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TMI Blog2005 (12) TMI 56X X X X Extracts X X X X X X X X Extracts X X X X ..... s not legally sustainable and allowable?" The abovementioned question arises out of the order passed by the Tribunal in I.T.A. No. 831/Coch/91 dated June 13,1997, in the case of Kerala State Industrial Development Corporation Limited, Trivandrum, for the assessment year 1988-89. The assessee, the Kerala State Industrial Development Corporation Limited, is a limited company wholly owned by the Government of Kerala. It was incorporated with the object of promotion of industries and advancement of industrial development in the State of Kerala. Vanchinad Leathers Limited was a joint sector company promoted by the assessee in the year 1974 for processing hides and skins. The company started commercial production in the year 1977. However, it w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as satisfied that the unit could not be operated economically. Further, it was also pointed out that a decision was taken by the BIFR recommending winding up of the debtor company on December 16, 1988, that is, after the accounting period relevant for the assessment year 1988-89. It was further pointed out that there was no evidence to show that the debt had become irrecoverable during the year in question. The Tribunal took the view that the assessee could not prove that the debt had become irrecoverable during the previous year. Conditions for claiming deduction under section 36(2)(i)(b) were not satisfied and hence the appeal was dismissed. Against the order of the Tribunal dismissing the appeal on June 13,1997, the assessee made an appl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 36(2)(i)(b) of the Act. Counsel submitted that once the assessee had posted the entries in the profit and loss account and credit entries in the bad debt recovery account that would be sufficient compliance with the provisions of section 36(2)(i)(b). Counsel also submitted that from the report of the I.D.B.I. and the B.I.F.R. the assessee came to know that there was no possibility of realising the loans given to the defaulter. Consequently, the assessee satisfied the requirements of section 36(2)(i)(b) of the Act. Senior standing counsel appearing for the Revenue, Sri P.K. Ravindranatha Menon, referred to the profit and loss account and submitted that the assessee had never made provision for doubtful debts and that the debt had not been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are on to recover the bad debt it cannot be said that the debt has become irrecoverable. A debt may be written off as irrecoverable in the individual accounts of the debtors in the assessee's books or by making appropriate entries in other accounts, by debiting in the profit and loss account and crediting in the doubtful debts account. The burden is always on the assessee to prove that a debt or portion of it has become irrecoverable in the accounting year. The Gujarat High Court in Sarangpur Cotton Manufacturing Co. Ltd.'s case [1983] 143 ITR 166 has taken the view that the assessee has posted the entries in the profit and loss account and corresponding entries are posted in the bad debt reserve account that would be sufficient compliance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... el referred to several circumstances prior to and subsequent to the accounting year stating that those circumstances would justify that there was no possibility of recovering the amount but we find it difficult to agree. Counsel also pointed out that even though the assessee has made an honest attempt it was not possible to recover the amount. Whatever be the attendant circumstances, unless and until a debt has been written off "as irrecoverable in the accounts of the assessee" as provided under section 36(2)(i)(b) the assessee cannot claim any deduction for bad debts. "Irrecoverable" in section 36(2)(i)(b) means the amount that is not recoverable. The assessee, as we have already indicated, in the profit and loss account, has made a provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of India Ltd. [1998] 232 ITR 324, wherein the court held that in order to claim deduction under section 36(1)(vii) of the Income-tax Act, 1961, as it stood at the relevant time, the assessee is required to show that on the facts and circumstances pertaining to a particular debt he has taken an honest judgment that the debt has become a bad debt. We have already indicated that so far as this case is concerned, the profit and loss account of the assessee had made only a provision for bad debt and doubtful debt and had not written it off as bad debts, consequently the Tribunal is justified in holding that the claim of bad debt was not legally sustainable and allowable. We, therefore, answer the question in favour of the Revenue and against th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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