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i-r 'N IN THE HIGH COURT OF DELHI AT IUEW DEN-HI ITA NO. 587 of 2OLI & ITA 97 4 of 2OL1 Date of Decision: September 27, 2011. ITA NO. 587 of 2OLL * > "/o. (1) \ THE COMMISSIONER OF INCOME TAX Throuqh : VERSUS vAN OORD ACZ tNDtA (P) LTD" Throuoh: (2) tTA 97 4 ot 2OLL THE COMMISSIONER OF INCOME TAX Throuoh : Ms. , VERSUS VANORD ACZ INDTA (P) LTD. Throuqh: ITA No. 5A7|2OLL &.974|2OLL . " " APPH[-tAf,\iT Ms. Rashmi CFlcpi'at, Advocate . . .RESp0ng$Eii\!T Mr. Ajay Vohra with Ms. Kavita Jha, Ms. Akanksha Aggarwal and Mr. Somnath Shukla, Advocates. , " " APiPELt/hl'i? Rashmi Ch';pre. Advocate .'.- ;.;..' :.,.. ,i " . " RHS lsCrry f+-fi'lr{-l Mr. Ajay Vohra with Ms.K.av;ta Jha, Ms. Akanks.ha Ag.ga,rlvg.l : and Mr. Somnath Shukla, Advocates. tt- Petgr'' 1 l:i' I" . .. r I n I L._ .' ,":. 'i ,r .:; Digitally Signed By:AMULYA Certify that the digital file and physical file have been compared and the digital data is as per the physical file and no page is missing. Signature Not Verified
CORAM:- HON'BLE MR. JUSTICE A.K. SIKRI HON'BLE MR. JUSTICE M.L. MEHTA 1. whether Reporters of Local newspapers may be ailowed to see the Judgment? 2. To be referred to the Reporter or not? 3. whether the Judgment should be reported in the Digest? A.K. SlKRl, l.(Orall 1. This appeal pertains to the assessment year zoc4-}s. The assessee, in this year had shown debt written off in the bocks of accounts which was taken to profit and loss account as weli. The Assessing Officer had queried the assessee about the writing off the dforesaid debt as bad debt to which reply was furnished by the assessee on 21't December, 2006 giving elaborate explanation for writing off this debt as a bad debt. In the assessment order passecl by the Assessing Officer nothing was mentioned about the i,vr-iting of.r the said bad debt implying thereby that he had accepted ihe stanc of the assessee and did not chose to make any addition thereupor,]"" ,t 'i' 2. The commissioner of Income Tax, however, exercising his powers under Section 263 of the Act, remitted the case back to the ITA No. 587|2OLL &.974|2OLL frage 2 nf 7 ?
Assessing officer on this aspect on the ground that the Assessing Officer has not applied his mind on the issue. The order of the CIT(A) would further revealed that according to him the claim was still alive, inasmuch;as, the assessee had moved an application under Section 11(6) of the Arbitration and.Conciliation Act befcre the Supreme Court for appointment of Arbitrator which showed that the matter was pending for arbitration and, therefore, as there was ray of hope for recovery of the amount and in these circumstances ihe ciebt.coul.d not be treated as bad debt. The Commissioner referred to the judgment of Kerala High Court in Travan'core Teia gsfage Co, Ltd. Vs. CIT, 197 ITR 528 in support of his aforesaid view and the said judgment was approved by the Supreme Ccirurt in the case of Travancore Tea Estate Ltd, Vs. CIT,233 ITR 203. 3. The. assessee preferred appeal thereagainst which has been allowed by the Tribunal vide impugned order dated 26th March, 2010. The Tribunal has, inter alia observed that the Assessing Crificer hati specifically required the assessee to furnish a copy of the ieCEei account of the parties whose balances were written off as baci'Ceijt and the assessee in pursuance thereto had given elaborate fTA No. 587|?OLL &.97412OLL Page 3 of 7
' explanation in his reply dated zl'r December, 2A06. This woltlcl show that the.Assessing Officer had applied his mind and accepted the claim of right off of bad debts in the light of the prevailing provisions of law. This view taken by the Assessing Officer was plausible and it was not a case of total non-application of mind, the CIT (A) could not invoke his jurisdiction under Section 263 of the Act and take different view. 4. After hearing counsel for the parties we are of the view tfrat rir: question of law arises and the aforesaid view of the Tribunal is correct in law. The Tribunal has rightly observed that in view of the prevailing legal provisions the AO had accepted the claim of the assessee in writing off the certain debt as bad debt. After the amendment of .Section 36 (1) (vii) of the Income-Tax Act r,v.e.i.'i.ut April, 1989, it is not necessary for the assessee'now to estab!ish tnat the debt, infact, had become recoverable for obtaining a deduction in relation to a bad debt. It is sufficient for the assessee to write off the same as recoverable in the accounts of the assessee. This ir :q held by the Supreme Court in T.R,F, Ltd. Vs. Cbmrnission'er af Income-Tax, 323 ITR 397 : ITA No. 587|2OLL &.97412OLL Page 4 of 7 +.
