Case Law Details
Navyug Cottn Company Vs ITO (ITAT Pune)
In the case of Navyug Cotton Company vs. ITO, ITAT Pune held that the deduction for claimed bad debts can be allowed based on write-off, thereby eliminating the requirement to prove that the debt actually became irrecoverable.
In a notable ruling, the Income Tax Appellate Tribunal (ITAT) Pune, examined the issue of bad debts and certain expenses claimed in the Profit & Loss account. The case in point was Navyug Cotton Company Vs ITO, where the tribunal had to make a decision regarding the confirmation of addition of bad debts and certain expenses.
The ITAT observed that the amount of debt claimed as bad was indeed debited in the company’s Profit & Loss account. Despite the Assessing Officer’s view that the company could not substantiate the debt turning bad, the Tribunal referred to the amendment to section 36(1)(vii) which came into effect on 01-04-1989. According to this amendment, the deduction can be allowed on the basis of write-off, thus eliminating the need to prove that the debt actually turned bad.
Concerning the expenses, the Tribunal noted that the firm had deployed vehicles for business use, but no details were provided about the exclusive use of these vehicles for business purposes. Hence, some portion of the expenses was deemed to be for personal use. It was ruled that 10% of such expenses should be disallowed for the purpose of business income deduction. For other expenses like Telephone and Entertainment, the Tribunal reduced the ad hoc disallowance from 20% to 10%.
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