TaxTMI 
TaxTMI 
2016 (2) TMI 628
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.... of Textiles. Assessee filed its return of income for A.Y. 2006-07 on 26-12-2006 declaring nil income. The case was selected for scrutiny and thereafter the assessment was framed under section 143(3) vide order dated 31.12.2008 and the total income was determined at Rs. Nil but after disallowing the claim of bad debts and prior period expenses and after setting off of unabsorbed depreciation. Aggrieved by the order of A.O., Assessee carried the matter before ld. CIT(A) who vide order dated 14.12.2010 dismissed the appeal of the Assessee. Aggrieved by the aforesaid order of ld. CIT(A), Assessee is now in appeal before us and has raised the following grounds:- 1. In law and in the facts and circumstances of the appellant's case, ....
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....ee inter alia submitted that considering the costs involved, it had decided not to pursue legal action. The submissions of assessee were not found acceptable to A.O. He also noticed that Assessee had made provision for bad debts of the aforesaid amount. He was of the view that a mere provision for bad debts is not sufficient for making the claim and that unless the amount is written off as irrecoverable in the accounts, the same cannot be allowed as bad debts. He was further of the view that Assessee had also not demonstrated any efforts made by it to recover the amount and the writing off of debts without any reasonable cause cannot be allowed and for this proposition, he also relied on the decision in the case of Dhall Enterprise & Engine....
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....in the accounts of the assesses; it is mandatory to write off debtors accounts for claiming deduction of bad debts. If the debtor's accounts are not written off, the credit of such bad debts will go to reserve account which is nothing but in the nature of provision for bad and doubtful debts. Even if such account is not named as bad debts reserve account of provision for bad and doubtful debts account, it is of a similar nature. When profit and loss account is debited with the amount of bad debts not written off in the account of debtors, such debit can come only from provision or reserve account which is created for future write-off of debts. In view of this, though appellant's P&L account reflects debit for bad debts, the same is ....
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....hose parties were discounted with the bankers but at the time of payment the parties defaulted. He further submitted that though the nomenclature used by the Assessee is provision for bad debts but in fact it is the writing off debts as bad. He further submitted that the Assessee had also made similar provisions in 2003-04 and was allowed by the Revenue authorities. He further submitted that the amount is reduced from the total debtors and therefore it amounts to writing off from the amounts due from the parties and for this proposition, he relied on the decision of Hon'ble Apex Court in the case of Vijaya Bank vs. CIT reported in 2010 323 ITR 166. He further submitted that after 01.04.1989, it is not necessary for the Assessee to establish....
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....w of the ratio of the decision of Hon'ble Apex Court in the case of TRF Ltd. vs. CIT reported in [2010] 323 ITR 397 (SC) wherein the Hon'ble Apex Court held that after 01.04.1989 it is not necessary for the assessee to establish that the debt has become irrecoverable and that it is enough if the bad debt is written off as irrecoverable in the accounts of the assessee. We further find that Hon'ble Apex Court in the case of Vijaya Bank vs. CIT reported in (2010) 323 ITR 166 (SC) has decided the issue in favour of assessee. The head note of which reads as under: "Section 36(1)(vii) of the Income-tax Act, 1961 - Bad debts - Assessment years 1993-94 and 1994-95 - Whether where assessee bank had written off impugned bad debt in its books....