2011 (2) TMI 1096 - HC - Income Tax

Disallowance of Bad debts - Held that - In the light of the amendment in clause (vii) of sub-section (1) of section 36 the requirement of establishing that the debt has become a bad debt has been done away with. Thus clause (iii) of sub-section (2) of section 36 of the Act appears to have been inserted to take care of the situation where on an earlier occasion a claim for deduction in respect of a bad debt has been disallowed on the ground that the assessee had not established that it had become a bad debt. In the facts and circumstances of the present case clause (iii) of sub-section (2) of section 36 would therefore not be attracted - Tribunal has recorded a finding of fact to the effect that the requirements of clause (vii) of sub-section (1) of section 36 as well as the requirement of section 36(2) of the Act have been duly fulfilled in the present case - Decided in favor of the assessee

Summary

Issues:
- Disallowance of bad debt claim under the Income-tax Act, 1961.

Analysis:
1. The appeal under section 260A of the Income-tax Act challenged the Tribunal's order disallowing a bad debt claim of Rs. 2,70,656 for the assessment year 1989-90. The Assessing Officer disallowed part of the claim as not admissible for the year in question and due to lack of clarity on payments received. The Commissioner (Appeals) upheld the disallowance based on regular payments received from debtors, mostly government departments.

2. The Tribunal considered the statutory conditions for claiming deduction of bad debts under section 36(1)(vii) and 36(2)(iii) to be fulfilled. It noted the write-off in the books of account and compliance with the provisions. The Tribunal found both conditions satisfied, allowing the bad debt claim.

3. The appellant argued that the debt in question must be proven as bad, referencing section 36(2)(iii). However, the Tribunal's findings on compliance with statutory requirements were upheld. The court analyzed section 36 of the Act, emphasizing the entitlement to deduction for bad debts written off as irrecoverable in the previous year.

4. The court clarified the provisions of section 36(2)(iii) and its applicability, noting the amendment in 1987 eliminating the need to establish a debt as bad. The provision was intended for cases where a debt had been disallowed as bad debt deduction in an earlier year. In the present case, clause (iii) of sub-section (2) of section 36 was deemed inapplicable.

5. Ultimately, the court found no infirmity in the Tribunal's decision, dismissing the appeal and ruling in favor of the assessee. The judgment affirmed the Tribunal's conclusion that the statutory conditions for claiming deduction of bad debts were met, leading to the rejection of the appellant's challenge.