2010 (10) TMI 1150

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....Ground No.1 of the appeal of the revenue reads as under: "1. The Ld. Commissioner of Income tax (A)- XI, Ahmedabad has erred in law and on facts in deleting the addition made of Rs. 34,28,891/- on account of disallowance of bad debt". 4. According to the AO, the assessee has not fulfilled the conditions as per amended provisions of Section 36(1) (vii) of the IT Act and accordingly disallowed the sum of Rs. 34,28,891/-. It was submitted before the learned CIT(A) that the amount disallowed on account of bad debt pertains to Gujarat Water & Sewerage Board. Since the amount has been written off as bad debt and the amount relates to the sales made, therefore, AO should have allowed the claim of bad debt. It was also explained that se....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....occurs, the bad debt account is debited and the customer's account is credited, thus, closing the account of the customer. In the case of Companies, the provision is deducted from Sundry Debtors. As stated above, the Assessing Officer has not examined whether, in fact, the bad debt or part thereof is written off in the accounts of the assessee. This exercise has not been undertaken by the Assessing Officer. Hence, the matter is remitted to the Assessing Officer for de novo consideration of the above-mentioned aspect only and that too only to the extent of the write off." 6. On consideration of the facts, we do not find any merit in this ground of appeal of the revenue. Admittedly, the amount in question was written off as irrecoverable i....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....n of liability because the party who had supplied bad material had not ceased the claim for recovery of cost for the material. Therefore, it appears that it was pre-mature to decide that the assessee had gained due to alleged cessation of liability. It was also noted that the matter is still under dispute for settlement and until the mater is settled, the assessee could not be said to have gained anything. It was, therefore, held that the provisions of section 41(1) of the IT Act would not apply. The addition was accordingly deleted. 10. We have considered the rival submissions and material available on record. Section 41 (1) (a) of the IT Act reads as under: "41. (1) Where an allowance or deduction has been made in the assessme....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....1(1) of the Act for the assessment year 1989- 90. The Tribunal set aide the order of the Commissioner. On appeal to the High Court: Held, that the assessee had continued to show the admitted amount of Rs. 8,22,925 as liability in the balance-sheet. The undisputed fact was that it was a liability reflected in the balance-sheet. Once it was shown as liability by the assessee, the Commissioner was wrong in holding that it was assessable under section 41(1) of the Act. Unless and until there is a cessation of liability, section 41 is not applicable". 10.2 Hon'ble Punjab and Haryana High Court in the case of Smt. Sita Devi Juneja 187 Taxman 96 held as under: "It is the conceded position that in the assessee's balance sheet the afores....