2020 (4) TMI 856

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

.... order already passed by the DCIT, Circle-12, Kol on 06.03.2013 was prejudicial to the interest of revenue to the extent of Rs. 40,78,373/- being the assessee's claim for provision of doubtful debts which was not examined by AO while passing the assessment order on 06.03.2013. Accordingly, the Ld. Pr. CIT, Kol.-4, Kolkata set aside the orders with the direction to re-examine the issue and complete the assessment after proper examination. 4. So, in the reassessment proceedings pursuant to Ld. Pr. CIT's order the AO noted that the assessee had claimed "provision for doubtful debts written back" amounting to Rs. 71,25,039/-. The AO observed from a perusal of the schedule 15 of Audited Accounts that the assessee had credited Rs. 30,46,666/- as provision for doubtful debts returned back. So, according to AO, the balance of Rs. 71,25,039 - Rs. 30,46,666 i.e. Rs. 40,78,373/- still remains unexamined and, therefore, the AO asked the assessee to furnish the details of addresses of the sundry creditors and detail statement in respect of whom the assessee claimed bad debts/doubtful debts to the tune of Rs. 40,78,373/-. The AO acknowledges that the assessee furnished the addresses of the al....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....by the appellant during the year, as either they had left or they were not known at the specified address. Thus the genuineness of these debtors itself was not established by the appellant. The decision of Apex Court in the case of TRF Ltd mentioned herein above as well as circular of the CBDT are in respect of genuine debtors which are just required to be written off in the accounts and are to be allowed as deduction. In the instant case the existence of debtors itself is in serious doubt so the disallowance made by AO is held to be justified. Moreover, the AR has also failed to explain with corroborative evidence as to when these bad debts were offered as income of the appellant in any of the previous years. In absence of these necessary evidences it cannot be said that the appellant has fulfilled all the conditions laid down in section 36(1)(vii) of the Act. These grounds are dismissed." Aggrieved, assessee is before us. 6. Having heard both the parties we note that assessee is in the business of advertising and had written off an amount of Rs. 40,47,791/- against "irrecoverable debts". This has been reflected from Schedule-17 of the Audited Financial at page 106 of paper ....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....hen the debtors could not be found in the address which the assessee had with it, it goes on to show that those debtors could not be traced for enforcing recovery of debts. Be that as it may be, let us look into the law governing the claim made by the assessee. 8. As per the provisions of section 36(1)(vii) of the Act which deals with allowability of bad debt or part thereof. The said section, as amended w.e.f. 01.04.89, provides that the following shall be allowed: "subject to the provisions of sub-section (2), the amount of any bad debt or part thereof which is written off as irrecoverable in the accounts of the assessee for the previous year." From the plain reading of the provisions of section 36(1)(vii) of the Act, it is abundantly clear that from AY 1989-90 onwards, the preconditions for allowability of a debt is that the Assessee should have bona fide believe that the debts are not recoverable and that they are written off in the books of accounts. Hence, it is not necessary for the Assessee to establish that the debts become bad in the previous year under consideration for claiming the same as deduction. 9. As per section 36(2)(i) of the Act, in order to c....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....ns for claiming the debts written off during the year under consideration as bad debt under section 36(1)(vii) of the Act i.e. the amount was shown as income in earlier years and the amount has been written off in the accounts for the year under consideration. Hence, in view of the above circular, the Assessee would be entitled to deduction of the impugned dad debt written off during the year under consideration. Further, we note that the issue as to whether the assessee is required to justify the writing off the debts in the books of accounts as bad in the year has now been settled and decided by the decision of the Supreme Court in the case of TRF limited v. CIT (2010) 323 ITR 397 (SC) wherein it has been held that it is not necessary for the assessee to establish that the debt, in fact, has become irrecoverable and the accounting entry for write off is sufficient to claim the deduction for bad debts. The Hon'ble Supreme Court held as under: "In these appeals, we are concerned with Assessment year 1990-1991 and Assessment Year 1993-1994. Prior to 1st April, 1989, every assessee had to establish, as a matter of fact, that the debt advanced by the assessee had, in fact, be....