The Delhi bench of the Income Tax Appellate Tribunal recently ruled that the assessee need not establish that the debt is irrevocable. While quashing the order of assessment, the division bench of the Tribunal held that if the bad debt is shown as written off in books of accounts of the assessee, it would be sufficient to grant deduction under section 36 of the Income Tax Act, 1961.
In the instant case, assessment proceedings were initiated against the assessee. Due to non-corporation on the part of the assessee, the assessing Officer passed a best judgment assessment against them on the basis of materials available with him. While doing so, the Officer disallowed the claim of deduction in respect of bad debt by pointing out that veracity of the same was not established before the authority. The first appellate authority deleted the addition by following the Apex Court decision in TRF Ltd. vs. CIT.
The bench noted that in the above case the Apex Court held that after the amendment of Section 36(1)((vii) of the Income Tax At,1961 with effect from 1st April, 1989, in order to obtain a deduction in relation to bad debts, it is not necessary for the assessee to establish that the debt has in fact, become irrecoverable.
Concurring with the findings of the first appellate authority, the bench observed“It is enough if the bad debt is written off as irrecoverable in the accounts of the assessee. We further find that Ld. CIT(A) has rightly observed that it is undisputed that the sum of Rs. 45,84,283/- has already been written off in the books of account, hence, the AO was rightly directed to delete the addition of Rs.45,84,283/-. In view of the above, we are of the view that Ld CIT(A) has passed a well reasoned order which does not need any interference on our part, hence, we uphold the same and dismiss the ground raised by the Revenue.”
Read the full text of the order below.
