Jindal Iron and Steel Co. Ltd.v. Dy. CIT [2013] 21 ITR 414 (Mum.) (Trib.)

S.36(1) (vii): Deductions-Bad debt- Inter-corporate deposits- -Resolution for writing off interest in May

2002,would relate back to accounting year relevant for assessment year 2002-03.-Interest assessed on basis of

accrual in earlier years hence deductible. Inter-corporate deposits part of business of assessee hence loss on

investment is allowable as business loss. [S.28(i)]

The assessee had debited a sum of Rs. 1,94,49,012, as interest receivable written off during the year under consideration. The Assessing Officer disallowed the claim and this was confirmed by the Commissioner (Appeals).The Assessing Officer further disallowed the claim for loss of inter-corporate deposits along with interest written off. This was also upheld by the Commissioner (Appeals). On appeal to the Tribunal, the Tribunal held that there is no condition in section 36(1) (vii) that the decision for treating a debt as bad or irrecoverable should be taken in the previous year itself. If the books of account are not closed and completed, it is permissible to make adjustments before they are finally closed. The board resolution passed in May 2002, with regard to the approval of writing off the amount as irrecoverable in the accounts, would relate back to that previous year in which it was treated as irrecoverable. In the earlier years the assessee's interest income shown under the head "Business income", had been accepted by the Department. Thus, on these facts, once the interest income had been offered on accrual basis, which had been credited in the profit and loss account as business income in the earlier years and the sum had been written off as irrecoverable in the accounts in this year, the sum had to be allowed as bad debt. The assessee had shown accrued interest on inter-corporate deposits in the profit and loss account and had offered it for tax as business income. This had been accepted by the Department also. The corollary, therefore, was that interest was earned during the course of business. The interest which had been written off was deductible. Tribunal also held that investment in inter-corporate deposits was part of the business activities as the interest accrued there from had been treated as business income. The loss arising on such investment was thus consequently allowable as business loss and therefore, the sum of Rs. 32 lakhs was deductible as business loss. (A. Y. 2001-2002)