2016 (10) TMI 93 - HC - Income Tax

Disallowance of bad debt claimed by the assessee - establishment of debt - Held that - Considering the decision of the Apex Court in the case of T.R.F. Ltd. (2010 (2) TMI 211 - SUPREME COURT ), the question, which is raised in the present appeal is required to be answered in favour of the assessee. The Tribunal has erred in reversing the decision of the CIT(A). After the amendment of Section 36(1)(vii) of the Income-tax Act, 1961 with effect from April 1, 1989, in order to obtain a deduction in relation to bad debts, 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. Accordingly, question raised in the present appeal is answered in favour of assessee and against the revenue

Summary

Issues:
- Disallowance of bad debt claimed by the assessee by the Income Tax Appellate Tribunal
- Interpretation of Section 36(1)(vii) of the Income-tax Act, 1961 regarding bad debts

Analysis:
1. The assessee had filed a return of income for the assessment year 2003-04, claiming bad debts amounting to &8377; 13,74,991. The Assessing Officer disallowed &8377; 825800 of the claimed bad debts, stating that the assessee did not make sufficient efforts to recover the amount. On appeal, the CIT (Appeals) ruled in favor of the assessee and directed the disallowance to be deleted.

2. The revenue appealed to the Tribunal, which reversed the decision of the CIT (Appeals) and disallowed the bad debt claimed by the assessee. The assessee then filed a Tax Appeal challenging the Tribunal's decision, raising the question of whether the Tribunal was correct in disallowing the bad debt.

3. The advocate for the assessee argued that the debt could be treated as a bad debt even if the debtor was traceable and not declared insolvent, citing a Supreme Court decision in the case of T.R.F. Ltd vs. Commissioner of Income Tax. On the other hand, the revenue's counsel supported the Tribunal's decision, stating that it was in accordance with the law and did not require any interference.

4. The High Court referred to the decision in the case of T.R.F. Ltd and highlighted that after April 1, 1989, it was not mandatory for the assessee to prove that the debt had become irrecoverable. It was sufficient if the bad debt was written off as irrecoverable in the assessee's accounts. Considering this legal position, the High Court concluded that the Tribunal erred in reversing the decision of the CIT (Appeals).

5. Therefore, the High Court ruled in favor of the assessee, quashing and setting aside the Tribunal's order. The disallowance was directed to be deleted, and the appeal was allowed in favor of the assessee.