Facts

The assessee had claimed a deduction of bad debt under section 36(1)(vii) of the Act. The ITO disallowed the claim of bad debts on the ground that the assessee  was unable to establish that the facts that the debt had become irrecoverable.

Issue

Whether the assessee has to establish that the debt has become irrecoverable to claim deduction under section 36(1)(vii) of the Act or a mere  write  off  of such debt in the books of Account is sufficient?

View

Prior to 1-4-1989, deduction under section 36(1)(vii) of the Act was allowed in respect of amount of any debt, or part thereof, which was established to have become irrecoverable in the previous year. However, subsequent to the amendment  to the Act w.e.f. 1-4-1989 deduction was available in respect of amount of any bad debt or part thereof which was written off as irrecoverable in the accounts of the assessee for the previous year. Thus, the condition for availability of deduction      of bad debts was changed from establishing the debt to be irrecoverable to mere write off of such bad debts in the books of account.

Held

Subsequent to 1-4-1989 it is not necessary for  the  assessee to  establish that the debts have become irrecoverable. It is sufficient ifthey are written off as irrecoverable in the accounts of the assessee. (AY. 1990-91 1993-94, 1994-95)  (CA Nos. 5292 to 5294 of 2003dt. 9-2-2010)

Editorial : This judgement is followed in by the various High Courts some of which are as under:

CIT v. Sharda Worldwide Exports Pvt. Ltd (2015) 61 taxmann.com 100 (Bom.) (HC)

CIT v. Krone Communication Ltd. (2011) 333 ITR 497 (Karn)(HC) CIT v. Samara India Pvt. Ltd. (2013) 356 ITR 12 (Delhi) (HC) 

“Strength does not come from physical capacity, it comes from indomitable will.”

– Mahatma Gandhi