TRF Limited vs. CIT (Supreme Court)

DATE: (Date of pronouncement)
DATE: February 22, 2010 (Date of publication)

Click here to download the judgement (trf_bad_debts.pdf)

Bad debts need not be proven to be irrecoverable u/s 36(1)(vii). It is sufficient if they are written off

The Supreme Court had to consider whether after the amendment to s. 36 (1) (vii) w.e.f. 1.4.1989, an assessee had to establish, as a matter of fact, that the debt advanced by the assessee had, in fact, become irrecoverable or whether writing off the debt as irrecoverable in the accounts was sufficient. HELD deciding in favour of the assessee:

(i) The position in law is well-settled. After 1.4.1989, 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. When a 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.

(ii) As the AO has not examined whether the debt has, in fact, been written off in accounts of the assessee. the matter is remitted to the AO for de novo consideration of the above-mentioned aspect only and that too only to the extent of the write off.

Note: The judgements in Oman International Bank 313 ITR 128 (Bom), Morgan Securities 292 ITR 339 (Del) are impliedly approved. See Also: Kohli Brothers Color Lab (All).