2008 (7) TMI 373

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

..... However, the assessment was completed reducing the loss to Rs.11,26,676. It has resulted on account of disallowance of various expenses including bad debts amounting to Rs. 1,48,219. The Assessing Officer did not allow the bad debts because in his opinion there was no evidence to establish that the debts had actually become bad during the relevant accounting period. The assessee carried the matter in appeal, but did not succeed. It carried the matter in second appeal before the Patna Bench of the Income-tax Tribunal. The Tribunal examined the controversy of writing off the debts in the light of the amendment made by Direct Tax Laws (Amendment) Act, 1987, with effect from April 1, 1989, and observed that the assessee would have been entitl....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....n the circumstances of the petitioner's case, the Tribunal was justified in confirming disallowance of Rs.1,01,934 under the head bad debts?" 5. Mr. Rastogi submits that section 36(1)(vii) of the Income-tax Act, before its amendment by the Direct Tax Laws (Amendment) Act, 1987, provided deduction of the amount of any debt or part thereof which is established to have become a bad debt in the previous year. Section 36(1)(vii), before its amendment by the Direct Tax Laws (Amendment) Act, 1987, read as follows: "36. Other deductions.- (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;.... (vii) Subject to the provisio....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....ff as irrecoverable in the accounts of the assessee for the previous year itself shall entitle the deduction. He submits that earlier an assessee was required to establish that amount of any debt or part thereof has become a bad debt, but now the assessee shall be entitled for deduction under the head bad debt, amount which is written off as irrecoverable in the accounts of the assessee for the previous year. 8. Mr. Prasad, appearing on behalf of the Revenue, however, submits that there is no evidence on record to show that the assessee took any steps to realise the account and as such it cannot be said to be a bad debt. 9. We find substance in the submission of Mr. Rastogi. The law, as is stood prior to the amendment, provided that t....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....debt was not established to have become bad in that year. 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. 6.7 Clauses (iii) and (iv) of sub-section (2) of the section provided for allowing deduction for a bad debt in an earlier or later previous year, if the Income-tax Officer was satisfied that the debt did not become bad in the year in which it was written off by....