Tribunal's approval of bad debt claims for 2001-02 and 2003-04 upheld; post-1989 write-off rule confirmed by court.

The Bombay HC upheld the Tribunal's decision to allow the assessee's bad debt claims for assessment years 2001-02 and 2003-04 under Section 36(1)(vii) of the Income Tax Act, 1961. The Court confirmed that post-1.4.1989, debts need only be written off as irrecoverable in the accounts. The Revenue's appeal was dismissed without costs.

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Issues:
Allowance of bad debts by the Tribunal for assessment years 2001-02 and 2003-04 under the Income Tax Act, 1961.

Analysis:
1. The High Court of Bombay heard two Income Tax Appeals concerning the same assessee for the assessment years 2001-02 and 2003-04. The primary issue revolved around the Tribunal's decision to allow bad debts claimed by the assessee, which were initially disallowed by the Assessing Officer and the first appellate authority.

2. The Revenue raised two substantial questions of law challenging the Tribunal's decision. Firstly, whether the Tribunal's order was based on relevant facts for the assessment years, and secondly, whether bad debts on inter corporate debt and advances were wrongly allowed under Section 36(1)(vii) of the Act, despite the assessee not being a banking company or engaged in money lending.

3. The Assessing Officer disallowed the bad debts claimed by the assessee for the assessment year 2001-02, citing that the debts must be incidental to the business and there should be an admitted debt to be allowed as bad debt when written off. The first appellate authority affirmed this decision, leading to the appeal before the Tribunal.

4. The Tribunal, relying on the Supreme Court's decision in T.R.F. Ltd case, held that after 1.4.1989, it was sufficient if bad debts were written off as irrecoverable in the accounts of the assessee, without the need to establish the debt as irrecoverable. The Tribunal set aside the previous decisions and allowed the claim of bad debts, prompting the Revenue's appeal before the High Court.

5. The High Court analyzed the provisions of Section 36(1)(vii) of the Act both before and after 1.4.1989, as interpreted by previous judgments. It reiterated that after the said date, it was not mandatory for the assessee to prove the debt as irrecoverable, but only necessary to write it off as irrecoverable in the accounts.

6. The Court emphasized that the decision to treat a debt as bad debt is a commercial or business decision of the assessee, and once recorded as such, it prima facie establishes it as a bad debt unless proven otherwise by the Assessing Officer. In the present case, the Tribunal found that the debts were written off as irrecoverable, meeting the requirements of Section 36(1)(vii) of the Act.

7. Consequently, the High Court upheld the Tribunal's decision, stating that there was no error or infirmity in allowing the bad debts claimed by the assessee. The appeal filed by the Revenue was dismissed, and no costs were awarded. As a result, Income Tax Appeal No. 1469 of 2017 was also dismissed in line with the decision for the assessment year 2001-02.

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