TMI Blog2017 (4) TMI 602X X X X Extracts X X X X X X X X Extracts X X X X ..... That is, the relevant debt/s: a) must have become irrecoverable, i.e., the 180 day period expired qua the same as at the year-end; b) must be written off in accounts for the relevant year The matter, accordingly, is restored to the file of the AO, who shall per a speaking order give effect to this order after allowing the assessee a reasonable opportunity to exhibit it’s case The assessee shall also reconcile the difference between the amount claimed ( ₹ 25.44 lacs) and that for which the order stands passed by the VAT authority ( ₹ 23.91 lacs) Further, to the extent not written off, the claim in its respect would have to necessarily await the same, i.e., a write off in accounts, a condition precedent for a claim qua the same, and which shall incidentally also ensure that there is not double claim qua the same sum. - ITA No. 2564/Mds/2016 - - - Dated:- 10-4-2017 - Shri Sanjay Arora, Accountant Member Appellant by : Shri T Banusekar, CA Respondent by : Shri N Gopikrishna, Jt CIT ORDER Per Sanjay Arora, AM This is an Appeal by the Assessee directed against the Order by the Commissioner of Income Tax (Appeals)-6, Coimbatore ( CIT(A) for ..... 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VAT authorities for booking the loss, since occurred, so that the second objection of the Revenue again does not hold He would then take us to the relevant parts of the assessment and the appellate order, also furnishing the copy of the order rejecting the assessee s claim (for refund of VAT) The ld Departmental Representative (DR) would, on the other hand, submit that the loss could be said to have arisen only on its rejection, i.e., in a subsequent year In fact, the claim was not entertained as it had become barred by time, so that it is not a debt or receivable which had subsequently become bad for recovery, but in the nature of a business loss The ld AR would, upon this, state that it is in the nature of a business loss and, further, that the Revenue could not adopt an ambivalent stand Having once accepted it as income of an earlier year, it was not open for it to deny a claim for deduction in its respect when the same becomes irrecoverable, for whatever reason 3 I have heard the parties, and perused the material on record The question arising for adjudication is the maintainability of the assessee s claim for deduction in the impugned sum for the current year So ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... given case, the export sale may not fructify in whole or in part, for any reason, viz., the goods produced being defective, or the goods bought or manufactured for being sold getting destroyed, or such like contingencies, resulting in a different impact on the profit for the relevant year/s The whole purport of what is being sought to be clarified is that the precise reason for the loss is not the tax paid, which falls for being claimed, and allowed, as a part of the purchase cost of the relevant goods, but for the lapse of the right to receive the refund in its respect, having been recognized as income, a debt due, in an earlier year Continuing further, it is observed that the dispute is with reference to the year of loss, so that it needs to be ascertained, or requires being examined, if the loss has indeed arisen during the relevant year It therefore becomes necessary to consider the exact nature of the loss for which the deduction is being claimed This is as only where a legally enforceable claim (for refund) has arisen to or in favour of the assessee during the current or in an earlier year, that it could be said to have incurred a loss qua the same, i.e., qua a valid de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the Act along with such refund amount (2) The dealer who claims refund due to sale effected by him under sub-section (1) of section 18 shall file an application in Form W to the assessing authority along with copies of invoices or bills of related purchases within one hundred and eighty days from the date of accrual of such claim The assessing authority after verification of the correctness of the claim, shall issue refund within ninety days from the date of the receipt of the application in Form W. A dealer becomes eligible to a refund of the input tax subject to such conditions or restrictions as may be prescribed (s.18 (2)) Whatever those conditions or restrictions may be, it is clear that the same do not include claiming the refund within 180 days of the zero-rate (export) sale, which is stated by way of a separate provision (sub-section (3) of section 18), and which is the reason for the decline of the assessee s claim for refund The words making zero-rate sales in s.18(3) substitute the words accrual of such input credit by Amendment Act (9 of) 2010, w.e.f 01.4.2010, signifying the legislative intent; the substituted words defining the event marking the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , is misplaced The deduction u/s 36(1)(vii) is only in respect of a debt, taken into account in computing the income of any previous year, which has becomes irrecoverable The write off in accounts is thus only of a debt that has become bad for recovery, with the write off only signifying the same The debt under reference thus satisfies all the attributes of a debt in contemplation for deduction u/s 36(1)(vii) That the irrecoverability is by force of law is of little consequence Indeed, the same being due from the State Government, it would not otherwise, or at least ordinarily, become bad The said provision of law (s.18(3)) thus establishes that the debt has indeed become bad A claim for bad debt, as indeed any claim, has to be bona fide and genuine (refer DIT(IT) v Oman International Bank [2009] 313 ITR 128 (Bom)) The condition of it being written off in accounts (for the relevant year) clarifies two interrelated aspects in the matter It resolves the issue as to the year of loss; the law deeming it to be the year of write off, eliminating any scope for dispute in its respect Two, it signifies in no uncertain terms that the assessee does not regard it as recoverable and, thus, as a ..... 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