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December 2009

Bad debts : Deduction u/s.36(1)(vii) of Income-tax Act, 1961 : A.Y. 2005-06 : Disallowance u/s.14A : Exemption u/s.80HHC allowed : Deduction of bad debts cannot be disallowed u/s.14A.

By K. B. Bhujle, Advocate
Reading Time 2 mins

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Reported :

  1. Bad debts : Deduction u/s.36(1)(vii) of Income-tax Act,
    1961 : A.Y. 2005-06 : Disallowance u/s.14A : Exemption u/s.80HHC allowed :
    Deduction of bad debts cannot be disallowed u/s.14A.

[CIT v. Kings Exports, 318 ITR 100 (P&H)]

The assesse was engaged in manufacture and export of
engineering goods. The assessee’s claim for deduction of bad debts
u/s.36(1)(vii) of the Income-tax Act, 1961 was disallowed by the AO on the
ground that the assessee had claimed deduction u/s.80HHC and the claim for bad
debts would be hit by S. 14A of the Act. The Tribunal allowed the assessee’s
claim.

On appeal by the Revenue the Punjab and Haryana High Court
upheld the decision of the Tribunal and held as under :

“U/s.80HHC and u/s.14A, the expenditure incurred from
export income could not be held to be for earning income which did not form
part of total income, which concept was dealt with u/s.10 of the Act. S.
80HHC deals with deduction of the element of profit from export from taxable
income. Therefore, the claim of bad debt could not be disallowed.”

 

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