Deduction of Bad Debts: Supreme Court's Ruling on Section 36 Compliance and alternative claim u/s 37

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....e's claim of ₹10 crores as a bad debt, written off due to non-repayment by a developer, was justified under Section 36(1)(vii) read with Section 36(2) of the IT Act. The ₹10 crores was initially advanced as a deposit towards acquiring commercial premises in an upcoming project by the developer. When the project failed to progress, the assessee sought the return of the funds, which were not repaid, leading to the write-off. Additionally, the court examined the alternative claim under Section 37 of the IT Act, addressing whether the amount could be considered a business expenditure. Arguments Presented Revenue's Contentions * Inadequate Substantiation: The Revenue argued that the assessee failed to provide adequate mat....

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....t is recorded as irrecoverable in the accounts. * Alternative Claim: The assessee argued that even if the claim under Section 36(1)(vii) was unsuccessful, the expenditure could be considered under Section 37 as it was laid out for business purposes. Court's Analysis Section 36 of the IT Act The court examined the provisions of Section 36, noting that deductions for bad debts under Section 36(1)(vii) are subject to the conditions in Section 36(2). The court referenced key judgments, including Southern Technologies Ltd. v. Joint Commissioner of Income Tax and Catholic Syrian Bank Ltd., to outline the prerequisites for claiming such deductions. The court emphasized that mere write-off without appropriate accounting treatment and compl....