Special Bench judgement on Bad Debts affirmed
Held, affirming the majority view of the Special Bench in DCIT vs. Oman International Bank 100 ITD 285 that:
(i) Though the Circulars issued by the CBDT are not binding on the court as held in CCE vs. Ratan Melting & Wire Industries 231 ELT 22 (S.C.), it is binding on the authorities and while it is for the Court to read the section in its proper context, while so reading the Court will bear in mind the circular issued by the CBDT. Circulars are sometimes issued to obviate difficulties in the operation of the provisions and these are aspects which Courts do bear in mind while considering the Circulars. Accordingly, Circulars have to be taken into account.
(ii) The decision of an assessee to treat a debt as a bad debt in his books has to be a business or commercial decision and not whimsical or fanciful and must be based on material that the debt is not recoverable. The decision must be bona fide;
(iii) Post amendment of s. 36 (1)(vii) & 36 (2), the burden is not on the assessee to show the debt is “bad”. In order to disallow, the AO must show that the decision of the assessee was not bona fide.
Also: Revenue can’t disown its’ own circulars! by CA Kapil Goel