INDUSTRIAL CABLES vs. COMMR.OF INCOME TAX

Facts

The assessee, Industrial Cables, appealed against an order dated 29.07.2005 passed by the Income Tax Appellate Tribunal (ITAT), Chandigarh Bench 'B'. The ITAT had disallowed a claim of Rs. 2,37,43,429/- made by the assessee as a bad debt. The disallowance was made by the assessing authority on the grounds that the debts pertained to government agencies like HSEB, GEB, and HPSEB, and there was a hope of recovery. The assessee had provided details of these bad debts in Annexure A-4, relating to sales to various state electricity departments and plants for the assessment year 1998.

Held

The High Court allowed the appeal and set aside the ITAT's order. The Court noted that the Supreme Court in T.R.F. Limited Vs. Commissioner of Income Tax, Ranchi, had interpreted the amended Section 36(1)(vii) of the Income Tax Act, 1961, which states that a deduction for bad debt is allowable if it is written off as irrecoverable in the accounts of the assessee for the previous year. The Supreme Court held that it was not necessary to prove that the debt had actually become irrecoverable; writing it off in the accounts was sufficient. Since the revenue did not dispute the amendment, the High Court found that the ITAT's disallowance was not in line with the amended provision and the Supreme Court's ruling. The matter was remanded back to the assessing authority to pass a fresh speaking order, considering the amendment and examining the extent of the written-off amount.

Key Issues

1. Whether the disallowance of the bad debt claim of Rs. 2,37,43,429/- made by the assessee, which pertained to government electricity departments, was justified, considering the amendment to Section 36(1)(vii) of the Income Tax Act, 1961, effective from 01.04.1989? (Question of law) Assessee's contention: The assessee argued that following the amendment to Section 36(1)(vii) of the Income Tax Act, 1961, which came into effect from 01.04.1989, it is sufficient if a bad debt is written off as irrecoverable in the assessee's accounts. They relied on the Supreme Court judgment in T.R.F. Limited Vs. Commissioner of Income Tax, Ranchi. Revenue's contention: The revenue did not dispute the amendment made on 01.04.1989.