2003 (2) TMI 499 - AT - Income Tax

Summary

Issues Involved:

1. Whether the assessee had written off a debt within the period of less than three months at the end of the previous year from the date of advance or more than two years from the date of advance?
2. Whether the assessee is entitled to deduction in respect of the claim of a debt notwithstanding the uncontroverted finding of the Assessing Officer that the claim was not genuine?
3. Whether the assessee is entitled to deduction of any debt written off in the books of account as a bad debt and the Assessing Officer has no power to question the genuineness of the claim?

Summary:

1. Period of Debt Write-off:
The Assessing Officer (AO) noted that the debt was written off within less than three months from the date of advance, specifically from January 1991 to March 1991. The CIT(A) accepted the assessee's claim that the debt was written off two years after the advance. The Judicial Member agreed with the AO, confirming the short period, while the Accountant Member accepted the assessee's contention of a two-year gap. The Third Member confirmed the AO's finding of a short period, making the issue academic.

2. Genuineness of the Claim:
The AO found the claim of Rs. 1,83,500 as incredulous and intended to reduce tax liability, noting the debt was written off on humanitarian grounds. The CIT(A) allowed the claim, stating that post-amendment of section 36(1)(vii), it was sufficient if the debt was written off as irrecoverable. The Judicial Member emphasized the need for the debt to be established as bad, while the Accountant Member opined that post-amendment, the assessee need not prove the debt became bad, and writing it off was sufficient. The Third Member concurred with the Accountant Member, emphasizing that the amendment aimed to reduce litigation and align taxable income with real income.

3. Assessing Officer's Power to Question Genuineness:
The AO questioned the genuineness of the debt, suggesting it was written off to reduce tax liability. The CIT(A) held that post-amendment, the AO could not question the genuineness if the debt was written off. The Judicial Member believed the AO retained the power to question the genuineness, while the Accountant Member held that the amendment removed this power, focusing only on the write-off. The Third Member supported the Accountant Member's view, stating that the amendment intended to simplify the process and reduce disputes over the year of allowability.

Conclusion:
The Third Member's concurrence with the Accountant Member's view led to the majority decision that the assessee's write-off of the debt as irrecoverable in the books was sufficient for claiming deduction u/s 36(1)(vii). The appeal by the department was dismissed.