TMI Blog1995 (9) TMI 108X X X X Extracts X X X X X X X X Extracts X X X X ..... n the assessee wrote off a sum of Rs. 2,58,537 due from various Divisions of the Indian Railways, which related to various years. The Assessing Officer held that the assessee has not done any effort to realise the said amount from the above Department. Since there was ray of hope left to recover the bad debt, he did not allow the deduction for the sum of Rs. 2,58,537 claimed by the assessee. 4. On appeal, the CIT (Appeals) considering the amendment in section 36(1)(vii) allowed the deduction with the following observation :--- " What was necessary was that the amount should have been written off and it was not relevant whether the debt has been established as a bad debt. The contention of the appellant is found to be correct. It appears ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n he has relied upon the Circular No. 551, dated23rd January, 1990of the Central Board of Direct Taxes. He further submitted that while considering the allowability of bad debt it has to be judged from the businessman's point of view whether the debt was irrecoverable or not. He also submitted that no suit was filed by the assessee for recovery of the debt because the assessee cannot afford to quarrel with the Indian Railways. He has further submitted that when in the subsequent year the assessee was able to recover the part of the debt, it has been offered to tax and whenever any amount will be further recovered the same will be offered to tax in the year of receipt. 7. We have carefully considered the arguments of both the sides and hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich is not bad. 9. The assessee has heavily relied upon the Explanatory Notes on the provisions of Direct Tax Laws (Amendment) Act, 1987. In the Circular No. 551 dated 23rd January, 1990 the Central Board of Direct Taxes has explained the provisions of Direct Tax Laws (Amendment) Act, 1987. The relevant amendment is explained in para 6.6 of the Circular which is also reported in 183 ITR (Statutes) page 37. The relevant portion of the Circular reads as under :--- " 6.6 Amendments lo section 36(1)(vii) and 36(2) to rationalise provisions regarding allowability of bad debts.--- The old provisions of clause (vii) of sub-section (1) read with sub-section (2) of the section laid down conditions necessary for allowability of bad debts. It was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll be allowed in the year in which it is written off by the assessee. However, it nowhere says that any debt can be written off and claimed as bad debt. Had this been the intention of the Legislature, in the amended provision, they would have mentioned "any debt or part thereof which is written off as irrecoverable". But the Legislature has mentioned "any bad debt or part thereof, which is written off as irrecoverable." (Emphasis supplied). We cannot ignore the inclusion of word "bad" prior to "debt". Therefore, in our considered opinion the debt written off has to be bad debt. It is the prior condition for allowability of the deduction under section 36(1)(vii) even after the amended provision. Once the debt is established to be bad, deduct ..... X X X X Extracts X X X X X X X X Extracts X X X X
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