1. The Revenue is aggrieved by an order dated August 11, 2005, passed by the Income-tax Appellate Tribunal, Delhi Bench “F” in I.T.A No. 3994.Del/1997 relevant for the assessment year 1994-95. The assessee had written off some amount that was due to it as irrecoverable in its books of account. This was in the financial year 1993-94.
2. The Assessing Officer was of the view that these debts were shown as good debts till March 31, 1993, and the assessee was not able to produce any documentary evidence to show that any efforts were made to recover the amount and, therefore, the debts had become bad.
3. Feeling aggrieved by the view taken by the Assessing Officer, the assessee preferred an appeal before the Commissioner of Income-tax (Appeals) who took the view that in terms of section 36(1)(vii) of the Income-tax Act, 1961, all that the assessee had to do is to write off a bad debt as irrecoverable, and that had been done in the present case and, therefore, the order of the Assessing Officer requiring the assessee to prove that the debts have become bad was not correct.
4. The view taken by the Commissioner of Income-tax (Appeals) was upheld by the Income-tax Appellate Tribunal and that is why the Revenue is before us in appeal under section 260A of the Act.
5. Section 36(1)(vii), as it stands with effect from April 1, 1989, reads as follows:
“36. Other deductions.—(1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28—…
(vii) subject to the provisions of sub-section (2), 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:
Provided…..
Explanation.—……
Prior to April 1, 1989, the above provision read as follows:
‘Subject to the provisions of sub-section (2), the amount of any debt, or part thereof, which is established to have become a bad debt in the previous year’.”
6. We find that there is a significant difference between the provision as it stood prior to April 1, 1989 and the provision as it stands today. Prior to April 1, 1989, it was necessary for the assessee to establish that the debt had become bad, whereas now for the debt to be classified as bad, the assessee has only to write it off as irrecoverable in its accounts.
7. While making the amendment as above, the Central Board of Direct Taxes issued a Circular bearing No. 551, dated January 23, 19901, wherein it is stated in paragraphs 6.6 and 6.7 that the earlier provision generated a considerable amount of litigation on the issue whether the assessee had been able to establish that the debt had become bad. It was to overcome this that the amendment was made resulting in a bad debt “now being straightaway allowed in the year of write off”.
8. The interpretation of section 36(1)(vii) of the Act was considered by this court in CIT v. Morgan Securities and Credits P. Ltd., [2007] 292 ITR 339 in I.T.A No. 1442 of 2006 decided on December 7, 2006. In that case, this court referred to the circular as well as another decision of the Gujarat High Court being Deputy CIT v. Patidar Ginning and Pressing Co., [1999] 157 CTR 177 and came to the conclusion that no substantial question of law arises for consideration.
9. We are of the view that there is no error in the view taken by the Tribunal. The amendment made to section 36(1)(vii) of the Act was a conscious decision taken to eliminate litigation with regard to establishing what is bad debt.
10. It has also been brought to our notice by learned counsel for the respondent that if an assessee writes off a debt as a bad debt without giving any reason, he will not get any benefit from this. This is for the reason that by virtue of section 41(4) of the Act, where a deduction has been allowed in respect of a bad debt which is irrecoverable and if the amount or a part thereof is subsequently recovered, then that amount shall be deemed to be profits and gains of business or profession of that relevant previous year. Learned counsel for the Revenue submits that the 1989 amendment incorporates only the year of allowability but it does not dispense with the requirement of the assessee to prove that the debt has become a bad debt. We cannot agree with this interpretation as it would take the situation to what was prevailing pre-April 1, 1989.
11. Taking all these factors into consideration, we are of the opinion that no substantial question of law arises for our consideration. The appeal is dismissed.