Home Case Index All Cases Income Tax Income Tax + AT Income Tax - 2005 (3) TMI AT This
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2005 (3) TMI 700 - ITAT BANGALOREDisallowance of written off - Bad debt - HELD THAT:- From the facts it is seen that M/s. Vinayaka Enterprises firstly defaulted in honouring the first agreement. A fresh contract was entered into and the debtor also agreed to pay compensation. The compensation was to be paid in the year 1998. After 31-8-1999 nothing was paid till October, 2002. In between several cheques issued by the debtor bounced. There were more than 24 such instances of bouncing of cheques. During this period there was a general recession in property market. This can lead the assessee to believe that the debt has become bad. The position has to be looked into as on the date of write off, and not on the possibility of recovery at a subsequent uncertain date. Even till date of filing return of income, nothing was received, nor any hope revived. The initiation of legal proceedings is not a condition precedent for claim of bad debt. At the same time there is no prohibition for initiation of legal proceedings subsequent to write off. The decision has to be arrived at on the common sense and as to what a prudent business man will arrive at. The civil proceedings were only to restrain the debtor from alienating its property. However, it was not subject to charge by the assessee. Series of events like 24 in number can lead any reasonable man of ordinary prudence to believe that the debt has become bad. We accordingly hold that when the assessee wrote off the sum, he was under a bona fide belief and hence the debt written off as bad debt is allowable. The principal sum is allowable as loss u/s 28/37 of the Act. The compensation and interest component is allowable u/s 36(1)(vii) read with section 36(2) of the Act. In the result the appeal is allowed.
|