TMI Blog2005 (12) TMI 56X X X X Extracts X X X X X X X X Extracts X X X X ..... NAN., K. T. SANKARAN. JUDGMENT The judgment of the court was delivered by K.S. Radhakrishnan J. - The Income-tax Appellate Tribunal, Cochin Bench, has referred the following question of law under section 256(1) of the Income-tax Act, 1961, for the decision of this court: "Whether, on the facts and in the circumstances of the case, the Tribunal is justified in holding that the claim of bad debts in respect of Vanchinad Leathers Limited was not legally sustainable and allowable?" The abovementioned question arises out of the order passed by the Tribunal in I.T.A. No. 831/Coch/91 dated June 13,1997, in the case of Kerala State Industrial Development Corporation Limited, Trivandrum, for the assessment year 1988-89. The assessee, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ofit and loss account and credit entries in the bad debt recovery account would be sufficient compliance with the condition in section 36(2)(i)(b). Before the Tribunal it was contended by the Revenue that before treating the debt as bad debt the assessee had not taken any serious steps to recover the debt. Reference was also made to the auditor's report and stated that as per the report recovery steps would be initiated only after the Corporation was satisfied that the unit could not be operated economically. Further, it was also pointed out that a decision was taken by the BIFR recommending winding up of the debtor company on December 16, 1988, that is, after the accounting period relevant for the assessment year 1988-89. It was further po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y. An amount of Rs. 55,70,949 was due to the assessee which the assessee had debited as bad debts in the profit and loss account for the year ended March 31, 1988. Counsel placed reliance on the decision of the Gujarat High Court in Sarangpur Cotton Manufacturing Co. Ltd. v. CIT [1983] 143 ITR 166 and contended that the assessee had advanced money to the debtor in the course of its business in financing and there was sufficient compliance with section 36(2)(i)(b) of the Act. Counsel submitted that once the assessee had posted the entries in the profit and loss account and credit entries in the bad debt recovery account that would be sufficient compliance with the provisions of section 36(2)(i)(b). Counsel also submitted that from the report ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f such debt or part thereof is written off or of an earlier previous year, or represents money lent in the ordinary course of the business of banking or money-lending which is carried on by the assessee; (b) has been written off as irrecoverable in the accounts of the assessee for that previous year;" The expression "bad debt" relates to debts of which the chance of recovery is remote, but still efforts can be made to recover the bad debts. When efforts are on to recover the bad debt it cannot be said that the debt has become irrecoverable. A debt may be written off as irrecoverable in the individual accounts of the debtors in the assessee's books or by making appropriate entries in other accounts, by debiting in the profit and loss acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the profit and loss account of the assessee ending on March 31,1987 and March 31, 1988. The balance-sheet has made only provision for doubtful debts. The expression "provision for bad and doubtful debts" cannot be construed as writing off bad debts. The above narration may give a ray of hope of recovery even though there is only a remote possibility. The assessee may retain a ray of hope but it cannot be said that the assessee has written off the debts. Counsel referred to several circumstances prior to and subsequent to the accounting year stating that those circumstances would justify that there was no possibility of recovering the amount but we find it difficult to agree. Counsel also pointed out that even though the assessee has made an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t has become bad in the year of account, are all on the assessee. The question whether it has become bad during the year of account is a question of fact. If the finding of the Tribunal is based on admissible evidence, the finding would not be disturbed. The abovementioned decision was later affirmed by the apex court in Travancore Tea Estates Co.'s case [1998] 233 ITR 203. Reference may also be made to the decision of the Calcutta High Court in CIT v. Coates of India Ltd. [1998] 232 ITR 324, wherein the court held that in order to claim deduction under section 36(1)(vii) of the Income-tax Act, 1961, as it stood at the relevant time, the assessee is required to show that on the facts and circumstances pertaining to a particular debt he has ..... X X X X Extracts X X X X X X X X Extracts X X X X
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