Law:

Section:

I. Section 36(1)(vii) of the Income-tax Act, 1961 - Bad debts - Assessment year 1998-99 - Assessee a non-banking financial company placed certain sum as fixed deposit with bank - On assessee giving lien on said deposit bank sanctioned a loan to 'F', in respect of which assessee was a co-promoter - On default by 'F' in payment of dues to bank, fixed deposit made by assessee and interest accrued thereon was appropriated against dues of 'F' - Assessee failed to recover said amount from 'F' and was written off same as bad debt - Assessing Officer did not treated same as bad debt on ground that such advance made by assessee could not be said to have made in normal course of business of assessee - Said order was upheld by Commissioner (Appeals) - Tribunal allowed appeal of assessee on ground that act of assessee giving guarantee was part of lending business and further since interest earned from bank and 'F' had been offered for taxation would show that such transaction of assessee would clearly be business transaction and amount of guarantee would be treated as debt and when same became irrecoverable it would qualify as bad debt - Whether order of Tribunal was to be confirmed - Held, yes II. Section 36(i)(vii) of the Income-tax Act, 1961 - Bad debts - Assessee-company had deposited certain sum for allotment of preference of shares of 'P' - Shares were not allotted - Assessee asked to 'P' for refund of said amount - 'P' expressed inability to make immediate repayment and instead offered to instruct to 'M' which owned inter-corporate deposit to 'P' - As per instruction of 'P', 'M' issued post-dated cheques of said amount to assessee - Assessee received certain amount from cleared cheques - Subsequently, 'M' requested to assessee not to produce remaining cheques for encashing as it refused its indebtedness to 'P' - Thereafter, assessee and 'M' mutually agreed to reduce a sum of Rs. 85 lakhs of principal amount - Assessee claimed said Rs. 85 lakhs as bad debt - Assessing Officer refused to accept same as bad debt on ground that assessee was not in business of money-lending and principal debtor of assessee was 'P' from whose said amount was still recoverable - Whether…

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