A bench of Shri Sunil Kumar Yadav (judicial member) of ITAT rejected the claim for deduction under Section 36(2) of the Income Tax Act, 1961 since the chances of recovery of refundable security deposit are not lost completely as matter is sub-judice.
The CIT (A) had already confirmed when assessee approached them with a dispute that the assessee could not recover the said advance on account of certain dispute with the landlord, he wrote it off in the books of account as bad debt and claimed deduction which was disallowed by the AO having noted that legal dispute has not been settled by the court.
Aggrieved assessee went for the appeal before tribunal with the submission that the he could not recover the amount from the landlord, therefore he has rightly written it off. The bench found that when the assessee could not continue with the possession, he claimed the entire amount back which was not given by the landlord; therefore he has filed a Civil Suit in the Civil Court, Bangalore and later written it off in the books of account and claimed deduction.
The tribunal bench argued that it is not a bad debt as it does not fulfill the requisite conditions prescribed u/s. 36(2) of the Act and therefore, upheld the decision of CIT (A).
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