2008 (8) TMI 894

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....orrect in law in upholding the disallowance on the ground that the assessee appellant had failed to prove that the debt had become irrecoverable ?"   2. In this case, we are concerned with the assessment year 1993-94. The provisions of s. 36(1) (vii) as existing for the assessment year in question reads as follows: "Sec. 36(1)(vii): Any bad debt or part thereof which is written off as irrecoverable in the accounts of the assessee for the previous year........"Prior to its amendment, which came into effect on 1st April, 1989 cl. (vii) read as follows : " Subject to the provision of sub-s. (2), the amount of any debt, or part thereof which is established to have become a bad debt in the previous year."  It is apparent that ....

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....d not been established to have become a bad debt in that year". This clause makes it clear that even if in the previous year, relevant to the asst. yr. 1988-89 or any previous assessment year the AO had not allowed any debt to be deducted on the ground that it had not been established that it had become a bad debt, then also after the amendment the assessee was entitled to claim deduction of the same in the next assessment year.   5. In view of the clear-cut language of the section and the distinction between the unamended and amended provisions, there is no manner of doubt that the intention of the legislature was that the assessee was entitled to claim deduction in case he, in his books of account, had written off the debt as a....

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....ound that the assessee has failed to establish that the debt has become a bad debt in the relevant assessment year. While taking the aforesaid view, we are fortified by a judgment of the Division Bench of the Delhi High Court in CIT vs. Morgan Securities & Credits (P) Ltd. (2007) 210 CTR (Del) 336 : (2007) 292 ITR 339 (Del) in which it was held as follows : "It is our view that the Circular No. 551 [see (1990) 82 CTR (St) 325 : (1990) 183 ITR (St) 7] leaves no scope for debate since it specifically notices the previous practice of having to establish that a debt had become bad in the previous year, which had generated enormous litigation on the question of allowability of bad debt in a particular year. The circular expressed the hope that t....

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....ind that the aforesaid observations have been made in totally different factual scenario. The facts of Kashmir Trading Co. case (supra) were that search and seizure operations were conducted. After these seizure operations were conducted the assessee claimed that some of the debts which had not been written off as bad debts in the books of account of the assessee should be treated as bad debts in terms of s. 36(2) of the IT Act. It is in this context that the Rajasthan High Court held that before s. 36(2) is applied the debt must be shown to be a bad debt. The observations of the Rajasthan High Court, in fact, are that the assessee should have first written off all these debts as bad debts in his books of account. Since this was not done, t....