INCOME TAX ACT, 1961

Section 36(1)(vii)

Business deduction under section 36(1)(vii) - Bad debts - Write-off of irrecoverable licence fees -

Assessee rented its commercial building and received license fees. AO, however, on perusal of the profit and loss account observed that the assessee had shown lesser rent receipts. Against this assessee contended it had not recovered due license fee fully and therefore, he treated the short fall amount as bad debts and write off the same. AO being not convinced with the submissions considered rent receipt as assessee's income and added the same to the total income of assessee. Held: Following the decision of Bombay High Court in Essar Teleholdings Ltd. [(2014) 51 Taxmann.com 499 (Bom.) : 2018 TaxPub(DT) 147 (Bom-HC)] wherein it was held that while analyzing section 36(1)(vii) it does not require the assessee to establish that the debt written off was bad and all that is required is it being written off as such. Meaning thereby, no evidence or other things needs to be sought by the department from the assessee when he is treating such amount as bad debts. The only consideration is that such amount has been treated as bad debts in the books of accounts of the assessee. This is only the requirement to the provision. Further, AO also could not place any evidence to demonstrate that the amount was already recovered by the assessee. Thus, no addition should be sustained in the hands of the assessee on this issue of treatment of amount as bad debts.

Followed:Essar Teleholdings Ltd. (2014) 51 Taxmann.com 499 (Bom-HC) : 2018 TaxPub(DT) 147 (Bom-HC).

REFERRED :

FAVOUR : In favour of assessee.

A.Y. : 2013-14

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