Case Law Details
As per amended section 36(1)(vii) with effect from 01.04.1989, the claim of bad debt is to be allowed once it is written off in the books of account and it is not required for the assessee to prove that the debt written off as bad has actually become irrecoverable.
Relevant Extract of the Judgment
2. The assessee in the present case is a Company, which is engaged in the business of trading of miscellaneous goods. The return of income for the year under consideration was filed by it on 23.03.2011 declaring total income of Rs.14,30,240/-. In the Profit & Loss Account filed along with the said return, a sum of Rs.51,91,254/- was debited by the assessee on account of bad debts written off. During the course of assessment proceedings, the claim of the assessee for the deduction on account of bad debts written off was examined by the Assessing Officer. On such examination, he found that there was a failure on the part of the assessee to establish that the concerned debts written off as bad had actually become bad during the year under consideration. According to him, the assessee even after the amendment made in section 36(1)(vii) with effect from 1st April, 1989 was under an obligation to establish that the relevant debts had actually become bad in order to claim deduction and since this condition, according to the Assessing Officer, was not satisfied by the assessee, he disallowed the claim of the assessee for deduction on account of bad debts written off in the assessment completed under section 143(3) vide an order dated 26.03.2013.
3. Against the order passed by the Assessing Officer under section 143(3), an appeal was preferred by the assessee before the ld. CIT(Appeals) and after considering the submissions made by the assessee as well as the material available on record, the ld. CIT(Appeals) deleted the disallowance made by the Assessing Officer on account of bad debts written off for the following reasons given in paragraph no. 4 of his impugned order:-
“4. I have gone through the assessment order and the written submission filed by the assessee. The assessing officer has not disputed the fact that the bad debt was duly written off by the assessee in the Books of Accounts. The Hon’ble Supreme Court has set at rest the interpretation of Section 36(1)(vii) in the case of TRF Ltd. vis. CIT Ranchi 323 ITR 397 wherein it has been held that after amendment of Section 36(1)(vii) w.e.f. 01.04.89 the claim of bad debt is to be allowed once it is written off in the Books of Accounts. After the amendment it is not required for the assessee to prove that the debt has become irrecoverable. The Assessing Officer has relied on the judgment all of which pertains to pre-amendment period except the judgment in the case of South India Surgical 153 Taxman 491 (Madras). However the aforesaid judgement was delivered before the judgement in the case of TRF Ltd. Besides in the case of first Leasing Co. 341 ITR 641, the Hon’ble Madras High Court itself has not accepted the judgment in the case of South India Surgical on the ground of applicability of judgment of Hon’ble Supreme Court in the case of TRF Ltd. Besides, it has been held in the case of Anil H. Rastogi ITAT(TM) 86 ITD 193, bad debt even if that relates to the same year, if the assessee has written off the debt or part thereof in the accounts in the previous year itself, such bad debt shall be allowed as deduction. It is seen from the assessment order that the Assessing Officer has not disputed the fact that the amount was written off during the relevant previous year and the fact that the same was debt and the fact that the same was debt of the business. Therefore, it was not necessary for the assessee to establish that the debt has become irrecoverable. Only requirements on the part of the appellant were to write off the said debt in the books of accounts which has not been disputed by the Assessing Officer. Therefore, respectfully following the judgment in the case of TRF Limited 323 ITR 397, the disallowance of Rs.51,79,408/- on account of bad debt made by the A.O. is deleted”.
Aggrieved by the order of the ld. CIT(Appeals), the Revenue has preferred this appeal before the Tribunal.
4. We have heard the arguments of both the sides and also perused the relevant material available on record. As agreed by the ld. representatives of both the sides, the issue involved in this appeal of the assessee is squarely covered in favour of the assessee by the decision of the Hon’ble Supreme Court in the case of TRF Limited reported in 323 ITR 397, wherein it was held that as per the amended section 36(1)(vii) with effect from 01.04.1989, the claim of bad debt is to be allowed once it is written off in the books of account and it is not required for the assessee to prove that the debt written off as bad has actually become irrecoverable. Respectfully following the said decision of the Hon’ble Apex Court, we uphold the impugned order of the ld. CIT(Appeals) deleting the disallowance made by the Assessing Officer on account of bad debts written off and dismiss this appeal of the Revenue.
