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TMI Blog2014 (11) TMI 506X X X X Extracts X X X X X X X X Extracts X X X X ..... er the pretext that the appellant has not adduced any evidence to the effect that the debt has become bad?" T.C.A.No.1136 of 2009 1. Whether the Income Tax Appellate Tribunal was right in law in disallowing the appellants claim of bad debt which the appellant has written off as irrevocable in the books of account? 2. Consequent to the amendment to Section 36(1)(vii) w.e.f 01.04.1989 whether the Income Tax Appellate Tribunal was right in law in disallowing the appellants claim of bad debt under the pretext that the appellant has not adduced any evidence to the effect that the debt has become bad? 3. Whether the Appellate Tribunal was right in law in treating the software development expenses which become obsolete after a period of time as capital in nature? 4. Whether the Income Tax Appellate Tribunal was right in law in disallowing expenses incurred by the appellant on account of professional services rendered by City Bank N.A. Despite the fact that the said expenses are covered by proper bills? T.C.A.No.184 of 2014 1. Whether the Tribunal was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... han 90 days and which are written off by the appellant as bad debts on their becoming over due for more than 120 days". 2. The appellant is a private limited Company engaged in the business of hire purchase and leasing and providing consumer durable loans. They filed return of income for the respective Assessment Years. 3. The case of the appellant was selected for scrutiny for each Assessment Year and notice under Sec.143(2) was issued on the appellant for each Assessment Year calling upon the appellant to produce various details. The details were produced by the appellant and the assessment order was completed for each Assessment Year. 4. In the Returns filed, the appellant/assessee, claimed certain allowances on account of (a) bad debts (b) depreciation of vehicles ) treating the expenditure on account of software expenses for the Assessment Year 2002-03 and 2004-05 as revenue in nature (d) professional fee paid to Citibank for rendering professional services and (e) the issue of accrued interest on bad debts as raised by the authorities for Assessment Years 2004-05 and 2005-06 which were disallowed by the Assessing Authority. 5. The Order of the Assessing Authority was chal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... supported the orders of the lower authorities. He relied on the Madras High Court decision in the case of South India Surgical Co Ltd vs ACIT (287 ITR 62) and also the RBI guidelines. 3. We have heard the rival submissions and perused the materials on record. As per section 36(1)(vii) only bad debt can be written off as irrecoverable in the accounts of the assessee for the previous year. The debt is qualified as 'bad'. Therefore it is not every debt that can be written off for claiming deduction. It must be bad debt. The word 'bad' used in the section cannot be ignored. Before writing off the debt, must from an honest opinion on the basis of material on record that debt has become bad. The assessee cannot write off any and every debt according to its convenience. The contention of the assessee that it has offered write off of debt in subsequent year is very absurd. The right income should be taxed in the right assessment year in right person's hand. If we accept the plea of the assessee it leads to a situation where tax would be able to be evaded by writing good as bad in the year of profit and subsequently offering the same as income. There ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erable. That position got altered by deletion of the word established". which earlier existed in s.36(1)(vii) of the IT Act, 1961 ("Act", for short). 3. For the sake of clarity, we reproduce herein below provisions of s.36(1)(vii) of the Act, both prior to 1st April, 1989 and post-1st April, 1989: 36. Other deductions:-(1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in s.28-(i) to (vi) .......... (vii) subject to the provisions of sub-s. 92), the amount of any debt, or part thereof,, which is established to have become a bad debt in the previous year. Post 1st April, 1989: 36. Other deductions.- (1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in s.28- (i) to (vi) ..... (vii) subject to the provisions of sub-s.(2), the amount of any bad debt or part thereof which is written off as irrecoverable in the accounts of the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . However, the Tribunal, relying upon the earlier order, dismissed the two appeals. Therefore, the assessee is before this court for all four Assessment Years on a common question which revolves around the issue of "bad debt" and whether it could be written off. 14. The decision reported in (2010) 323 ITR 397 (TRF Ltd vs Commissioner of Income tax) is relatable to Assessment Years 1990-91 and 1993-94 and the Hon'ble Supreme Court held that prior to 1.4.1989, the assessee has to establish as a matter of fact, that the debt advanced by the assessee had, in fact, become irrecoverable. But after 1.4.1989, it held that it is not necessary for the assessee to establish that the debt, in fact, has become irrecoverable. Paragraph-4 of the order, which is already extracted above, makes it clear. 15. In view of the law laid down in the case of (TRF Ltd vs Commissioner of Income tax) reported in (2010) 323 ITR 397 we have no hesitation to hold that "bad debts" if written off, on the accounts of the assessee and appropriately claimed before the competent authority, the authorities are bound to consider the same in the light of the decision of the Hon'ble Supreme Court. 16. The issue ..... X X X X Extracts X X X X X X X X Extracts X X X X
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