Tribunal allows bad-debt deduction for NSEL receivables; 80-IA windmill expense allocation remanded

5-Second Takeaway

The Tribunal held that the assessee could claim a deduction for amounts written off as bad debts arising from NSEL commodity-trading receivables, since the sums had been written off in the books and earlier offered as income, and future recovery possibility did not defeat section 36(1)(vii). It also restored the section 80-IA issue on windmill profits to the Assessing Officer for fresh examination of head-office expenses and common-asset depreciation.

The assessee, engaged in commodity trading on the NSEL platform, wrote off receivables as bad debts in two assessment years. The Assessing Officer disallowed the claim, treating the amount as a capital investment and reasoning that recovery from defaulters might still be possible; the Commissioner (Appeals) sustained the disallowance on the footing that the transactions were speculative.

The Tribunal noted that the Assessing Officer had not recorded any adverse finding on the statutory conditions for section 36(1)(vii). The amounts had already been written off in the books of account and had been offered as income in earlier years.

On that basis, the Tribunal held that the deduction was allowable. The mere possibility of future recovery could not justify denial of the bad-debt claim, and any amount subsequently recovered would have to be offered to tax in the year of receipt.

On the section 80-IA ground, the Tribunal found the record insufficient to conclude whether head-office expenses or depreciation on common assets should be allocated to the windmill units. It therefore remanded that issue to the Assessing Officer for fresh adjudication after examining the relevant facts and giving the assessee an opportunity of hearing.