INCOME TAX ACT, 1961

Section 36(1)(vii)

Business deduction under section 36(1)(vii) - Bad debts - Denial of claim alleging that notices sent to debtors could not be served upon them - Assessee fulfilled both conditions for claiming debts written off

Assessee had written off an amount against 'irrecoverable debts'. Since according to the assessee, such bad debts actually written off in its books were irrecoverable in its accounts for the year and, therefore, claimed deduction under section 36(1)(vii). AO disallowed the said claim for the reason that the notices under section 133(6) sent to six debtors could not be served upon them. So, according to the AO, those debtors were bogus and he disallowed the claim. Assessee contended that it fulfilled the conditions specified in section 36(1)(vii) and therefore, its claim should have been allowed. Held: It was found that there were forty one debtors whose addresses were duly furnished by assessee and out of which the AO randomly selected six parties and sent notices, which even if could not be served upon them, could not be the sole reason to disbelieve the existence of the entire debtors and brand them as bogus. Further, the assessee fulfilled the two conditions for claiming the debts written off during the year under consideration as bad debts under section 36(1)(vii), i.e. the amount was shown as income in earlier years and the amount had been written off in the accounts for the year under consideration. Hence, in view of CBDT's Circular No. 551, dated 23-1-1990, the assessee would be entitled to deduction of the impugned bad debts written off during the year under consideration.

REFERRED :

FAVOUR : In assessee's favour

A.Y. :

INCOME TAX ACT, 1961

Section 36(1)(vii)

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