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2015 (8) TMI 573 - HC - Income Tax‘Write off’ of bad debts - can Assessing officer verify the claim in exercise of powers as provided under provisions of Section 36(2) of the I.T.Act? - CIT(A) and ITAT held that claims on deduction on the ground of ‘write off’ of bad debts of assessee corporation, having become irrecoverable are covered by provisions of Sub-Section 36(1)(vii) and not under Sub- Section 36(1)(vii-a) of the I.T.Act,1961, we do not find any justification to reopen the issues - Held that:- In the instant case, Assessee Corporation being a Non-Banking Financial Company has been held to be entitled to have a policy of writing off of irrecoverable debts which were not subjected to scrutiny by Assessing officer when debtors in question stopped existing in books of account of Assessee Company. Assessing officer, infact, should not have isolated such claim of Assessee Corporation just by picking notes on accounts disclosure, and disallowed where as such notes were to be considered in the entirety alongwith financial statements, particularly when policy of Assessee Corporation also indicated that such a claim had been made in accordance with provisions of the I.T.Act. Further, I.T.Appellate Tribunal also noticed that no controverting material was brought on record by Revenue on this point, therefore, impugned order passed by learned CIT (A) deserved to be upheld also on that count. According to CIT(A) w.e.f. 1.4.1989, provisions of Section 36(1)(vii) with addition of explanation have undergone a change. Therefore, there was no requirement on the part of assessee to establish that any debt had become bad in the previous year. The only requirement on the part of assessee is to write off the bad debt as irrecoverable. As Assessee Corporation had never claimed any benefit under Section 36(1)(vii-a), the question of applicability of Section 36(2)(v) of the I.T. Act, 1961, would not arise. Thus, finding of Assessing officer was found to be erroneous. CIT(A) and I.T.A.T. are in agreement that such a claim of bad debt upon ‘write off’ is allowable under provisions of Section 36(1)(vii) and no part of this claim for deduction of bad debt, can be disallowed under Section 36(2). Writing off of bad debts by assessee unilaterally is sufficient ground for claim to be allowed irrespective of fact that Assessing officer harbours a belief that debt in question has not yet become a bad debt. Assessee Corporation’ MIDC’ is a public sector non-banking financial company. Therefore, it was entitled to have a policy of writing off of bad and irrecoverable debts which were not to be subjected to scrutiny by Assessing officer. When Datas in question in regard to irrecoverable loans stopped existing in books of accounts of assessee company. Assessing officer, should not have isolated such claims of assessee corporation just by picking notes on accounts disclosure and disallowed such claims. Moreover, assessee corporation also indicated that such a claim had been made in accordance with provisions of the I.T.Act. Further, there was no controverting material brought by Revenue on record on this point to deny the claims. We thus do not find any ground to differ from views taken by CIT(A) and I.T.A.T on the issue of ‘write off’ of bad debts in both the I.T. Appeals. With regard to standing guarantor in respect of loans given to debtor company namely Meghalaya Phytochemicals Ltd, CIT(A) and I.T.A.T have not returned any finding. Further this point has also not been raised in appeals. Thus, we express no opinion in respect thereof. - Decided against revenue.
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