Court/Forum: SC
Bench: S.H. Kapadia, Aftab Alam
Order Date: 2010-02-09
Outcome: Remanded
Sections: Section 36(1)(vii)
Post-1st April 1989, it is sufficient for the assessee to write off the bad debt in its accounts to claim a deduction under Section 36(1)(vii).
The Supreme Court remanded the matter back to the Assessing Officer to verify if the bad debts were indeed written off in the accounts of the assessee, as required by the amended Section 36(1)(vii) post-1st April 1989.
Mixed
The central legal question was whether the mere write-off of bad debts in the accounts of the assessee suffices for claiming a deduction under Section 36(1)(vii) without having to establish that the debt had become irrecoverable.
T.R.F. Limited claimed deductions for bad debts written off in the assessment years 1990-91, 1993-94, and 1994-95. The Assessing Officer did not verify if the debts were written off in the accounts.
The assessee argued that post-1st April 1989, it is not necessary to establish that the debt has become irrecoverable, only that it is written off in the accounts.
The Revenue contended that the assessee must establish the irrecoverability of the debt to claim a deduction.
Section 36(1)(vii) - pertains to the deduction of bad debts written off as irrecoverable in the accounts of the assessee.
The legal principle established is that after the amendment to Section 36(1)(vii) effective from 1st April 1989, the assessee is not required to prove that the debt has become irrecoverable; it is enough if the debt is written off in the accounts.
The actual write-off in the accounts was not decided and was remanded for verification.
Practitioners should ensure that bad debts are properly written off in the accounts to claim deductions under Section 36(1)(vii) post-1st April 1989.
T.R.F. Limited ...Appellant(s) Versus Commissioner of Income Tax, Ranchi ...Respondent(s) With Civil Appeal No.5294 of 2003
Heard learned counsel on both sides. In these appeals, we are concerned with Assessment Year 1990-1991 and Assessment Year 1993-1994. Prior to 1 st April, 1989, every assessee had to establish, as a matter of fact, that the debt advanced by the assessee had, in fact, become irrecoverable. That position got altered by deletion of the word “established”, which earlier existed in Section 36(1)(vii) of the Income Tax Act, 1961 [`Act', for short]. For the sake of clarity, we re-produce hereinbelow provisions of Section 36(1)(vii) of the Act, both prior to 1 st April, 1989 and post-1 st April, 1989: ...2/-
- 2 - “Pre-1 st 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)xxxxxxxxxxxx (vii) subject to the provisions of sub-section (2), the amount of any debt, or part thereof, which is established to have become a bad debt in the previous year. Post-1 st 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)xxxxxxxxxxxx (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.” This position in law is well-settled. After 1 st April, 1989, it is not necessary for the assessee to establish that the debt, in fact, has become irrecoverable. It is enough if the bad debt is written off as irrecoverable in the accounts of the assessee. ...3/-
- 3 - However, in the present case, the Assessing Officer has not examined whether the debt has, in fact, been written off in accounts of the assessee. When bad debt occurs, the bad debt account is debited and the customer's account is credited, thus, closing the account of the customer. In the case of Companies, the provision is deducted from Sundry Debtors. As stated above, the Assessing Officer has not examined whether, in fact, the bad debt or part thereof is written off in the accounts of the assessee. This exercise has not been undertaken by the Assessing Officer. Hence, the matter is remitted to the Assessing Officer for de novo consideration of the above-mentioned aspect only and that too only to the extent of the write off. Subject to above, the civil appeals filed by the assessee are disposed of with no order as to costs. ......................J.
......................J.
New Delhi, February 09, 2010.
T.R.F. Limited ...Appellant(s) Versus Commissioner of Income Tax, Ranchi ...Respondent(s)
In view of our Order passed today in Civil Appeal No.5293 of 2003 and Civil Appeal No.5294 of 2003, we remit this case concerning Assessment Year 1994-1995 also to the Assessing Officer, who is directed to consider the question as to whether the write off is done by the assessee in its accounts in accordance with the law declared by us in the above order. The civil appeal filed by the assessee, accordingly, stands disposed of with no order as to costs. ......................J.
......................J.
New Delhi, February 09, 2010.