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2022 (4) TMI 1224 - AT - Income TaxBad debt deduction u/s 36(1) - Bonafied claim - HELD THAT:- Direct Tax Laws (Amendment) Act, 1987, w.e.f. 01.04.1989 substituted ‘any debt or part thereof, which is established to have become bad debt in the previous year’ by the words ‘any bad debt or part thereof which is written off as irrecoverable in the accounts of the assessee for the previous year’. This is a major development with a view to avoid controversy as to the year in which such bad debt is allowable. It is thus evident that the year of write off is now taken as the year in which the amount is allowable as a bad debt. The amended law w.e.f. 01.04.1989 provides that for an amount to be treated as a bad debt and to be allowed as an expenditure in the year in which it was written off, the assessee has to prove the satisfaction of both section 36(1)(vi) and section 36(2)(i), namely that bad debt had been written off and that bad debt had been taken into account in computing income of the assessee in any one of years mentioned in clause (i) of sub-section (2) of section 36 of the Act. It is also crystal clear that after 01.04.1989, it is not necessary for the assessee to establish that debt has become irrecoverable. It is enough if bad debt is written off as irrecoverable in the accounts of the assessee. The assessee need not prove that debts have become bad. All that the assessee has to do after the amendment w.e.f. 01.04.1989 is to establish that the debt has been written off. It is not necessary to establish that debt has become irrecoverable during the year. We may refer to the judgment of the Hon’ble Supreme Court in the case of T.R.F. Ltd. [2010 (2) TMI 211 - SUPREME COURT] CIT(A) noticed therefrom that the outstanding balance as on 31.03.2014 is ₹ 5,23,29,230/-. The assessee also submitted the copy of confirmation dated 25.09.2018 from the broker wherein it is mentioned that the remaining balance of ₹ 5,21,16,449/- is receivable by the assessee from NSEL. All this go to prove that the claim of the assessee is bonafide and that he has fulfilled the first pre condition of section 36(1)(vii). As regards the second pre condition, namely that the bad debt should have been taken into account in computing the income of the assessee, the submission of the assessee is that the outstanding debt which was not recoverable as on 31.03.2014 amounted to ₹ 5,23,29,230/-. This amount was included as income during the previous year 2013-14. The amount of sales during the year reflected in the profit and loss account included the said amount of ₹ 5,23,29,230/- which has become irrecoverable. The outstanding bad debt was, thus taken as income of the assessment year 2014-15. To make it more explicit the assessee explained that the total amount of bad debt of ₹ 5,23,29,230/- was included in the income of the assessee via the profit and loss account and out of the said amount ₹ 1,50,00,000/- has been written off during the assessment year 2014-15. Thus, the assessee satisfies the condition laid down in 36(2)(i) as well. The objection of the Ld. AO that the assessee has prematurely written off sum of ₹ 1,50,00,000/- cannot stand in the post amendment era in which a write off cannot be questioned and should be allowed in the year it is written off in the books of the assessee. This change in law has also been pointed out by the Hon’ble Delhi High Court in the case of CIT vs. Modi Telecommunication Ltd. [2010 (4) TMI 40 - DELHI HIGH COURT]. We, therefore, endorse the findings of the Ld. CIT(A) and reject the appeal of the Revenue.
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