TMI Blog2010 (7) TMI 1192X X X X Extracts X X X X X X X X Extracts X X X X ..... d Shivanahalli village around Bangalore, under an agreement dated 1-2-1995. Subsequently, on 27-6-1998, the earlier agreement came to be terminated and yet another agreement of even date came into existence under which, Vinayaka Enterprises agreed to repay ₹ 12 crores and an additional compensation of ₹ 6 crores and out of ₹ 12 crores, a sum of ₹ 2 crores was repaid by Vinayaka Enterprises. The balance amount was not paid. Therefore, the Assessee filed a return of income for the assessment year 2001-02 claiming the following debts as written off: 3. The Assessing Officer who processed the returns disallowed the claim of the Assessee in respect of the bad debt claimed on the ground, that the debtor had not become i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is sufficient compliance of the legal requirement and the legality or the correctness of the said writing off cannot be gone into in these proceedings. Therefore, it allowed the appeal, set aside that portion of the order, refusing to grant deduction under the heading 'bad debts' and the said claim was upheld aggrieved by the said order, the revenue is in appeal. 4. On 23-8-2006, when this appeal was admitted, the following questions of law were framed: (i) Whether, the Tribunal was correct in holding that a sum of ₹ 19,24,09,280 amount payable by Vinayaka Enterprises to the Assessee should be written off as a bad debt during the current assessment year by allowing the principle sum as a loss under Section 28 read with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re no interest under Section 234B of the Act could be levied when these provisions has been held mandatory? 5. Learned Counsel appearing for Appellant-revenue submitted that the material on record clearly discloses that the debtor has repaid a portion of the amount received under the agreement. Further, it has admitted that civil and criminal proceedings were initiated upon the debtor and he has virtually repaid ₹ 11,15,00,000 in those proceedings. Under the agreement, a charge was created on the immovable property. The debtor had the capacity to repay and he committed default because of fall in the real estate market and because of cash crunch and therefore, the Assessee was not justified in writing off this debt if it is done onl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... When the said contract was terminated, a fresh agreement was entered into, under which the debtor agreed to repay ₹ 12 crores plus ₹ 6 crores compensation with interest. Though, the amount was not received by the Assessee in terms of the said agreement but received only a sum of ₹ 2 crores which they have shown in their returns for the aforesaid sums and have paid tax for the said amount. It is thereafter, they choose to claim deduction after writing off the said amounts as bad debts. 8. Section 36(1)(vii) of the Act provides that subject to the provisions of Sub-section (2), the amount of any bad debt or part thereof, which is written off as irrecoverable in the accounts of the Assessee for the previous year is liable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... operty in respect of which, the amount was advanced and criminal and civil proceedings were initiated in which, a sum of ₹ 11,15,00,000 was recovered and therefore, the said debt could not have been treated as a bad debt. In other words, the authorities have taken into consideration the subsequent events after the debt has been declared as a bad debt to decide whether it is a bad debt or not. What the authorities have to taken note of is, on the date the said debt was declared as a bad debt as irrecoverable and written off and claimed deduction, whether all these ingredients on which reliance is placed was in existence. Even otherwise, as the law stands on the date of the return being filed by the Assessee what was required was to wri ..... X X X X Extracts X X X X X X X X Extracts X X X X
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