Subscribe to the Bombay Chartered Accountant Journal Subscribe Now!

October 2018

4 Section 36(1)(vii): Bad debt- Write-off of bad debts were held to be allowable – and there is no obligation on the assessee to establish that debt had became bad.

By K. B. Bhujle, Advocate
Reading Time 2 mins

1.     Hinduja Ventures Ltd vs. DCIT [ Income tax Appeal no 270 of 2008, Dated: 2nd August, 2018 (Bombay High Court)]. 

 

[Hinduja Ventures Ltd vs. DCIT; dated 24/08/2006; Mum.  ITAT ]

After the  close of accounting year, the assessee had received money which it had written off as bad debts in its accounts. Thus claim for deduction u/s.36(1)(vii) of the Act was disallowed. It is an agreed position between the parties that after the Amendment with effect from 1.4.1981 to section 36(1)(vii) of the Act, there is no requirement in law that the Assessee must establish that the debt infact has become irrecoverable.

 

This as requirement of section 36(1)(vii) of the Act to claim deduction on account of bad debts is for the Assessee to write off the debt as irrecoverable in its account. This is as held by the Supreme Court in TRF Ltd. vs. CIT (2010) 323 ITR 397. 

 

In this case, it is undisputed position that the assessee had written off bad debts in its account for the previous year relevant to the subject assessment year and claimed deduction u/s. 36(1)(vii) of the Act. Thus, the fact that the amounts written off as bad debts were recovered subsequent to the end of the accounting year would not justify the Revenue to disallow the deduction on the ground that the debt written off was not infact bad debt. In a similar circumstance, this Court in CIT vs. Star Chemicals (Bombay) P. Ltd. [2009] 313 ITR 126 (Bom) placed reliance upon Circular No.551 dated 23.1.1990 issued by the CBDT to conclude that once the Assessee has written off debts as bad debts then the requirement of section 36(1)(vii) of the Act are satisfied. There is no requirement  to establish that the debt was infact bad.

 

The tax on the amount written off as bad debts in the previous year subject to relevant Assessment Year has been offered to tax in the year the amounts were recovered i.e. in the subsequent Assessment Year. The assessee  appeal was  allowed.  

 

You May Also Like