After amendment of sec 36(1)(vii) of IT Act 1961 in order to obtained deduction for bad debts it is not necessary to established that the debt is irrecoverable

IN THE INCOME TAX APPELLATE TRIBUNAL: ‘C’ BENCH : AHMEDABAD

Before Hon’ble Shri D.K.Tyagi, J.M. & Hon’ble Shri A.Mohan Alankamony, A.M.)

ITA No. 538/Ahd./2006 :2002-2003

ACIT, Circle-1, Ahmedabad

(Appellant)

–vs-

Ashima DyecotPvt. Ltd., A’bad

                                                          (PAN: AACCA 2753K)

(Respondent)

Appellant By: Shri Vinod Tanwani, Sr.D.R.

Respondent By: Shri Vartik Chokshi, A.R.

Date of Hearing: 18/01/2011

Date of Pronouncement:18/01/2011

Order

Per Shri A.Mohan Alankamony, Accountant Member :

This appeal is filed by the Revenue, aggrieved by the order of the Learned Commissioner of Income Tax(Appeals)-V, Ahmedabad in Appeal No.CIT(A)-V/ACITCir.1/36/2005-06 dated 13.12.2005 for the assessment year 2002-2003 passed under section 250 r.w.s. 143(3) of the I.T. Act, 1961.

2. In this appeal the Revenue has raised three grounds, wherein ground nos. 2 and 3 are general in nature and do not survive for adjudication. The remaining lone issue raised by the Revenue reads as under:

1) The Ld. CIT(A) has erred in law and on facts in directing to allow the Claim of bad debt of Rs.37,09,900/-.”

3. The assessee is a limited company filed its return of income on 31.10.2002 showing the total loss of Rs.40,13,86,261/-. The ld. AO  completed the assessment under section 143(3) of the Act on 30.03.2005. During the course of the assessment proceedings, the ld. AO disallowed an amount of Rs.37,09,900/- because the assessee had written off this amount as bad debt in its books of accounts. This bad debt pertains to various sundry parties.

4. The assessee took up the issue before the ld. CIT (A) for relief. The ld. CIT (A) had allowed the appeal of the assessee with the following observations:

“5.2 I have carefully considered the assessment order and the above submissions. The appellant has dearly pointed out that the amount represents debt related to the business of the appellant. It represents export rebate claimed by the appellant and rate difference in respect of the purchases the appellant has submitted that this amounts are offered for tax by way of reduction in the cost and therefore should have been allowed. In the circumstances as the debt relates to the business activity of the appellant the same is rightly written off by the appellant as bad debt. As per the requirement of establishing that the debit had become bad, in view of the decision of the Gujarat High Court and the decision of the ITAT Mumbai referred to hereinabove, I hold that it is not necessary that the assessee should establish that the debt had become bad. It is not the case of the Assessing Officer that other requirements of the Section 36(1) were not satisfied. I also find that the Calcutta High Court decision in the case of Rohtas Industries Ltd reported at 120 ITR 110 supports its claim. Accordingly, the Assessing Officer is directed to allow the claim for bad debt.”

5. The ld. D.R. supported the order of the ld. A.O. and the ld. A.R. relied on the decision of the Hon’ble Apex Court in the case of T.R.F. Ltd. –vs- C.I.T. reported in [2010] 323 ITR 397 (SC).

6. We have heard the rival submissions and the materials on record. From the facts and circumstances of the case, it is apparent that the decision quoted by the ld. A.R. in the case of T.R.F. Ltd. (supra) squarely applies to the facts of the case before us. The Hon’ble Apex Court in that case held as under:

“After the amendment of section 36(1)(vii) of the Income-tax Act, 1961, with effect from April 1, 1989, in order to obtain a deduction in relation to bad debts, it is not necessary for the assessee to establish that the debt, in fact, has become irrecoverable: it is enough if the bad debt is written off as irrecoverable in the accounts of the assessee.”

6.1 Following the ratio of the decision of the above case, we hereby confirm the order of the ld. CIT(A).

7. In the result the appeal of the Revenue is dismissed.

                                             Sd/-                                  Sd/-

                                     (D.K.Tyagi)           (A.Mohan Alankamony)

                                   Judicial Member         Accountant Member

DATED: 18/11/2011

Talukdar/ Sr. P.S.