Debts written off in the same/first assessment year eligible for deduction u/s 36(1)(vii) as after the amendment w.e.f. 1st April 1989, it is not necessary for the assessee to establish that the debt, in fact, has become irrecoverable – ITAT
ABCAUS Case Law Citation:
968 (2016) (07) ITAT
Assessment Year : 2006-07
Date/Month of Judgment: June 2016
Brief Facts of the Case:
The appellant assessee had claimed bad debt by way of debiting its profit and loss a/c. However, the AO disallowed the bad debt written off by the assessee on the ground that it was only the first assessment year for the business of the assessee and therefore, deduction u/s 36(1)(vii) could not be allowed . Accordingly he added it to the total income of assessee.
The assessee carried the matter to CIT(A) who also upheld the action of AO.
Observations by ITAT:
The Tribunal observed that various courts have decided similar issue in favour of the assessee. In the case of DCIT v. Rediff.com India Ltd. the ITAT held as under:
“A.O disallowed the claim of bad debts on the ground that the transactions pertain to the current year and the same was written off by the assessee in the same year itself. According to the AO the bad debt claimed by the assessee has in fact not yet matured to claim it as bad and irrecoverable. We find the CIT(A)a allowed the claim of bad debts on the ground that the assessee fulfilled the conditions of section 36(10(vii) r.w.s 36(2) of the Act. We find this issue has now been decided in favour of the assessee by the decision of Hon’ble Supreme Court in the case of TRF Ltd. Vs. CIT 323 ITR 397 whrein it has been held that after the amendment of section 36(1)(vii) of the IT Act, 1961 w.e.f. April 1, 1989, in order to obtain a deduction in relation to bad debts, it is not necessary for the assessee to establish that the debt, in fact, has become irrecoverable. Since the assessee has written off the amount of bad debts in the books of account, therefore, in view of the decision cited above, we do not find any infirmity in the order of the CIT(A) in allowing the claim bad debts written off.”
Also the Tribunal observed that CBDT vide Circular No.12/2016 dated 30.05.2016 had clarified the admissibility of claim for deduction of bad debt u/s. 36(1)(vii) r.w.s Sec.36(2) of the Income Tax Act, 1961 as under:
“4. In view of the above, claim for any debt or part thereof in any previous year, shall be admissible under section36()(vii) of the Act, if it is written off an irrecoverable in the books of account of the assessee for that previous year and it fulfills the conditions stipulated in sub section (2) of sub-section 36(2) of the Act.
5. Accordingly, no appeals may henceforth be filed on this ground and appeals already filed, if any, on this issue before various Courts/Tribunals may be withdrawn/not pressed upon.”