Non Trading bad debts can not be allowed in computing taxable Income of the Assessee

The appellant has purchased debts of amount due to Rose Patel Mercantile Co. Ltd. for Rs.10,85,000/- by paying the said amount on 10-1-1996 Rs. 5,00,000/- and on 29-1-1996 Rs. 5,85,000/-. The amount was due from Qualitron Components Ltd. Unfortunately due to losses the company closed down its operations and ultimately wound up by the order of Gujarat High Court. The Assessing Officer has clearly pointed out that the said debts of Rs. 10,85,000/- was not trading debt. Therefore the conditions specified u/s. 16(1)(vii) r.w.s. 36(2) is not fulfilled as the amount has not been taken into consideration while arriving to the profit of the appellant company.

The amount is also not money lended in the ordinary course of business of banking company or money lending which is carried on by the assessee. the appellant has also not made any such claim that the debts has been taken into account in computing the income of the assessee of the previous year in which the amount of such debts or part thereof is written off or of earlier year. The appellant has also not claimed that it is doing the business of banking of money lending. Moreover no interest either accrued or received has been debited in P &L account by the appellant in respect of amount of debts of Rs. 10,85,000/-. Therefore the Assessing Officer has rightly disallowed the claim of bad debts amounting to Rs. 10,85,000/- u/s.36(1)(vii) r.w.s. 36(2) of the I.T. Act. The action of the Assessing Officer is justified and confirmed. The case laws relied upon by the appellant are distinguishable on facts and not applicable in the case of the appellant.