Income Tax Appellate Tribunal - Kolkata
Deputy Commissioner Of Income-Tax vs Paks Trade Centre on 4 January, 1995
Equivalent citations: [1995]53ITD313(KOL)
ORDER
R.V. Easwar, Judicial Member
1. The only ground in this appeal by the revenue is that the Commissioner of Income-tax (Appeals) erred in allowing the bad debts of Rs. 2,57,232 as deduction.
2. The assessment year involved is 1989-90 for which the accounting year ended on 31-3-1989. The assessee claimed deduction on account of bad debts. The Assessing Officer noticed that the assessee had written off the debts in its books of account. He further noticed that the assessee had filed suits in the City Civil Court, Hyderabad against the debtors and the suits were pending. He was, therefore, of the view that the debts in question were not bad and disallowed the claim.
3. On appeal, the CIT(A) referred to the amendment made to Section 36(1)(vii) of the Act by the Direct Tax Laws (Amendment) Act, 1987 w.e.f. 1-4-1989 and held that from the assessment year 1989-90 the claim for bad debts has to be allowed if the assessee writes them off in the books of account and there was no option available to the department to go into the question whether the debis were really bad or not. In this view he directed the Assessing Officer to allow the claim.
4. In the appeal it is contended on behalf of the revenue that even after the amendment it is Open to the revenue authorities to determine whether the debts had really become bad. In this connection our attention was drawn to the presence of the words "bad debt" in Section 36(1)(vii) even after the amendment. We are unable to agree though at first blush the argument raised on behalf of the revenue appears tenable. The Amending Act did not stop with amending Section 36(1)(vii) to provide that the amount of bad debt or part thereof which is written off as irrecoverable in the accounts; of the assessee for the year will be allowed as deduction. The same Act also amended the provisions of Section 36(2)(iii) and (iv) which provided for allowing deduction for bad debt in an earlier or later assessment year if the Assessing Officer was satisfied that the debt, not become bad in the year in which it was written off by the assessee. After the amendment, these Clauses of Section 36(2) have become redundant because the amendments made in 1987 to these Clauses limit the examination of the question to an assessment year commencing on 1-4-1988 or in earlier assessment year. The result is that from the assessment year 1989-90 these Clauses do not come into play and become academic and the Assessing Officer has no power to allow the debts in any earlier or later assessment year if he takes the view that the debts have not become bad in the year in which they are written off. The combined effect of the amendments made in 1987 to Section 36(1)(vii) and Section 36(2)(iii) and (iv) is that from the assessment year 1989-90 the debt has to be allowed as deduction in the year in which it is written off by the assessee and there is no other option available to the Assessing Officer. That this is so, would be clear from the object and ambit of the amendment made in 1987 as explained by the CBDT in Circular No. 551 dated 23-1-1990 [183 ITR (Statutes) Page 37]. The Circular may be extracted for ready reference as follows :
6.6. Amendments to Sections 36(1)(vii) and 36(2) to rationalise provisions regarding allowability of bad debts.-The old provisions of Clause (vii) of Sub-section (1) read with Sub-section (2) of the Section laid down conditions necessary for allowability of bad debt. It was provided that the debt must be established to have become bad in the previous year. This led to enormous litigation on the question of allowability of bad debt in a particular year, because the bad debt was not necessarily allowed by the Assessing Officer in the year in which the same had been written off on the ground that the 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 the 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 (now Assessing Officer) was satisfied that the debt did not become bad in the year in which it was written off by the assessee. These Clauses have become redundant, as the bad debts are now being straightaway allowed in the year of write off. The Amending Act, 1987 has, therefore, amended these Clauses to withdraw them after the assessment year 1988-89.
5. At page 204-7 of Sampath Iyengar's Law of Income-tax, 8th Edition by Justice S. Ranganathan, the following passage appears :
Departmental clarification.-A suggestion was mooted to the Board by certain Chambers of Commerce to the effect that, in the case of banks, the Assessing Officer should give full deduction for all bad and doubtful debts actually written off in the books of the banks without any questioning, since the banks are in a better position to decide whether any of their debts are realisable or not. The Board explained the legal position thus :
...the question whether a debt is a bad debt and when it became bad, are mainly question of fact to be determined in case of dispute not by the assessee or by the exercise of any option on his part of declaring it bad but by the Income-tax Officer (now Assessing Officer) (subject to appeal) upon a consideration of all relevant circumstances. When all the facts on which a public bank reached the decision that a particular debt (or a part of it) has become irrecoverable are placed before the Income-tax Officer, the Income-tax Officer (now Assessing Officer) might take a reasonable view of the evidence before reaching his findings. As far as the Board are aware, serious dispute between a public bank and the Income-tax Officer (now Assessing Officer) have not so far arisen in the matter of bad debts and they trust that the position will be maintained in future.
From assessment year 1989-90, the view of the Chambers of Commerce has been given statutory recognition in respect of all kinds of business.
[Emphasis supplied] The learned author's view also supports the view taken by the CIT(A) in the present case.
6. We are, therefore, of the view that the conclusion of the CIT(A) is well supported and requires no interference.
7. In the result, the appeal is dismissed.