Section 36(1)(vii) applicable in Inability or Insolvency Cases: ITAT [Read Order]

The Income Tax Appellate Tribunal, Delhi, held that the, an assessee is entitled to claim under Section 36(1)(vii) of the Income Tax Act, where the money is unable to be recovered due to inability or insolvency of the debtor to pay. In all other cases, the claim for allowance should have to be sustained under Section 37(1) which requires that the expenditure (not being of a capital nature) should have been wholly and exclusively incurred for the purpose of the business.

The Tribunal further added that the claim of bad debt written off under section 36(1)(vii) of the Act is allowable if such debt or part thereof has been taken into account in computing the income of the assessee of the previous year in which the amount of such debt or part thereof is written off or of an earlier previous year.

The ruling was made in the joined hearing of M/s. Altus Group (India) Pvt. Ltd., v. DCIT and DCIT v. M/s. Altus Group (India) Pvt. Ltd. by a bench consisting of Shri Bhavnesh Saini, and Shri O.P. Kant

Assessee Company was engaged in the business of providing project management consultancy in the field of architectural services. The assessee filed return of income and the case of the assessee was selected for scrutiny. Certain additions/disallowances were made during scrutiny assessment. Aggrieved with the order of CIT (A), who partly allowed the appeal of the assessee, both the assessee and the Revenue preferred this appeal before the Tribunal.

The Tribunal further identified essential elements of section 37 as: “(i) that it should be an expenditure of the nature not described in Sections 30 to 36 ; (ii) it should not be in the nature of capital expenditure or personal expenses of the assessee ; (iii) that it should be laid out or expended wholly and exclusively for the purposes of the business, etc.”

The tribunal further dismissed the appeal filed by the Revenue stating that “the tax effect involved in the issue agitated before the Tribunal, is less than Rs.50 lakh, as prescribed by the Central Board of Direct Taxes (CBDT) vide Circular No. 17/2019, dated 08/08/2019, wherein the Revenue has been directed not to pursue those appeals. In view of the tax involved in the present appeal of the Revenue, being less than the prescribed limit of Rs.50 lakh, the appeal of the Revenue is dismissed.”