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2022 (10) TMI 73 - ITAT AHMEDABADDisallowance of bad debt written off - AO in view of the above finding was of the opinion that assessee knowing to fact that its business going to discontinue from immediate subsequent year deliberately written off good debtor as bad debt in the books to reduce the tax liability which is nothing but a colourable device - HELD THAT:- The provisions of section 36(1)(vii) read with section 36(2) of the Act deals with the deduction of the bad debts. As per the provisions Section 36(1)(vii) any bad debt or part thereof which is written off as irrecoverable in the accounts of the assessee for the previous year, is deductible subject to the condition prescribed under subsection 2 to section 36. The provision of section 36(2) prescribe that, no deduction shall be allowed unless such debt or part thereof has been taken into account in computing the income of the assessee in the year of write off or in an earlier previous year. And it must represent the amount due from the party for supplies made (goods or services) or represents money lent in the ordinary course of the business of banking or money lending carried on by the assessee. As the facts of the present case are peculiar in the sense that it was alleged by the authorities below that the assessee has adopted colorable device to escape the tax liability by manipulating the provisions of law. The Hon’ble Supreme Court in the case of McDowell & Co. Ltd. [1985 (4) TMI 64 - SUPREME COURT] has held that the colorable device adopted by the assessee in order to avoid the payment of tax is not permissible. If the assessee was to avail the benefit of the provisions of law by using the colorable device, the same cannot be allowed to the assessee. In the given facts of the case, admittedly the assessee has closed down the business and there was no information available on record what treatment has been given by the assessee with respect to the subsequent recovery of the bad debts, if any. In the absence of any contrary information available on record, we do not find any defect in the order of the learned CIT-A. Accordingly, the ground of appeal of the assessee is hereby dismissed.
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