TMI Blog2009 (11) TMI 3X X X X Extracts X X X X X X X X Extracts X X X X ..... . Shukla,J and Hon'ble Rajiv Sharma, J. JUDGMENT Present income tax appeal has been filed under Section 260A of Income Tax Act, 1981 against the judgment and order dated 4.8.2006 passed by Income Tax Appellate Tribunal, Lucknow Bench, Lucknow in Appeal No. I.T.A. No. 501/LUC/2006 for Assessment Year 2002-03. 2. On the presentation of appeal in question, appeal was admitted for final hearing on following substantial question of law:- (I)Whether on the fact and circumstances of the case the learned Income Tax Appellate Tribunal was right in law in holding that it is not obligatory on the part of the assessee to prove that the debt written off by him is indeed a bad deft for the purpose of allowance u/s 36 (1) (vii) of the I.T. Act, 1961 by relying on the order passed by Income Tax Appellate Tribunal in the case of Dy. CIT Vs. Oman International Bank SAOG, (2006)100 ITD 285 (Mum)(SB) ?. (ii)Whether on the peculiar fact and circumstances of the case the amended provisions of the Income Tax Act, 1961 w.e.f. 1.4.1989, to section 36(1) (vii) read with 36(2) grants specific amnesty to the assessee for claiming any amount of Debt as bad barring the Assessing Officer to ques ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the order the respondent assessee went up in appeal before the learned Income Tax Appellate Tribunal. The learned Income Tax Appellate Tribunal vide its impugned order dated 4.8.2006 vide ITA No. 501/LUC/06 deleted the said dis allowance by placing reliance on the decision of the Income Tax Appellate Tribunal in the case of Dy. CIT Vs. Oman International Bank SAOG , (2006)100 ITD 285 (Mum)(SB) by holding this decision, to be squarely applicable over the facts of the case, as follows. "We have heard the rival submissions. In our view, the issue is squarely covered in favour of the assessee and against the Department by the decision or the IIAT Mumabi Bench 'H' (SB) in the case of Dy. CIT Vs Oman International Bank SAOG (2006) 100 ITD 285 (Mum)(SB), wherein it has been held that as per existing provisions of section 36(1)(vii) after its amendment with effect from 1.4.1989, it is not obligatory on part of assessee to prove that debt written of by him is indeed a bad debt for purposes of allowance under section 36(1)(vii) of the Act. In the instant case, the Departmental authorities have rejected the claim of the assessee on the ground that the assessee failed to furnish the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... position which has emerged is that respondent-assessee was engaged in the business of developing and printing of photos and has two work shop. There was income of 4,86,466.00 from the business. During assessment year 2002-03 respondent-assessee showed nil income in the returned income after making adjustment of the earlier losses. The return in question was processed under Section 143(1) on 27.12.2002. and case was taken up for scrutiny. The Assessing Officer completed assessment under Section 143(2) of the Income Tax Act on total income of Rs. 13,14,540.00 which was also inclusive of Rs. 4,65,640.00 shown in bad debt. As per the provisions of Section under 36(1)(vii) of the Income Tax Act, 1961, the amount of any bad debt or part thereof, which is written off, as irrecoverable in the accounts of the assessee for the previous year, is to be allowed. Under the provisions of Section 36(1)(vii) of the Income Tax Act, 1961, deduction had to be allowed in computing the income referred to in section 28 of the Act of the amount of any bad debt or part thereof, which is written off as irrecoverable in the accounts of the assessee for the previous year subject to the provision of sub-secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... extracted below:- 7.The Tribunal, on the basis of evidence and material on record has recorded the finding of fact that the respondent-assess who was aged about 88 years had made all efforts to recover/realize this amount of loan and having failed to in his effort, had written off the same as bad debt. Thus, the Tribunal had come to the conclusion that the debt in question which was given by way of loan to M/s La Medica (P) Ltd. Delhi in the year 1977 become recoverable in the assessment year in question and, therefore, the respondent-assessee had rightly written it off and claimed as bad debt. Merely on account of the fact that no legal proceeding was initiated by the respondent-assessee, it would not make the bad debt recoverable one. It is just like sinking good money for bad money and it is in the wisdom of the respondent-assess to take or not to take legal proceedings to recover the loan amount. However, if there is no chance for recovery, it is in the wisdom of respondent-assessee to write off the loan amount as bad debt than to take recourse to the legal proceedings. Thus, the order of the Tribunal cannot be said to suffer from any legal infirmity. At this juncture present ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee on the basis of the provisions of section 36(1)(vii) of the Act which came into force from April 1, 1989, and upheld the findings of the first appellate authority. Under the provisions of section 36(1)(vii) of the Act, deduction was to be allowed in computing the income referred to in section 28 of the Act of the amount of any bad debt or part thereof which is written off as irrecoverable in the accounts of the assessee for the previous year subject to the provisions of sub -section (2). Prior to the amendment from April 1,1989, the allowance under this clause was confined to the debts and loan which had become irrecoverable in the accounting year. Thus, under the provisions of section 36(1)(vii) as in force from April 1, 1989, all that the assess had to show was that the bad debt was written off as irrecoverable. The genuineness of such a claim made by the assessee was not in doubt. Therefore, all that the Tribunal has done is to uphold the first appellate authority's decision, applying the provisions of the amended section section 36(1)(vii) of the Act, and no question of law arises in the matter from such application of the provision to the fact of the case. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re arose no occasion for Assessing Officer for not accepting the stand of assessee on this issue. It is essentially for the assess to decide as to whether they are able to recover the debt or that whether there are any viable chances to ensure its recovery or that all hopes have come to an end for recovery. This being in the nature of what is called commercial expediency depending upon the nature of transaction, capacity of debtor, etc, the stand of assessee cannot be ignored by Revenue unless there are very cogent reasons to reject. 16. The intention of legislature is clear that once in assessment year in question debt or part thereof has been written off, as irrecoverable qua the same deductions are to be accorded as per provision of section 36(1)(vii) of the Act, subject to the provisions of 36(2) of the Act. Prior to amendment in the aforementioned section w.e.f. 1.4.1989 the words ' any bad debt, or part thereof, which is established to have become, a bad debt in the previous year' were used and after the amendment w.e.f. 1.4.1989, same has been substituted by "any bad debt or part thereof which is written off as irrecoverable in the account of assessee for the previous year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ally fake entry as respondent- assessee would be entitled for deduction only if its bad debt, or part thereof. Hon'ble Apex Court in the case of Travancore Tea Estates Co. Ltd. Vs. CIT (1999) 151 CTR (SC) 231; (1998) 233 ITR 203 (SC) has taken the view, that as to whether a debt has become bad or at what point of time it became bad, are pure question of fact. Though standard of proof of proving the same is bad debt, is not required to be adopted and is to be decided on the wisdom of the respondent-assessee and not on the wisdom of Assessing Officer, but to show that entry which had been made as bad debt there has to be some material in support of the same, giving some semblance of genuineness and truthfulness to the same in the direction of forming opinion, that said debt was arising out of trading activity, there was relationship of debtor or creditor, same was irrecoverable. Merely because entries have been made, in respect of bad debt or part thereof, writing it off, claiming deduction, the said entries can always be examined by the Assessing Officer, before proceeding to award deductions, and not by merely blindly following the same, but stand of the assessee has to be test ..... X X X X Extracts X X X X X X X X Extracts X X X X
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