TMI Blog2016 (2) TMI 628X X X X Extracts X X X X X X X X Extracts X X X X ..... This appeal filed by the Assessee is against the order of CIT(A)-VI, Ahmedabad dated 14.12.2010 for A.Y. 2006-07. 2. The relevant facts as culled out from the material on record are as under. 3. Assessee is a company stated to be engaged in the business of Textiles. Assessee filed its return of income for A.Y. 2006-07 on 26-12-2006 declaring nil income. The case was selected for scrutiny and thereafter the assessment was framed under section 143(3) vide order dated 31.12.2008 and the total income was determined at Rs. Nil but after disallowing the claim of bad debts and prior period expenses and after setting off of unabsorbed depreciation. Aggrieved by the order of A.O., Assessee carried the matter before ld. CIT(A) who vide order d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing the Profit and Loss account, noticed that Assessee has claimed bad debts of ₹ 34,27,583/-. Assessee was issued show cause notice and was asked to justify its claim and efforts made by it to recover the debts. In response to the query of A.O., assessee inter alia submitted that considering the costs involved, it had decided not to pursue legal action. The submissions of assessee were not found acceptable to A.O. He also noticed that Assessee had made provision for bad debts of the aforesaid amount. He was of the view that a mere provision for bad debts is not sufficient for making the claim and that unless the amount is written off as irrecoverable in the accounts, the same cannot be allowed as bad debts. He was further of the vie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red the amendment brought to this section by explanation inserted by Finance Act 2001. Since explanation clarified that bad debts written off as irrecoverable in the accounts .of assesses shall not include any provision for bad and doubtful debts made in the accounts of the assesses; it is mandatory to write off debtors accounts for claiming deduction of bad debts. If the debtor's accounts are not written off, the credit of such bad debts will go to reserve account which is nothing but in the nature of provision for bad and doubtful debts. Even if such account is not named as bad debts reserve account of provision for bad and doubtful debts account, it is of a similar nature. When profit and loss account is debited with the amount of ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fire in riots on 31.10.2002 and the amount was not recoverable and was therefore written off. With respect to the balance amounts, he submitted that it represents the balances which were written off due to the reason that the bills which were received from those parties were discounted with the bankers but at the time of payment the parties defaulted. He further submitted that though the nomenclature used by the Assessee is provision for bad debts but in fact it is the writing off debts as bad. He further submitted that the Assessee had also made similar provisions in 2003-04 and was allowed by the Revenue authorities. He further submitted that the amount is reduced from the total debtors and therefore it amounts to writing off from the am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount of ₹ 34.28 lacs is stated as Bad debts written off meaning thereby that assessee has indeed written off the amount as bad debts in the Profit Loss account and has thus complied with the requirement of Section 36(1)(vii) of the Act and in view of the ratio of the decision of Hon ble Apex Court in the case of TRF Ltd. vs. CIT reported in [2010] 323 ITR 397 (SC) wherein the Hon ble Apex Court held that after 01.04.1989 it is not necessary for the assessee to establish that the debt has become irrecoverable and that it is enough if the bad debt is written off as irrecoverable in the accounts of the assessee. We further find that Hon ble Apex Court in the case of Vijaya Bank vs. CIT reported in (2010) 323 ITR 166 (SC) has decide ..... X X X X Extracts X X X X X X X X Extracts X X X X
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