2015 (5) TMI 80 - HC - Income Tax

Disallowance u/s 36(i)(vii) - assessee has not fulfilled the conditions as per section 36(2)with respect of claim of Bad Debt - ITAT allowing the assessee's claim for Bad Debts - Held that - There was no occasion for the AO to disallow the write off on the ground that no attempts have been made to recover the same. The assessee acquired a proprietory concern M/s.Sharda International and the assets in the form of advances of the balance sheet of two entities were part of the acquisition. These advances were bad debts and were written off under the provisions of Section 36(1)(vii) as amended and effective from 1st April, 1989. Prior to 1st April, 1989 Section 36(1)(vii) provided that for an amount of debt or part thereof to be written off it would have to be established that it became a bad debt in the previous year. Therefore, the fact that the said debt had become irrecoverable should have been established. However, after 1st April, 1989 the amended section provided that the amount of bad debt or part thereof which is written off as irrecoverable could be claimed as deduction. Accordingly no fault can be found with the order of the Tribunal. - Decided in favour of assessee.

Summary

Issues:
1. Interpretation of provisions of Section 36(1)(vii) of the Income Tax Act, 1961 regarding the claim for Bad Debts.
2. Validity of the Assessing Officer's disallowance of the write off of bad debts.
3. Applicability of the Supreme Court's decision in T.R.F Ltd. Vs. Commissioner of Income Tax (2010) 323 ITR 397 on the case.
4. Comparison of provisions of Section 36(1)(vii) pre and post 1st April, 1989.

Analysis:

1. The case involved a dispute regarding the assessee's claim for bad debts during the assessment year 2005-06. The Assessing Officer disallowed the write off of bad debts amounting to a total of &8377; 65,96,520/-, stating it was contrary to the provisions of section 36(1)(vii) of the Income Tax Act, 1961. The Commissioner of Income Tax set aside the Assessing Officer's order, leading to an appeal by the Revenue before the Tribunal.

2. The Tribunal, in its decision, noted that the write off of debts did not require the debts to be completely irrecoverable, citing the Supreme Court's decision in T.R.F Ltd. Vs. Commissioner of Income Tax (2010) 323 ITR 397. The Tribunal emphasized that the amended provisions of section 36(1)(vii) post 1st April, 1989 did not necessitate the establishment of complete irrecoverability before writing off bad debts.

3. The Tribunal highlighted the change in the language of section 36(1)(vii) pre and post 1st April, 1989. Before the amendment, it was required to establish that the debt had become a bad debt in the previous year for write off. However, post-amendment, the provision allowed for the write off of bad debts as irrecoverable without the need to establish complete irrecoverability before writing off the debts.

4. Ultimately, the High Court upheld the Tribunal's decision, stating that the assessee had correctly claimed the write off of bad debts under the provisions of Section 36(1)(vii) as amended post 1st April, 1989. The Court concluded that there was no substantial question of law raised in the appeal by the Revenue, and hence dismissed the appeal without any order as to costs.