The Tax Publishers2013 TaxPub(DT) 2076 (Del-HC) : (2013) 356 ITR 0012 : (2013) 216 TAXMAN 0093

Income Tax Act, 1961

--Business deduction under section 36(1)(vii)--Bad debts Advance rent written off as not recoverable--Assessee engaged in the business of dealing and servicing motor vehicles had taken certain property on lease from three landowners. The property consisted of a plot of land whereupon the lessors were required to build a warehouse cum workshop and hand over the same to the assessee and in this regard, assessee advanced certain sums to the lessors which were liable to be adjusted against monthly rent. However, the workshop was demolished by the Delhi Development Authority as the land which was subject matter of the lease agreement, in fact, belonged to the Delhi Development Authority and not the lessors and assessee, thereafter, filed a suit which was still pending before High Court for recovery of the sums advanced by the assessee to the lessors. Assessee had written of advance rent paid to lessors as irrecoverable under section 36(1)(vii). Assessing authority, however, disallowed the same and Commissioner (Appeals) confirmed the same not on the ground that the same was a capital expenditure but on basis that the same could not be allowed as a revenue loss as the assessee had filed a civil suit for recovery of that amount, Tribunal, however, allowed the same as revenue expenditure. Held: Was justified, as the assessee had come to a conclusion that chances of recovery of the amounts claimed from the lessors, in the near future were remote and had, therefore, written off the amount as irrecoverable in the previous year to the relevant assessment year. Moreso, for an assessee to claim deduction in relation to the bad debts it was now no longer necessary for the assessee to establish that the debt had become irrecoverable and it was sufficient if the assessee formed such an opinion and wrote off the debt as irrecoverable in its accounts.

Income Tax Act, 1961, Section 36(1)(vii)

in The Delhi High Court

Badar Durrez Ahmed & Vibhu Bakhru

CIT v. Samara India Pvt. Ltd.

ITA 45/2013

10 May, 2013

Appellant by : Sanjeev Rajpal, Advocate

Respondent by : S. Krishnan, Advocate

JUDGMENT

Vibhu Bakhru, J.

This is an appeal preferred by the revenue under section 260A of the Income Tax Act, 1961 (hereinafter referred to as the Act) challenging the order dated 9-7-2012 passed by the Income Tax Appellate Tribunal, Delhi in ITA No. 3692/Del/2009 in relation to the assessment year 2004-2005. The controversy in the present matter is limited to an amount of Rs 33,47,489 which was paid as an advance rent by the assessee and had been written off as not recoverable in the previous year relevant to the assessment year 2004-2005.

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