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Income Tax Appellate Tribunal, MUMBAI BENCHES “E, ‘MUMBAI
Before: SHRI C.N. PRASAD, HON’BLE & SHRI RAMIT KOCHAR, HON’BLE
PER C.N. PRASAD, JUDICIAL MEMBER
This appeal is filed by the assessee against the order of the Commissioner of Income Tax (Appeals)-22, Mumbai, dated 05/02/2010 for the Assessment Year 2007-08.
The only issue in this appeal of the assessee is that the ld. CIT(A) erred in confirming the disallowance of bad debts written off of Rs.2,34,280/-. The Assessing Officer while completing the assessment, disallowed bad debts of Rs. 2,87,376/- observing that bad debts were written off without any basis and it is a premature write off.
On appeal, ld. CIT(A) sustained the disallowance.
4. The Authorized Representative of the assessee submitted that in view of the decision of the Hon'ble Supreme Court in the case of T.R.F. Limited vs. CIT in Civil Appeal No. 5293/2003 dated 09/02/2010, there is no requirement to establish that the debt has become bad after the amendment of provisions of section 36(1)(vii) after 01/04/1989. The only requirement is that the debts should have to be written off in the books of account. The Authorized Representative of the assessee also placed reliance on the Circular of CBDT No. 12/2016 dated 13/05/2016 wherein it has been clarified that the requirement for allowing the claim for bad debts is only the write off in the books of account and need not be established that the debt has become bad.
5. The Departmental Representative supported the orders of the authorities below.
We have heard rival submissions, perused the orders of the authorities below and the case-laws relied on. The issue in this appeal is squarely covered by the decision of the Hon'ble Supreme Court in the case of T.R.F. Limited (supra) wherein the Hon'ble Supreme Court held as under:- “Heard learned counsel on both sides. In these appeals, we are concerned with Assessment Year 1990- 1991 and Assessment Year 1993-1994. Prior to 1st April, 1989, every assessee had to establish, as a matter of fact, That the debt advanced by the assessee had, in fact, become irrecoverable. That position got altered by deletion of the word “established”, which earlier existed in Section 36(1)(vii) of the Income Tax Act, 1961 [`Act', for short]. For the sake of clarity, we re-produce hereinbelow Provisions of Section 36(1)(vii) of the Act, both prior To 1st April, 1989 and post- 1st April, 1989: “Pre-1st April, 1989: Other deductions. 36.(1)The deductions provided for in the following clauses Shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28—-
(i) to (vi) xxxx xxxx xxxx (vii) subject to the provisions of sub-section (2), the amount of any debt, or part thereof, which is established to have become a bad debt in the previous year. Post-1st April, 1989: Other deductions. 36.(1)The deductions provided for in the following clauses Shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28— (i) to (vi) xxxx xxxx xxxx (vii) subject to the provisions of sub-section (2), the amount of any bad debt or part thereof which is written off as irrecoverable in the accounts of the assessee for the previous year.” 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.”
We also further noticed that CBDT has issued a circular clarifying the position on write off of bad debts as under:- “Proposals have been received by the Central Board of Direct Taxes regarding filing of appeals/pursuing litigation on the issue of allowability of bad debt that are written off as irrecoverable in the accounts of the assessee. The dispute relates to cases involving failure on the part of assessee to establish that the debt is irrecoverable. 2. Direct Tax Laws (Amendment) Act, 1987 amended the provisions of sections 36(1)(vii) and 36(2) of the Income Tax Act 1961, (hereafter referred to as the Act) to rationalize the provisions regarding allowability of bad debt with effect from the 1st April, 1989. 3. The legislative intention behind the amendment was to eliminate litigation on the issue of the allowability of the bad debt by doing away with the requirement for the assessee to establish that the debt, has in fact, become irrecoverable. However, despite the amendment, disputes on the issue of allowability continue, mostly for the reason that the debt has not been established to be irrecoverable. The Hon'ble Supreme Court in the case of TRF Ltd. In CA Nos. 5292 to 5294 of 2003 vide judgment dated 9.2.2010 (available in NJRS 2010-LL-0209-8) has stated that the position of law is well settled. "After 1.4.1989, for allowing deduction for the amount of any bad debt or part thereof under section 36(1) (vii) of the Act, it is not necessary for assessee to establish that the debt, in fact has become irrecoverable; it is enough if bad debt is written off as irrecoverable in the books of accounts of assessee. "
In view of the above, claim for any debt or part thereof in any previous year, shall be admissible under section 36(1)(vii) of the Act, if it is written off as irrecoverable in the books of accounts of the assessee for that previous year and it fulfills the conditions stipulated in sub section (2) of sub-section 36(2) of the Act.
Accordingly, no appeals may henceforth be filed on this ground and appeals already filed, if any, on this issue before various Courts/Tribunals may be withdrawn/not pressed upon.
6. This may be brought to the notice of all concerned. “
7. Therefore, respectfully following the decision of the Hon'ble Supreme Court in the case of T.R.F. Limited (supra), we hold that once bad debts are written off in the books of account, the same have to be allowed as deduction. In this case, there is no dispute that bad debts have been written off in the books of account as can be observed from the assessment orders. It is the finding of the Assessing Officer that the bad debts have been written off by the assessee. Since, the bad debts have been written off, they have to be allowed as deduction. Thus, we direct the Assessing Officer to delete the disallowance made towards bad debts.
In the result, appeal of the assessee is allowed.
Order Pronounced in the open Court on 28th October, 2016