INCOME TAX ACT, 1961

Section 36(1)(vii)

Business deduction under section 36(1)(vii) - Bad debts - Amount deposited towards acquisition of commercial premises written-off by assessee -

Assessee carried on real estate development business, trading in transferable development rights (TDR) and finance. An amount of Rs. 10 crores was deposited with one M/s. C. Developers towards acquisition of commercial premises two years prior to the concerned assessment year in question (i.e., in 2007). The project did not appear to make any progress, and consequently, the assessee sought return of the amounts from the builder. However, latter did not respond. As a result, the assessee's Board of Directors resolved to write off the amount as a bad debt in 2009. AO disallowed the sum of Rs. 10 crores claimed as a bad debt. Assessee contended that the amount could also be construed as a loan, since the assessee had 'financing' as one of its objects. Held: The accounts of assessee nowhere showed that advance was made by it to M/s. C. Developers in the ordinary course of business. Its primary argument was that the amount of Rs. 10 crores was given for the purpose of purchasing constructed premises. However, the amount was written-off on 28-3-2009. There was no material to substantiate this submission, in respect of payment of the amount, the time by which the constructed unit was to be given to it, the area agreed to be purchased, etc. Equally, in support of its other argument that amount was given as a loan, assessee nowhere established duration of the advance, the terms and conditions applicable to it, interest payable, etc. Assessee conceded that it had received interest income for the relevant assessment year. However, it could not establish that any interest was paid (or shown to be payable in its accounts) for the sum of Rs. 10 crores. Furthermore, there was nothing to suggest that requirement of law that bad debt was written-off as irrecoverable in the assessee's accounts for the previous year, was satisfied. Another reason why the amount could not have been written-off, was that assessee's claim was that it was given to C. Developers for acquiring immovable property - it, therefore, was in the nature of a capital expenditure. It could not have been treated as a business expenditure. In view of the above, assessee's claim for deduction of Rs. 10 crore as a bad and doubtful debt could not be allowed.

Relied:A.V. Thomas and Co. Ltd. v. CIT (1963) Supp (1) SCR 776 : 1963 TaxPub(DT) 353 (SC)

REFERRED :

FAVOUR : Against the assessee.

A.Y. :

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