Case Law Details
GNG Ltd Vs ACIT (ITAT Delhi)
ITAT Delhi held that amount which was mistakenly received and returned with interest by virtue of order of the Court is allowable as deduction under section 37 of the Income Tax Act.
Facts- It is submitted that sum of Rs. 7,81,481/- was received from M/s. Hughes Communications Ltd which had made a wrong payment and the appellant considered the credit in the bank account as its income and raised an invoice. However M/s. Hughes Communications Ltd. filed a Civil Suit and in settlement of said Civil Suit a sum of Rs. 9,00,000/- was paid by the appellant and this repayment included an interest amount of Rs. 2,28,583/-. AO disallowed the expenditure on the ground that the said payment cannot be claimed as bad debts u/s. 36(1)(vii) of the Act.
CIT(A) has partly confirmed the disallowance on the ground of refund of capital is not allowable as deduction of bad debt, however interest payment was allowed u/s. 37 of the Act.
Conclusion- Held CIT(A) has considered the amount of Rs. 7,81,481/- as an advance received by the appellant and accordingly the interest was allowed u/s 37 of the Act. Ld. Tax Authorities have failed to appreciate that the amount was in fact not an advance but was received mistakenly and which under a Court decree had to be returned with interest. If interest was allowable u/s 37 of the Act, then the principal amount returned by virtue of order of the Court was also allowable, as both formed the composite money decree.
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