"This position in law is well-settled. After 1st April, 1989, it is not necessary for the assessee to establish that the debt, in fact, has become irrecoverable. It is enough if the bad debt is written off as irrecoverable in the accounts of the assessee. However, in the present case, the Assessing Officer has not examined whether the debt has, in fact, been written off in accounts of the assessee. When bad debt occurs, the bad debt account is debited and the customer's account is credited, thus) closing the account of the customer. In the case of Companies, the provision is deducted from Sundry Debtors. As stated above, the Assessing Officer has not examined whether, in fact, the bad debt or part thereof is written off in the accounts of the assessee. This exercise has noi been undertaken by the Assessing Officer. Hence, the . ' matter is remitted to the Assesslng Officer foi- de novo consideration of the above-mentioneci aspect only and that too only to the extent of the write off ." 5. As per the aforesaid judgment, the Assessing officer should ascertain as to whether debt has in fact been written off as bad debt in the accounts books. Insofar as present case is concerned,, there is no .dispute about this fact. In. fact order of t!-re Commissioner under Section 263 of the Act starts with tl-re observation that the bad debts were written off in the pr;ofit and loss account for the year under reference. l'ft," only. Eround for ITA No. s87]7:OLL & 974]?IOLL Page 5 of 7 7 t
/a' passing the impugned order by the Comrnissioner was that last course bi action cannot be taken by the Fssessee having regard to the fact that arbitration proceedings in respect of these very debts was still pending in the Supreme Court.The reliance by the commissioner on the judg.ment of the Kerala High Court in the case of Travancore Tea Estate co, Ltd, (supra) is clearly misplaced as the law is discussed in the light of unamended section 36(1)(vii) of the Act. 6. we .thus,' do not find any meritztn this appea! which is accordingly dismissed. 7, We may record that in case the assessee ultimately succeeds in the arbitration proceedings anO tne award is rendered in its favour and it is able to recover any amount that can always been shown as income on which tax would be payable under Section 44 (4) of the Act. fTA No. 5AT|?OLL &.97412OLL FaEe 6 of 7
' trl 97412(JLL . . B. We may record that after the orders were passed by the '| Commissioner under Section 263 of the Act and the matter was remitted back to the Assessing Officer, the Assessing Officer had passed fresh orders of assessment disallowing the claim of write off which order has been set aside by the Tribunal on the ground that the order passed under Section 263 of the Act by the Commissioner itself is set aside. v\' 9. As the order of the Tribunal setting aside the order of the commissioner under section 263 has been upheld by us aboven this appeal is dismissed on this ground. ,M{\ f"....--_ ."' (4.K. StKRt) JUDGE ^fla*-e^ (M.L, MEHTA)' JUDGE SEPTEMBER 27, ?OLL. skb o ITA No. 5a7|?OLL & 974|7OLL PageT of7 i'