Anita Medical Systems Pvt Ltd Vs ITO (ITAT Mumbai)
Mumbai ITAT: Once Bad Debt Is Written Off, AO Cannot Demand Proof of Irrecoverability; Transitional Four-Year Rule Inapplicable
The Mumbai ITAT held that the assessee was entitled to deduction of bad debts under Section 36(1)(vii) once the debts were written off as irrecoverable in its books of account and the amounts had already been taken into account in computing income in earlier years, thereby satisfying the requirements of Section 36(2). The Tribunal observed that, after the amendment effective from 1 April 1989, an assessee is not required to prove that the debt has actually become irrecoverable, reiterating the law laid down by the Supreme Court in TRF Ltd. v. CIT.
The Tribunal further held that the Assessing Officer and the CIT(A) had erroneously invoked Section 36(2)(iv) by applying a four-year limitation for writing off debts. It clarified that Section 36(2)(iv) is merely a transitional provision applicable only to debts relating to Assessment Year 1988-89 or earlier and has no application to subsequent assessment years. The Tribunal also observed that, once the Revenue had accepted the debtor balances in earlier years and the assessee had produced ledger accounts and legal notices issued for recovery, it could not insist upon further proof of irrecoverability or question the genuineness of the debts without any contrary material. Accordingly, the disallowance of ₹37.02 lakh was deleted and the assessee’s appeal was allowed.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
