TaxTMI 
TaxTMI 
2006 (2) TMI 147
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....and Rs.27,04,875 being the debt due from Velton Prefab Elements Ltd. under section 36(1)(vii) of the Income-tax Act. The following questions of law are raised for our consideration: "1. Whether, on the facts and in the circumstances of the case and also in view of the fact that the final order of the official liquidator did not become available within the year of account relevant for the present assessment year is not the claim for deduction of the two amounts premature? 2. Whether, on the facts and in the circumstances of the case the Tribunal is right in law in holding that the assessee is entitled for the deduction of the two amounts in question, Rs. 47,776 being the debt due from Vanchinad Leather Ltd. and Rs. 27,04,875 being the ....
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....nical evaluation of its market value and evidence for the amounts owing to other institutions, etc. were not furnished and in the absence of such details it was premature to allow the deduction. Further, the assessing authority pointed out that the assessee has not written off the amount as contemplated under section 36(1)(vii) by crediting the borrower's account. The assessee aggrieved by those orders took up the matter in appeal before the Commissioner of Income-tax (Appeals), Trivandrum. The Commissioner (Appeals) rejected the claim for deduction under section 36(1)(vii) holding that for claiming the deduction the assessee should have established that the debt in question had become a bad debt in fact. Further, it was also held by the....
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....vii) of the Act. Aggrieved by the said order this appeal has been preferred by the Commissioner of Income-tax. Senior counsel appearing for the Revenue, Sri P. K. Raveendranatha Menon, contended that the assessee had failed to prove that the debts had become bad in the previous year relevant to the assessment year 1993-94. Counsel contended that section 36(1) (vii) provides for deduction of any bad debt or part thereof which is written off as irrecoverable. Counsel submitted that Vanchinad Leather Ltd. is yet to be wound up and in the case of the other company the liquidator is yet to pass final orders and therefore counsel contended that the mere fact that the debt had become bad by itself would not mean that the debt had been written o....
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....nding-up proceedings have not attained finality would not mean that the assessee cannot claim deduction under section 36(1)(vii) of the Income-tax Act. Counsel made reference to the decision of the Gujarat High Court in Vithaldas H. Dhanjibhai Bardanwala v. CIT [1981] 130 ITR 95. Reference was also made to the decision of the Calcutta High Court in Dr. N. K. Brahmachari v. CIT [1992] 104 CTR 209. We heard counsel on either side at length. The assessee admittedly is a Government owned company. Indisputedly, large amounts are due to the assessee-company from Vanchinad Leather Ltd. and Velton Prefab Elements Ltd. Vanchinad Leather Ltd. was recommended for winding up by the Board for Industrial and Financial Reconstruction. The balance-sheet....
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....re is also a loss of Rs. 1,58,08,594 reflected in the balance-sheet of the company. Materials produced before the authorities would positively show that there is no possibility of recovering the amount of Rs. 27,04,875 by the assessee. The same is the situation with regard to Vanchinad Leather Ltd. The Tribunal as a final fact-finding authority on the basis of the materials came to the conclusion that it would not be possible to recover the bad debts. The Calcutta High Court in Dr. N. K. Brahmachari's case [1992] 104 CTR 209 held that the irrecoverability of a bad debt depends upon the facts and circumstances of each case and it is not necessary for the lender to wait till the debtor company actually goes into liquidation before writing ....