Section 36(2) of the Income Tax Act
Income-tax Act, 2025: ss.29, 30, 31, 32
Section 36(2) falls under section 36 of the Income-tax Act, 1961, which corresponds to section 29 (Deductions related to employee welfare), section 30 (Deduction on certain premium), section 31 (Deduction for bad debt and provision for bad and doubtful debt) and section 32 (Other deductions) of the Income-tax Act, 2025.
Read section 29 of the 2025 ActRead section 30 of the 2025 ActRead section 31 of the 2025 ActRead section 32 of the 2025 Act
Correspondence checked against the ICAI tabular mapping of the two Acts and the BharatTax.co section commentary.
The decision most relied on for Section 36(2) is TRF Ltd. v. CIT (323 ITR 397), cited in 714 of the 618 judgments on BharatTax that turn on this section.
Leading authorities on Section 36(2)
For claiming deduction for bad debts under section 36(1)(vii) of the Income Tax Act, it is sufficient for the assessee to write off the debt as irrecoverable in its accounts, and it is not necessary to prove that the debt has actually become irrecoverable.
Expenses incurred for software license purchase, development of miscellaneous software, and maintenance of websites are considered revenue in nature. Such expenses are deductible in the year they are incurred.
When advances extended in the normal course of business operations become irrecoverable and are written off, these amounts are allowable as a business loss or revenue expenditure.
An insurance claim received on stock in trade constitutes business income and is not an independent source of income.
The test of enduring benefit for classifying expenditure as capital or revenue is not absolute; expenditure incurred for an enduring advantage may nonetheless be on revenue account, as the test can break down depending on the facts.
Unrecoverable trade advances, including loans to joint venture partners or advances against land, are allowable as a business loss incidental to trade under Section 37(1) of the Income Tax Act when written off in the books of accounts. Such losses are treated akin to bad debts eligible for deduction.
A business loss is deductible if it has a direct and proximate nexus with business operations or is incidental to them, applying a commercial standard, even without an explicit statutory provision for its deduction.
For a share broker, the unrealised value of shares from clients or other trade balances written off is deductible as a bad debt under section 36(1)(vii) if the corresponding income was previously recognized. This principle applies to bad debts arising from revenue transactions, not capital loans.
When there is nothing on record to establish the financial capacity, creditworthiness, or relationship of a donor with the assessee, an addition to income can be justified.
Disallowance of expenses cannot be made if their genuineness is not challenged. For unexplained money, possession of gold jewellery by married ladies up to 500 grams is considered explained.
