Section 36(1)(vii) doesn’t require to establish that debts have become bad before writing off

DCIT Vs ICICI Bank Limited (ITAT Mumbai)

ITAT Mumbai held that post amendment to provisions of section 36(1)(vii) of the Income Tax Act as effective from 1^st April 1989, the Act does not require the assessee to establish that the debts have in fact become bad before writing off. Accordingly, addition with regard to disallowance of claim of write off of bad debts duly deleted by CIT(A).

Facts- The assessee has claimed bad debts written off to the tune of Rs.15,03,06,07,093/- u/s. 36(1)(vii) of Income Tax Act, 1961. During assessment proceedings the Assessing Officer disallowed assessee’s claim of write off of bad debts to the extent of Rs.769,75,10,766/-. CIT(A) deleted the said addition. Being aggrieved, revenue has preferred the appeal.

Conclusion- Under the old provisions of section 36(1)(vii) of the Act as were applicable prior to 1^st April, 1989, it was mandatory to establish before writing off that the debts have become bad. After amendment (effective from 1^st April, 1989) the requirement of section 36(1)(vii) as explained by Hon’ble Apex Court in the case of TRF Ltd.(supra) is, it is sufficient if the bad debt is written off as irrecoverable in accounts of the assessee. The Act does not require the assessee to establish that the debts have in fact become bad before writing off.

FULL TEXT OF THE ORDER OF ITAT MUMBAI

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