INCOME TAX ACT, 1961

Section 36(1)(vii)

Business deduction under section 36(1)(vii) - Bad debts - Investment made in sister concern for purchase of equity shares - Sister concern being under liquidation

Assessee claimed investment made for purchase of equity shares of its sister concern, which went into liquidation as bad debts. AO held that the assessee had not furnished any details of investment / finance provided to its sister concern and had also not explained the circumstances, which led to liquidation of the said company. It was also held that no details were furnished by the assessee of its business interest in such sister concern. Accordingly, the AO made disallowance in respect of writing off the debts alleging that the loss suffered by the assessee had to be treated as capital loss. Further, CIT (A) also upheld the disallowance as made by the AO alleging that the said investment made by the assessee was a dead loss and therefore, was not allowable. However, Tribunal allowed the claim of the assessee. Held: It is settled that in order to obtain deduction in relation to bad debt, it is not necessary for the assessee to establish that the debt in fact had become irrecoverable and it is enough even though if bad debt is written off as irrecoverable in the books of account of the assessee. However, from perusal of the order passed by AO, it was evident that the AO had not examined the fact whether or not the assessee had entered any amount as written off as bad debts. Further, from the order passed by the CIT (A) also, it was evident that he did not record any specific finding that the assessee had written off the debt in the books of account. Similarly, the Tribunal also did not record a specific finding by assigning reasons that in the books of account the debts had been written off. Accordingly, the matter was remanded to the AO for verifying that whether the assessee had written off the debt in the books of account.

REFERRED : TRF Ltd. v. CIT (2010) 323 ITR 397 (SC): 2010 TaxPub(DT) 1481 (SC)

FAVOUR : Matter remanded

A.Y. :

INCOME TAX ACT, 1961

Section 46(2)

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