TaxTMI 
TaxTMI 
2009 (11) TMI 3
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....ces of the case the amended provisions of the Income Tax Act, 1961 w.e.f. 1.4.1989, to section 36(1) (vii) read with 36(2) grants specific amnesty to the assessee for claiming any amount of Debt as bad barring the Assessing Officer to question the veracity of the same thus giving overriding power to one section contrary to the general scheme of enactment of the Income Tax Act, 1961 vide which the real income only is envisaged to be taxed​ ? 3. The Brief background of the case is that the respondent assessee is engaged in the business of developing and printing of photos. The respondent assessee filed its return showing an income of Rs. 4,65,640.00. The returned income was adjusted from the carried forward losses of the earlier year and thus Nil income had been shown. The case was processed u/s 143(1) on 27.12.2002 on the returned income. The assessment was completed u/s 143(3) on the total income of Rs. 13,14,540.00. 4. In the income and expenditure account the respondent assessee claimed expenditure of Rs. 4,86,466.00 under the Head " Amounts written off." The Assessing Officer observed that merely stating that the amount has been written off would not suffice as the respo....
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....ed a bad debt for purposes of allowance under section 36(1)(vii) of the Act. In the instant case, the Departmental authorities have rejected the claim of the assessee on the ground that the assessee failed to furnish the information which may substantiate that the said debt is bad debt. In view of the decision of the Special Bench of ITAT (cited supra), we allow the claim of the assessee. This ground is allowed. 7. Sri D.D. Chopra, Advocate, learned counsel for the appellant contended with vehemence that in the present case is the income and expenditure statement the respondent-assessee claimed expenditure of Rs. 4,86,466.00 under the Head "Amounts written off." and qua the same respondent-assessee was asked on 1.3.2005 to submit information on following points, (a) Complete names and addresses of the persons (With reference to whom bad debts written off claimed, mentioning against each amount.(b) Copies of ledger account of these persons for the relevant assessment year and three preceding years. (c) Efforts made to realize these dues, to which, respondent-assessee did not submit details as desired, and to the contrary submitted reply on 14.3.2005 by mentioning that it was bad de....
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....come referred to in section 28 of the Act of 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 subject to the provision of sub-section (2). Section 36(1)(vii) of the I.T. Act, 1961 provides for deduction on account of bad debt or part thereof which is written off as irrecoverable in the accounts of the assessee for the previous year. Prior to the amendment in the above section w.e.f. 1.4.1989 the words ' any bad debt, or part thereof, which is established to have become a bad debt in the previous year' were used and after the above amendment these were substituted by " any bad debt or part thereof which is written off as irrecoverable in the account of the assessee for the previous year". 10. The effect of the above substitution it has been submitted is that w.e.f. 1.4.1989 , it is not necessary for the assessee to establish that debt had become bad; assessee has only to write off as irrecoverable in its account and that is the end. 11. The CIT (A) Lucknow on 3.3.2006 held that the expenditure claimed by the assessee under the head 'amounts written off' cannot be allowed as per the provision of ....
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....ssee to write off the loan amount as bad debt than to take recourse to the legal proceedings. Thus, the order of the Tribunal cannot be said to suffer from any legal infirmity. At this juncture present income tax appeal has been filed. 9.In the case of Kamla Cotton Co. Vs. CIT (1997) 226 ITR 605 the Gujarat High Court has held that the requirement that a debt has become bad or irrecoverable does not mean that the Department can insist upon demonstrative and infallible proof that the debt had become bad. It is not compulsory for the assess to take legal proceedings against the debtor in recovery of the claim before writing off as a bad debt. When a creditor bona fide writes off the debt because there appears no chance of ir-recovery in the foreseeable future or where the recovery proceedings would be so cuml ersome and expensive as to outweigh any advantage of instituting any recovery proceedings, the assessee discharges the onus and would be entitled to claim deduction of the bad debt under clause (vii) of Section 36(1) of the Act. 14. The Gujrat High court in the case of Commissioner of Income Tax Vs. Girish Bhagwat Prasad 772 Income Tax Reports Vol 256 wherein genuineness of en....
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....ying the provisions of the amended section section 36(1)(vii) of the Act, and no question of law arises in the matter from such application of the provision to the fact of the case. The present application is, therefore, rejected. Rule is discharged with no order as to costs. 15. Reliance has also been placed by the Respondent assessee on the judgment of Madhya Pradesh High Court (In dore Bench) dated 10.2.2006, Commissioner of Income Tax Vs. Nai Duniya wherein claims could not be controverted by Revenue, in this background, view taken was that there was no occasion for dis allowance. Relevant paragraph is being extracted below:- " The question involved in this appeal relates to certain debts being declared as bad debts by the assessee in the assessment year in question and n consequence written off in the books of account. This issue was dealt with by Tribunal in paras 17 and 18 as follows:- :17 The next grievance of the assessee is that the CIT)A) erred in maitai9ning dis allowance of bad debts of Rs. 4,33,776. 18. We have heard the arguments advanced by the parties. We have also perused the orders of the authorities below. The Direct Tax Laws (Amendment) Act, 1987 brought a....
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....fter the amendment w.e.f. 1.4.1989, same has been substituted by "any bad debt or part thereof which is written off as irrecoverable in the account of assessee for the previous year". Effect of said amendment is that now it is not necessary for the assessee to establish that debt had become bad in the previous year, before getting deductions, and mere writing of as irrecoverable of debt or part thereof is substantial compliance of the same. The question is, is said entry of writing of bad debt or part thereof, made in books of accounts conclusive and Assessing Officer is precluded from making inquiries, before according/refusing deductions. Under the scheme as provided for under Income Tax Act, the entries which have been made, as to whether same are genuine entry and not imaginary and fanciful entry, qua the same Assessing Officer is fully empowered to make inquiry however, wisdom of the respondent-assessee cannot be in such matter questioned and no demonstrative or infallible proof of bad debt having become bad is required, and commercial expediency is to be seen from the point of view of assessee, depending on nature of transaction, capacity of debtor etc. but qua entry, semblan....