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Bad debts – S. 36(1)(vii) – No steps taken for recovery

Last updated: 07 June 2008

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Court :

Brief :
Debts pending since long – In most cases recovery barred by limitation – Debts written off in books of account – Allowable as deduction – A. Y. 1998-99

Citation :
Khinvasara Investment (P.) Ltd. vs. JCIT (2008) 110 ITD 198 (Pune); Order dated 9-6-2006

A debt, which is otherwise a proper bad debt and the recovery of which has been pending for quite sometime, does not become a good debt merely on the reasoning that no step has been taken to recover the debt. In some cases, such a legal pursuit may amount to throwing good money in litigation for recovery of an amount whose recovery was doubtful on account of counter claims of the debtors. Even though the assessee had not taken any steps to recover the amount did not lead to conclusion that the debts were not bad. The debts were written off in the books of account and in most of the cases legal proceedings were barred by limitation. The debts were allowable as deduction u/s. 36(1)(vii).