TMI Blog2022 (10) TMI 73X X X X Extracts X X X X X X X X Extracts X X X X ..... anking 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. - ITA No. 342/Ahd/2019 - - - Dated:- 24-8-2022 - MS. SUCHITRA KAMBLE, JUDICIAL MEMBER AND SHRI WASEEM AHMED, ACCOUNTANT MEM ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted closing outstanding balance of Rs. 2,29,995 and 4,53,343/- as bad debt and written off in profit and loss account. Similarly, the assessee during the year made sales amounting to Rs. 11,25,000/- to M/s Shiv Ratna Caste Co against which received payment of Rs. 9,15,000/- but still treated remaining receivable as bad and irrecoverable. 4.3 The AO further found that out of 23 debtors, whose balances were written off as bad debt, the notices under section 133(6) of the Act were issued to 10 parties but no response was received except from 2 parties namely M/s Ruchi World Wide Ltd and M/s Bhadresh Trading Corporation. Both the parties submitted that no amount was written off in their books of accounts. M/s Ruchi World Wide Ltd also submitted that there was no outstanding balance remaining as the amount of Rs. 22,969/- written off by the assessee is arising due differences in opening balance. Thereafter the AO requires the assessee to produce remaining parties for verification but the assessee denied for the same. 4.4 Therefore, the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry of payments on which interest is charged(as there was no financial transactions in the forms of loans and advances). Considering this aspect of the case, the debt claim of Rs.2,29,995/- cannot be treated as trading debt and therefore, the disallowance of Rs.2,29,955/- made by the A.O. is required to be confirmed. ****************************************** (b) The appellant has written off debt of Rs.2,19,313/- in respect of debtor viz. M/s Mahila Karona Textile Pvt. Ltd. The copy of ledger account in respect of this concern has revealed that there was an opening balance of Rs.2,68,578/- and credit of interest of Rs.1,77,674/-during FY 2010-11. The appellant has debited the payment of Rs.2,97,334/- on account of payment received and TDS of Rs. 17,764/- . The appellant has thus drawn the credit balance of Rs.1,36,151/- as on 31.03.2011. However, the appellant has shown the opening balance as on 01.04.2011 at Rs.2,19,313/- which has been carried forward till 31.03.2013 and written off as bad debt. Further, the balance of Rs. 1,36,151/- was on account of interest credited which is an expenditure in the hands of the appellant for the FY 2010-11 and the balance amount to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e A.O. is required to be confirmed. 6. Being aggrieved by the order of the learned CIT-A, the assessee is in appeal before us. 7. The learned DR before us vehemently supported the order of the authorities below. 8. We have heard the learned DR and perused the materials available on record. 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. 8.1 Generally, the bad debts claimed by the assessee are allowed as deduction in the ma ..... 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