- (1.) THIS appeal has been filed by the Revenue on the question that the deletion of an addition of Rs. 14,00,000 representing the bad debts written off without giving any specific finding regarding nature of loan as to whether the same was in any way connected with the business of the assessee and whether any income therefrom was ever shown in the past. An appeal was filed before the Tribunal on the said question being aggrieved by an order so passed by the CIT(A) dt. 3rd business during the relevant previous year. It also appears from the facts that as per audited note No. 7(c) an amount of Rs. 14 lakhs was outstanding in the account of M/s Super Tex (India) was written off as unrecoverable during the previous year. On enquiry made by the AO, it was submitted by the assessee, the respondent herein, that the said sum received by the assessee as repayment of the said loan from the said borrower and the said cheque was deposited for encashment which was returned through the appellant's banker as unpaid by the borrower's banker under their memo Negotiable Instrument Act, in the Court of Chief Metropolitan Magistrate against the said borrower by the assessee. The arrest warrant was also issued against the borrower by the Court which could not be executed by the Police Department.
(2.) IT further appears that the Central Bank of India being the banker of the said borrower and through which the said borrower used to enjoy cash credit facilities and bank advanced money to the said borrower and finally also the said Central Bank of India could not recover the amount as a result whereof the banker had to recourse for the auction of the properties mortgaged to the bank by the said borrower, i.e., M/s Super Tax (India). In this connection, it was submitted that from these facts it would be evident that there is no chance of recovery of the amount so lent to the said borrower by the assessee. On the said facts the assessee had to write off the amount in the books of accounts and treat the same as bad debt.
(3.) IT appears from s. 36(1)(vii) that the conditions mentioned in the said section have been fulfilled to claim such bad debt by the assessee in its return of income for the asst. yr. 2005 -06. It further appears that the said fact was also placed and were explained before the AO including the evidences were produced with regard thereto. However, the AO disallowed such claim of bad debt on the ground that the certified copy of the order of the Metropolitan Magistrate was not furnished by the assessee. It appears from s. 36(1)(vii) r/w s. 36(2) bad debt is allowed as deduction if the criteria and/or conditions are fulfilled as mentioned by the assessee which are as follows : 1. The debt or loan should be in respect of business carried on by the assessee. 2. The debt should represent money lent in the ordinary course of business of money or banking or should have been taken into account in computing the income of the assessee of the accounting year. 3. The amount of debt or loan should have become bad. The amount should be written off as irrecoverable in the accounts of the assessee for that accounting year in which the claim for a deduction is made. 4. The CIT(A) after considering the facts and the conditions as laid down in the said section came to the conclusion that those conditions have been fulfilled by the assessee for claiming the said sum of Rs. 14 lacs as bad debt. Accordingly, the CIT(A) accepted the said position and allowed the said amount as bad debt and deduction was also allowed to that effect.;