Gujarat H.C : Whether the Tribunal is right in law and on facts in confirming the order passed by the CIT(A) deleting the addition of Rs. 4,36,307 on account of bad debt observing that in view of the amended provisions of s. 36(1)(vii) the assessee is not required to establish that the debt had become bad?

High Court Of Gujarat

CIT vs. Girish Bhagwat Prasad

Sections 36(1)(vii), 256(2)

R.K. Abichandani & A.R. Dave, JJ.

IT Appln. No. 185 of 1998

28th September, 1998

Counsel Appeared

Manish R. Bhatt, for the Petitioner : S.N. Soparkar, for the Respondent

JUDGMENT

R.K. Abichandani, J. :

The Revenue has suggested for following question in para 4 of its application seeking a direction on the Tribunal to forward the statement of case in respect thereof under s. 256(2) of the IT Act, 1961.

“Whether the Tribunal is right in law and on facts in confirming the order passed by the CIT(A) deleting the addition of Rs. 4,36,307 on account of bad debt observing that in view of the amended provisions of s. 36(1)(vii) the assessee is not required to establish that the debt had become bad?”

The Tribunal rejected the application made under s. 256(1) of the Act for forwarding these questions to the High Court on 5th Jan., 1998 holding that, in view of the amended provision of s. 36(1)(vii) of the Act which came into force from 1st April, 1989, the assessee was not required to establish that the debt had really become bad during the previous year. The assessee had written off an amount of Rs. 4,36,307 on account of its having become bad debt. That amount stood in the name of M/s Abhay Textiles as bad debt. The assessee had, in the course of business, advanced some money to that firm which was a sole selling agent of M/s Prasad Mills Ltd. in which it had deposited the loan amount as security. M/s Prasad Mills Ltd. incurred losses and ultimately closed down its business on 24th Jan., 1984, and, therefore, M/s Abhay Textiles could not realise its money from that company and the assessee, in turn, could not realise its dues from M/s Abhay Textiles. According to the AO, the assessee could not prove that the debt had become bad and that the assessee did not try to recover the amount and further that mere delay in recovery did not convert the debt into a bad debt. The CIT(A) found that the amended provisions of s. 36(1)(vii) of the Act were applicable under which the assessee was not required to establish that the debt had become bad in the previous year and mere writing off of the amount as bad debt was sufficient. Even on merits, the first appellate authority found that there was no chance for the assessee to recover the amount. Hence, the debt really became bad. The Tribunal also upheld thecontention of the assessee on the basis of the provisions of s. 36(1)(vii) of the Act which came into force from 1st April, 1989, and upheld the findings of the first appellate authority. Under the provisions of s. 36(1)(vii) of the Act, deduction was to be allowed in computing the income referred in s. 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-s. (2). Prior to the amendment from 1st April, 1989, the allowance under this clause was confined to the debts and loans which had become irrecoverable in the accounting year. Thus, under theprovisions of s. 36(1)(vii) as in force from 1st April, 1989, all that the assessee 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 amended cl. 36(1)(vii) of the Act, and no question of law arises in the matter from such application of the provision to the facts of the case. The present application is, therefore, rejected. Rule is discharged with no order as to costs.

 

[Citation : 256 ITR 772]

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