised by the petitioner-Department in this case is covered against the Department in HCL COMNET SYSTEMS & SERVICES LTD.’s case [2008 (9) TMI 18 - SUPREME COURT]. Consequently, the petition is dismissed leaving open any other question which may have arisen in this Special Leave Petition. The Supreme Court, presided over by Hon'ble Justice B.V. Nagarathna and Hon'ble Justice Nongmeikapam Kotiswar Singh, addressed a petition involving the petitioner represented by Mr. S Dwarakanath, A.S.G., and others, and the respondent represented by Mr. Percy Pardiwala, Sr. Adv., and others. The petitioner argued that one of the issues in the petition was resolved by the Supreme Court's decision in 'Commissioner of Income-Tax, Delhi vs. HCL Comnet Systems & Services Ltd., (2008) 305 ITR 409 (SC).' The petitioner sought the petition's disposal based on this precedent, while leaving any other legal questions open.The respondent's senior counsel countered by highlighting a retrospective amendment to Section 115JA of the Income Tax Act, 1961, which affects the treatment of bad debts. The Supreme Court's decision in 'Vijaya Bank vs. Commissioner of Income Tax 2010 (323) ITR 166 (SC)' was cited, noting that bad debts are to be written off in the books of account, allowing for a deduction under Section 36(1)(7) of the Act.The Court concluded that the issue raised by the petitioner-Department was already resolved against the Department in the HCL Comnet Systems & Services Ltd. case. Consequently, the petition was dismissed, with any other arising questions left open. Pending applications were also disposed of.