TMI Blog2008 (7) TMI 373X X X X Extracts X X X X X X X X Extracts X X X X ..... mmissioner. JUDGMENT 1. This matter has come up before us on a reference made by the Patna Bench of the Income-tax Tribunal at the instance of the assessee. 2. The assessee is a private limited company and derives income from dealing in motor vehicles and hotel business. For the assessment year 1990-91, it filed return showing loss of Rs. 23,40,873. However, the assessment was completed reducing the loss to Rs.11,26,676. It has resulted on account of disallowance of various expenses including bad debts amounting to Rs. 1,48,219. The Assessing Officer did not allow the bad debts because in his opinion there was no evidence to establish that the debts had actually become bad during the relevant accounting period. The assessee car ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appearing on behalf of the assessee, submits that inadvertent error has crept in question No.1 of the reference made and he submits that the only question which required to be answered is as to whether the Tribunal erred in confirming the disallowance under the head bad debts. Accordingly, we reframe question No.1 as follows: "1. Whether, on the facts and in the circumstances of the petitioner's case, the Tribunal was justified in confirming disallowance of Rs.1,01,934 under the head bad debts?" 5. Mr. Rastogi submits that section 36(1)(vii) of the Income-tax Act, before its amendment by the Direct Tax Laws (Amendment) Act, 1987, provided deduction of the amount of any debt or part thereof which is established to have become a bad de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account made under that clause. Explanation.- For the purposes of this clause, any bad debt or part thereof written off as irrecoverable in the accounts of the assessee shall not include any provision for bad and doubtful debts made in the accounts of the assessee." 7. Mr. Rastogi submits that the account of any bad debt or part thereof which is written off as irrecoverable in the accounts of the assessee for the previous year itself shall entitle the deduction. He submits that earlier an assessee was required to establish that amount of any debt or part thereof has become a bad debt, but now the assessee shall be entitled for deduction under the head bad debt, amount which is written off as irrecoverable in the accounts of the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for allowability of bad debts. It was provided that the debt must be established to have become bad in the previous year. This led to enormous litigation on the question of allowability of bad debt in a particular year, because the bad debt was not necessarily allowed by the Assessing Officer in the year in which the same had been written off on the ground that the debt was not established to have become bad in that year. In order to eliminate the disputes in the matter of determining the year in which a bad debt can be allowed and also to rationalise the provisions, the Amending Act, 1987, has amended clause (vii) of sub-section (1) and clause (i) of sub-section (2) of the section to provide that the claim for bad debt will be allowed in t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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