By TIOL News Service

BANGALORE, DEC 30, 2017: THE issue before the Bench is - Whether when chances of recovery of refundable security deposit are not lost completely as the matter is sub judice, same can still be written off. And the ITAT verdict is NO.

Facts of the case

The Assessee-company, a leading supplier and trading company of Cosmetics products, filed its return. The Assessee had given interest-free refundable security deposit (Rent advance) against Udupi Hall. When the Assessee could not continue with the possession, he claimed the entire amount back which was not given by the landlord, therefore Assessee filed a Civil Suit. On account of non-recovery of that amount, the Assessee wrote it off in the books of account and claimed deduction. However, during assessment, AO did not allow the writing off of the rent advance on the ground that legal dispute was not settled by the court. But, the disallowance was confirmed by the CIT(A).

After hearing the parties, Tribunal held that,

++ since the assessee had filed a Civil Suit and the same was sub judice in the court and therefore the hope of recovery of this refundable security deposit had not been lost. In such circumstances, the business loss claimed by the assessee could not be allowed in the assessment year. It could only be allowed in that assessment year when the assessee finally fails to recover the said amount. Moreover, it was not a bad debt as it did not fulfil the requisite conditions prescribed u/s. 36(2) of the Act. Therefore, no merit was found in the claim of assessee. In the result, the appeal of the assessee was dismissed.

(See 2017-TIOL-1826-ITAT-BANG)