TaxTMI 
TaxTMI 
2020 (10) TMI 514
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....e from profession, the assessee claimed deduction of Rs. 88,59,511 on account of bad debts written off. The details of bad debt written off as bad debts and shown as income of the assessee in his books of account in the earlier Assessment years as furnished by the Assessee before the Revenue authorities was as follows:- Name Amount in Rs. Relevant FY to which the receivable pertains Sales register enclosed in Page no. of this Annexure Ledger is enclosed in Page no. of WS made on 07.02.2018 ETL Infrastructure Services Ltd. 17,31,786 2007-08 11 104 L&T Ltd. (ECC Division) 10,63,495 2009-10 24 108-109 L&T Tech Park Ltd. 34,41,406 2007-08 11 111-112 L&T Tech Park Ltd. 2,92,500 2010-11 30 112-113 L&T Tech Park Ltd. 2,70,000 2011-12 36 113 Muthoot Hotels & Tourism Ventu 50,000 2006-07 4 114 Oberon Edifices 1,99,410 2007-08 11 116 Raymonds Limited 13,73,055 2008-09 18 117-118 RC Architecture Pvt Ltd 29,515 2004-05 10 119 SRK Groups 4,08,343 2007-08 11 120 88,59,511 5. The AO did not allow claim of assessee for deduction on the ground that the Assessee was not able to show as to how the debts that were written off as ....
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.... the debts written off as bad debt has in fact become bad and irrecoverable and that a mere write off in the books of account of assessee is sufficient to claim deduction. The CIT(A), however, placed reliance on the decision of the ITAT Hyderabad Bench in the case of Natco Pharma Ltd., 29 taxmann.com 297 which in turn relied on the decision of Hon'ble Supreme Court in the case of Travancore Tea Estates Co. Ltd., 233 ITR 203 (SC) wherein a view was expressed that the assessee has to establish that the debt has become bad and irrecoverable to claim deduction on account of bad debts. The CIT(A) also referred to a decision of the ITAT Bangalore Bench in the case of Embassy Classic (P) Ltd., 20 taxmann.com 291 wherein it was held that writing off a debt as a bad debt is not an empty formality and that the assessee has to show that the debt has become bad and that the assessee cannot convert any live amount into a bad debt only on the basis of a technical rule of writing off. The CIT(A) thereafter attempted to reconcile the balance of debts that were written off as bad debts as appearing in the books of account from AY 2007-08. The CIT(A), however, has not come out with any specific adve....
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.... of any debt, or part thereof, which is established to have become a bad debt in the previous year. Post-1st April, 1989: Other deductions. 36.(1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28- (i) to (vi) xxxx xxxx (vii) 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." 12. In the CBDT Circular No.551 dated 23-01-1990 (1990) 183 ITR St. 37, the provisions of Section 36(1)(vii) was explained post the amendment brought vide Direct Tax laws (Amendment)Act, 1987. The circular reads as under :- "Amendments to sections 36(1)(vii) and 36(2) to rationalise provisions regarding allowability of bad debts- The old provisions of clause (vii) of sub-section (1) read with subsection (2) of the section laid down conditions necessary for allowability of bad debt. It was provided that the debt must be established to have become bad in the previous year. This led to enormous litigation on the question of allowability of bad debt in a par....
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....e the aforesaid sum. According to the assessee company, certain legal proceedings were also initiated against the defaulters. As on the date of the finalization of the balance-sheet, the realization of the balance money was doubtful and the assessee took a decision to write off the amounts as bad debts. Accordingly, the assessee company wrote-off a sum of Rs. 3,66,71,850/- as bad debts on account of Shri. K. M. Viswanath and Smt. K. M. Parvathamma. The Tribunal found that the sum written off as bad debt was in fact realized by the Assessee before the date of filing of return of income and hence the tribunal did not allow the claim of the Assessee for deduction, observing as follows:- "Even though writing off a debt as bad and doubtful may be a sufficient mode of discharging the proof, the said format of statutory evidence is not an empty formality. It is not necessary for the assessee to prove that the debt has become bad. But at the same time, the assessee cannot convert any live amount into a bad debt only on the basis of the technical rule of writing off. In the present case, even though the amount was not received on the balance-sheet date, the amount was received by the asse....