Case Law Details
Altus Group (India) Pvt. Ltd. Vs DCIT (ITAT Delhi)
Conclusion: Deduction under section 36(1)(vii) was allowable in case money was 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 required that the expenditure (not being of a capital nature) should have been wholly and exclusively incurred for the purpose of the business. Advances for salary and deposits for lease premises had been written off and the same were laid out or expended wholly and exclusively for the purposes of the business thus, allowable under Section 37(1).
Held: Assessee-company was engaged in the business of providing project management consultancy in the field of architectural services. The case of assessee was selected for scrutiny and assessment was completed under section 143(3) after making certain additions/dis allowances. Aggrieved, assessee and Revenue filed appeal before CIT(A), who partly allowed the appeal of assessee. Assessee claimed that all the advances were paid to vendor/employee in the ordinary course of the business operation to avail services from them and hence, their non-recovery was duly allowable deduction of business expenses under section 37 and not under section 36. According to AO, there was a specific provision under section 36(1)(vii) for allowing the bad debt written off and thus written off of the advances and deposit could not be allowed to the assessee under section 37(1) in view of the decision in the case of Southern Technologies Ltd. Vs. JCIT (2010) 320 ITR 577 (SC), wherein it was held that if a provision for doubtful debt was expressly excluded from section 36(1)(vii), then such provision could not be claimed as deduction under section 37, even on the basis of ‘real income theory’. It was held the claim of advances and deposit had not been considered for income in the year under consideration or in the earlier year(s), such advances or deposit written off were not eligible for deduction under section 36(1)(vii). An assessee was entitled for claim under Section 36(1)(vii) , where by reason of the inability or insolvency of the debtor to pay, the money was unable to be recovered. In all other cases, the claim for allowance should have to be sustained under Section 37(1) which required that the expenditure (not being of a capital nature) should have been wholly and exclusively incurred for the purpose of the business. In the instant case, It was found that advances for salary and deposits for lease premises had been written off and the same were within the contemplation of the words “laid out or expended wholly and exclusively for the purposes of the business and allowable under Section 37(1). The ratio of the decision in the case of Southern Technologies Ltd. (supra) could not be applied in the facts of the instant case. Moreover, the tax effect involved in the issue agitated before the Tribunal, was less than Rs.50 lakh, as prescribed by the Central Board of Direct Taxes (CBDT) vide Circular No. 17/20 19, dated 08/08/20 19, therefore, the appeal of Revenue was dismissed.
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.
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