Geofin Comtrade Limited Vs ACIT (Kerala High Court)
The Kerala High Court, in the case of Geofin Comtrade Limited Vs. ACIT, has addressed a dispute concerning the requirements for claiming a deduction for bad debts under Section 36(1)(vii) of the Income Tax Act, 1961. The court held that the mandatory closing of individual debtor accounts is not required for an assessee to claim the deduction, setting aside an Income Tax Appellate Tribunal (ITAT) order that had restored the original disallowances. The case involved the assessment years 2013-2014 and 2014-2015, during which the appellant-assessee, Geofin Comtrade Limited, claimed deductions for “provision for doubtful debts.”
The primary controversy was over the method of “writing off” a bad debt as irrecoverable in the assessee’s accounts. Initially, the Assessing Officer (AO) disallowed the deduction because the “individual debtors’ accounts and debts” were not written off. The assessee successfully challenged this before the first appellate authority, which, relying on the Supreme Court’s precedent in Vijaya Bank v. Commissioner of Income Tax and Another, found that the provision for bad and doubtful debts had been written off correctly by the assessee.
The Revenue then appealed to the ITAT. The Tribunal subsequently reversed the first appellate order, allowing the Revenue’s appeals. The ITAT’s decision was based on the interpretation that the deduction required the “individual debtor account (in the separate debtor ledger) would have to be formally closed, removing it from this ledger.” This effectively restored the disallowance, compelling the assessee to file the current appeal before the Kerala High Court.
