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2013 (4) TMI 370 - HC - Income TaxBad debts U/s 36(1)(vii) - Amendment W.e.f. 01.04. 1989 - Held that - We find that the Commissioner of Income Tax (Appeals) has adequately addressed this issue by placing reliance on the Supreme Court decision in the case of T.R.F. Limited v. CIT(2010 (2) TMI 211 - SUPREME COURT )- wherein the Supreme Court clearly held that after the amendment which took effect from 01.04. 1989, it was not necessary for the assessee to establish that a debt, in fact, had become irrecoverable. The Supreme Court further observed that it was enough if the bad debts were written off as irrecoverable in the accounts of the assessee. There is no dispute about this fact insofar as the present case is concerned. The assessee had written off the debts in question as irrecoverable in its accounts. The Income Tax Appellate Tribunal has merely confirmed the decision of the Commissioner of Income Tax (Appeals) - We find no infirmity in the decision of the Commissioner of Income Tax (Appeals) or in the decision of the Tribunal -Appeal is dismissed in favour of Assessee.
Issues:
1. Disallowance of bad debts written off by the assessing officer. 2. Entitlement to write off bad debts acquired from a holding company. 3. Requirement of evidence to show debts had become bad. Issue 1: Disallowance of Bad Debts: The appeal by the revenue challenged the disallowance of Rs. 3,63,31,532/- as bad debts written off by the assessee for the assessment year 2007-08. The assessing officer contended that the bad debts related to the period when the web portals were operated by the holding company, contravening section 36(1)(vii) of the Income-tax Act, 1961. The Commissioner of Income Tax (Appeals) allowed the write-off based on the decision in CIT v. Veerabhadra Rao, stating that debts acquired from the holding company could be treated similarly in the hands of the successor. Issue 2: Entitlement to Write Off Bad Debts: The Commissioner of Income Tax (Appeals) relied on the Supreme Court decision in CIT v. Veerabhadra Rao, emphasizing that after a business transfer, the successor should have the same rights as the original owner regarding bad debts. The Supreme Court's ruling established that if the original owner could write off bad debts, the successor acquiring the assets and liabilities should also be entitled to the same treatment. Consequently, the appeal of the assessee was allowed, permitting the write-off of bad debts. Issue 3: Requirement of Evidence for Bad Debts: The revenue raised a point before the Commissioner of Income Tax (Appeals) and later before the High Court regarding the necessity of evidence to prove that the debts had indeed become bad. However, the Commissioner of Income Tax (Appeals) referenced the Supreme Court decision in T.R.F. Limited v. CIT, which stated that post the amendment effective from 01.04.1989, it was not mandatory for the assessee to demonstrate the irrecoverability of the debt. The Supreme Court clarified that it sufficed if the bad debts were written off as irrecoverable in the accounts of the assessee. In this case, the assessee had properly reflected the bad debts as irrecoverable in its accounts. The High Court found no fault in the decisions of the lower authorities and dismissed the appeal, stating that no question of law, let alone a substantial one, arose for consideration.
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