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Issues involved: Interpretation of section 36(1)(vii) of the Income-tax Act, 1961 regarding the treatment of bad debts and the requirement for proving the debts as bad u/s 36(1)(vii) pre and post the amendment.
Judgment Summary: The High Court of Delhi heard an appeal by the Revenue against an order of the Income-tax Appellate Tribunal regarding the treatment of bad debts by an assessee for the assessment year 1994-95. The assessee had written off certain debts as irrecoverable in the financial year 1993-94. The Assessing Officer contended that the debts were previously shown as good debts till March 31, 1993, and the assessee failed to provide evidence of efforts made to recover the amount, thus deeming the debts as bad. The Commissioner of Income-tax (Appeals) held that under section 36(1)(vii) of the Act, the assessee only needed to write off a bad debt as irrecoverable, which was done in this case. The Tribunal upheld this view, leading the Revenue to appeal under section 260A of the Act. The court noted the change in section 36(1)(vii) post-April 1, 1989, where now, writing off a debt as irrecoverable is sufficient for classification as bad debt, eliminating the need to establish the debt as bad. Referring to Circular No. 551 issued by the Central Board of Direct Taxes, the court highlighted the amendment's purpose to reduce litigation on bad debt classification. Citing previous case law, the court affirmed that no substantial question of law arose in this matter and upheld the Tribunal's decision, emphasizing that the amendment aimed to streamline the treatment of bad debts. The court also addressed the impact of section 41(4) of the Act on recovered bad debts and rejected the Revenue's argument that the amendment required the assessee to prove the debt as bad, akin to the pre-amendment requirement. Considering all aspects, the court concluded that no substantial question of law warranted consideration, and thus, dismissed the appeal.
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