Bad debt write-off for exchange receivables: deduction allowed where 25% was written off in accounts as per settled law

Post-amendment law treats a debt written off in the taxpayer's books as sufficient for a tax deduction for bad debt; the assessee's write-off of 25% of receivables from a defaulter exchange meets that standard and therefore the deduction must be allowed. The Revenue's refusal-premised on ongoing investigations and unrealized seized assets-was rejected because irrecoverability need not be proved where the taxpayer has charged the amount off in its accounts, following the Supreme Court precedent in TRF Ltd. The appellate body dismissed the Revenue appeal and permitted the deduction in respect of the 25% write-off.

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Issues: Whether the assessee's claim of deduction of bad debts of Rs. 1,98,70,000 (written off 25% of receivables from NSEL) is allowable under section 36(1)(vii) of the Income-tax Act, 1961 for A.Y.2017-18.

Analysis: The Tribunal examined facts showing the assessee had recorded trading income from NSEL transactions and had written off 25% of outstanding receivables in its books on 30.09.2013 after the NSEL default and ongoing recovery/investigation processes. Applying the post-1989 amendment to section 36(1)(vii), the Tribunal reviewed legal precedent establishing that it is sufficient for a bad debt to be written off in the assessee's accounts for the deduction to be allowable, without the assessee having to prove the debt had in fact become irrecoverable. The Tribunal also relied on a coordinate-bench decision in a sister concern's case on substantially similar facts and findings. The Revenue's contention that the claim was premature because recovery efforts and investigations were ongoing was considered and rejected as inconsistent with the statutory test in section 36(1)(vii).

Conclusion: The claim for deduction of bad debt of Rs. 1,98,70,000 is allowable; the Revenue's appeal is dismissed and the disallowance by the lower authorities is set aside in favour of the assessee.

Ratio Decidendi: Under Section 36(1)(vii) of the Income-tax Act, 1961 as amended w.e.f. 01.04.1989, a deduction for bad debts is allowable where the debt is written off as irrecoverable in the assessee's accounts; proof of actual irrecoverability is not required.

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