2025 (2) TMI 1408 - AT - Income Tax

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 ... Writing off of 25% of the outstanding amount from NSEL as 'bad debt' by the assessee - both the lower authorities had declined the assesses claim of 'bad debt', for the reason, that as the matter was under investigation and the seized assets of NSEL and its beneficiaries are yet to realized, therefore, it would be premature to treat any part of the amount receivable by the assessee from NSEL as bad debt. HELD THAT:- As in assessee’s own case for the A.Y.2014-15 [2020 (3) TMI 779 - ITAT MUMBAI] held as per the post-amended Sec. 36(1)(vii), as had been made available on the statute vide the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 01.04.1989, it is not necessary for the assessee to establish that the debt, in fact, has become irrecoverable. It is enough if the 'debt' is 'written off as irrecoverable in the accounts of the assessee. Admittedly, in the case before us, the assessee company had 'written off 25% of the balance outstanding from NSEL i.e. Rs. 1,98,70,000/- as a 'bad debt in its books of accounts for the year under consideration. Only reasoning for declining of the aforesaid claim of the assessee by the lower authorities was that as the case was under investigation and the seized assets were yet to be realized, therefore, the aforesaid claim of the assessee was premature. In our considered view, the aforesaid observations of the lower authorities are not in conformity with the settled position of law. As observed by the Hon'ble Supreme Court in the case of TRF Ltd. [2010 (2) TMI 211 - SUPREME COURT] as per the post-amended Sec.36(1) (vii), it is not necessary for the assessee to establish that the debt in fact, had become irrecoverable. It is enough if the 'bad debt' is written off as irrecoverable in the accounts of the assessee. As per the aforesaid settled position of law, we are of the considered view that now when the assessee holding a conviction that the entire amount receivable from NSEL could not be recovered, had thus 'written off 25% of the entire receivable amount in its books of accounts, therefore, there was no justification on the part of the lower authorities to have declined the said claim of deduction so raised by the assessee. Appeal of the Revenue is dismissed 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.