TaxTMI 
TaxTMI 
2009 (2) TMI 54
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.... was the contention of the assessee that the write off was done after creating provisions in accordance with the guidelines of the R.B.I. and was a bona fide write off and as such deduction should be allowed. The C.I.T. (A) was pleased to hold that as per the amended provisions under Section 36(1)(viia) the assessee is not required to establish that the debt had actually became bad and what was required was whether the amount is written off during the year or not. Allowance of deduction has to be made in the year of write off. On facts it held that as of the date of the order, no recovery has been made and if recovery is made in future the same will be automatically offered to tax. As the appellant had written off the amount in question after due approval of the Competent officials of the bank, the same has to be allowed as a deduction and accordingly allowed Rs.92,96,000/-as bad debts which were disallowed by the A.O. Appeal was partly allowed. 3. Revenue aggrieved by the order of the C.I.T. (A) had preferred an Appeal before the I.T.A.T. A Special Bench was constituted, as there were differences of opinion amongst the Benches of the Tribunal. The argument advanced on behal....
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....irement of the amended provision. The minority Judgment on the other hand took a view that mere writing off of the debt is not sufficient for claiming a deduction under Section 36(1)(vii) effective from 1st March, 1989. In addition, the Assessee is also under an obligation to show atleast prima facie that debt has become bad. Whether a debt has become bad or not will depend on the facts of each case. After answering the issues considering the majority opinion the matter was referred to Regular Bench for decision. Revenue has challenged the majority opinion by this Appeal. 5. To answer the issue it will be relevant to reproduce Section 36(1)(vii), which reads as under:- "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) ............ (ia) ........... (ib) ........... (ii) ........... (iia) .......... (iii) .......... (iiia) ......... (iv) ........... (v) ............ (vi) ........... (va) ........... (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 ac....
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....wisdom of the assessee to treat the debt as bad, once it is written off as irrecoverable in the accounts of the assessee. 7. Subsequent to the amendment the Board has issued Circular 551 dated 23rd January, 1990. The issue pertaining to bad debt is set out in para.6.6. and the relevant portion reads as under:- "In order to eliminate the disputes in the matter of determining the year in which a bad debt can be allowed and also to rationalise the provisions, the Amending Act, 1987 has amended clause (vii) of sub-section (1) and clause (i) of sub-section (2) of the section to provide that the claim for bad debt will be allowed in the year in which such a bad debt has been written off as irrecoverable in the accounts of the assessee." With reference to the Board's Circular on behalf of the Revenue the learned Counsel sought to contend that considering the judgment of the Supreme Court in Commissioner of C. Ex., Bolpur vs. Ratan Melting & Wire Industries, 2008 (231) E.L.T. 22 (S.C.) the said circular is not binding on the Court. In our opinion there can be no dispute on the said proposition. The law as now settled is that the Departmental Circulars and Instructions issued by the Boar....
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....of the Revenue that what has to be written off as irrecoverable is bad debt or part thereof and not any debt or part thereof. In our opinion the argument does not take the case of the Revenue any further as to when a debt can be said to be bad. Our attention was also invited to the Judgment in Travancore Tea Estates Co. Ltd. vs. Commissioner of Income Tax, Cochin, (1998) 8 SCC 667 to point out that it is settled law that whether a debt became bad or the point of time when it became bad, are pure questions of fact. In our opinion the ratio of that judgment would really not be applicable to answer the interpretative issue which has been raised in this Appeal. 10. Let us refer to some Dictionary meanings of the word "bad debt". Chambers 20th Century Dictionary refers to bad debt as "A debt that cannot be recovered". Mitra's Legal & Commercial Dictionary refers to bad debt as "A debt becomes bad debt when the Creditor has no reasonable chance of recovering it from the debtor as held in Deoniti Prasad vs. Commissioner of Income Tax, AIR 1953 Pat. 360. The Law Lexicon refers to bad debt as "Debt which cannot reasonably be collected. A debt about which there is no reasonable expect....
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....ight make payments as and when funds are provided. The Madras High Court after considering the various judgments was pleased to observe that it is not sufficient for the assessee to say that he has become pessimistic about the prospect of recovery of debt in question. The assessee must honestly feel convinced that the financial position of the debtor was so precarious and shaky that it would be impossible to collect any money from him. The question is really one of fact depending upon the various facts and diverse circumstances bearing on the debtor's pecuniary position, his commitments and obligations. Further that the judgment of the assessee in regard of the debt as a bad debt must be a honest judgment and not a convenient judgment. Reference was also made to the judgment of the Delhi High Court Commissioner of Income-tax vs. Global Capital Ltd., (2008) 306 ITR 332 (Delhi). The Delhi High Court has taken the view that post the amendment the assessee is not required to establish that the concerned debt has actually become bad in the relevant year for the purpose of claiming deduction under this Section and the only requirement for claiming deduction is that the assessee ha....