T.R.F Limited v. Commissioner Of Income Tax, Ranchi ., Supreme Court Of India, Judgment, Law, casemine.com

Factual and Procedural Background

The opinion concerns civil appeals filed by the assessee relating to Assessment Years 1990-1991, 1993-1994, and 1994-1995. The dispute centers on whether amounts claimed as bad debts are allowable deductions under Section 36(1)(vii) of the Income-tax Act, 1961 (“the Act”). The assessing officer originally denied the deduction without examining whether the alleged bad debts had been written off in the assessee’s accounts. The appellate court is now reviewing that omission.

Legal Issues Presented

Whether, after the legislative change effective 1-4-1989, an assessee must still prove that a debt has become irrecoverable, or whether it is sufficient that the debt is written off as irrecoverable in the assessee’s accounts.

Whether the assessing officer failed to conduct the requisite inquiry into the actual write-off of the debt in the assessee’s books, thereby necessitating a remand.

Court's Reasoning and Analysis

The court began by reproducing the text of Section 36(1)(vii) both before and after the 1-4-1989 amendment to highlight the deletion of the word “established.” The court reiterated that, post-amendment, it is “well settled” that an assessee is no longer required to demonstrate that a debt has actually become irrecoverable; a mere write-off in the books suffices.

Applying this settled principle, the court noted that the assessing officer had not verified whether the debts in question were in fact written off—an essential factual determination under the amended statute. Because this critical inquiry was omitted, the court held that the assessment could not stand on the existing record. The proper course was to remit the matter so the assessing officer could examine, de novo, whether the write-offs were made in the assessee’s accounts for the relevant years.

Holding and Implications

DISPOSED OF; MATTER REMITTED TO THE ASSESSING OFFICER.

The civil appeals are disposed of with no order as to costs. The assessing officer must re-examine only the question of whether the bad debts were actually written off in the assessee’s accounts. The decision reinforces the post-1989 legal position that a bona fide write-off, rather than proof of irrecoverability, is the statutory test for deductibility of bad debts. No new precedent is established, but the ruling underscores procedural diligence expected of assessing officers in applying the amended Section 36(1)(vii).

T.R.F Limited v. Commissioner Of Income Tax, Ranchi .

Order

1. Heard the learned counsel on both sides.

2. In these appeals, we are concerned with Assessment Year 1990-1991 and Assessment Year 1993-1994. Prior to 1-4-1989, every assessee had to establish, as a matter of fact, that the debt advanced by the assessee had, in fact, become irrecoverable. That position got altered by deletion of the word “established”, which earlier existed in Section 36(1)(vii) of the Income Tax Act, 1961 (“the Act”, for short).

3. For the sake of clarity, we reproduce hereinbelow the provisions of Section 36(1)(vii) of the Act, both prior to 1-4-1989 and post-1-4-1989:

Pre-1-4-1989

“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—

(i)-(vi)***

(vii) 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;”

Post-1-4-1989

“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—

(i)-(vi)***

(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.”

4. This position in law is well settled. After 1-4-1989, 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.

5. However, in the present case, the assessing officer has not examined whether the debt has, in fact, been written off in the accounts of the assessee. When bad debt occurs, the bad debt account is debited and the customer's account is credited, thus, closing the account of the customer. In the case of companies, the provision is deducted from sundry debtors. As stated above, the assessing officer has not examined whether, in fact, the bad debt or part thereof is written off in the accounts of the assessee. This exercise has not been undertaken by the assessing officer. Hence, the matter is remitted to the assessing officer for de novo consideration of the abovementioned aspect only and that too only to the extent of the write-off.

6. Subject to above, the civil appeals filed by the assessee are disposed of with no order as to costs.

Civil Appeal No. 5292 of 2003

7. In view of our order passed today in Civil Appeals Nos. 5293 and 5294 of 2003, we remit this case concerning Assessment Year 1994-1995 also to the assessing officer, who is directed to consider the question as to whether the write-off is done by the assessee in its accounts in accordance with the law declared by us in the above order.

8. The civil appeal filed by the assessee, accordingly, stands disposed of with no order as to costs.

Civil Appeals No. 5293 of 2003 with No. 5294 of 2003,Civil Appeals Nos. 5293 of 2003, 5294 of 2003 and 5292 of 2003, decided on February 9, 2010

T.R.F Limited v. Commissioner Of Income Tax, Ranchi .

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

T.R.F Limited v. Commissioner Of Income Tax, Ranchi .

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