1999 (9) TMI 5 - HC - Income Tax

Bad-debt write-offs u/s36(1)(vii): whether proof of irrecoverability is needed; write-off in accounts held sufficient

The dominant issue was whether deduction for bad debts under s. 36(1)(vii) of the Income-tax Act requires proof that the debt had actually become ... Written off - bad debt - Whether, the Appellate Tribunal is right in law and on facts in confirming the order passed by the Commissioner of Income-tax (Appeals) deleting the addition on account of bad debt observing that in view of the amended provisions of section 36(1)(vii) the assessee is not required to establish that the debt had become bad? - HELD THAT:- Under the provisions of section 36(1)(vii) of the Act, deduction was to be allowed in computing the income referred to in section 28 of the Act of the amount of any bad debt or part thereof which is written off as irrecoverable in the accounts of the assessee for the previous year subject to the provisions Of sub-section (2). Prior to the amendment from April 1, 1989, the allowance under this clause was confined to the debts and loans which had become irrecoverable in the accounting year. Thus, under the provisions of section 36(1)(vii) as in force from April 1, 1989, all that the assessee had to show was that the bad debt was written off as irrecoverable, The genuineness of such a claim made by the assessee was not in doubt. Therefore, all that the Tribunal has done is to uphold the first appellate authority's decision, applying the provisions of the amended section 36(1)(vii) of the Act, and no question of law arises in the matter from such application of the provision to the facts of the case. The present application is, therefore, rejected. Issues Involved: The issue involves the interpretation of section 36(1)(vii) of the Income-tax Act, 1961 regarding the treatment of bad debts and the requirement to establish their irrecoverability.Summary:The High Court of Gujarat considered a case where the Revenue sought a direction for the Income-tax Appellate Tribunal to forward a statement of case regarding the deletion of an addition of Rs. 4,36,307 on account of bad debt. The Tribunal had confirmed the order passed by the Commissioner of Income-tax (Appeals) based on the amended provisions of section 36(1)(vii) of the Act, stating that the assessee was not required to establish that the debt had become bad during the previous year.The assessee had written off the amount as bad debt due to the insolvency of a firm to which it had advanced money. The Assessing Officer contended that the debt had not been proven as bad and that mere delay in recovery did not qualify it as a bad debt. However, the Commissioner of Income-tax (Appeals) and the Tribunal found that under the amended provisions of section 36(1)(vii), the assessee was not required to establish the debt as bad in the previous year, and writing off the amount sufficed.The Court noted that u/s 36(1)(vii) of the Act, deduction for bad debts was allowed if written off as irrecoverable in the accounts for the previous year. The Tribunal upheld the decision based on the amended provision, emphasizing that the genuineness of the claim was not in doubt. Consequently, the application was rejected, and the rule was discharged with no costs awarded.