Grounds for filing appeals of admissibility of claim of deduction of Bad Debts under section 36(1) (Vii) of Income Tax Act

by

Circular No. 12/2016

F.No.279/Misc./140/2015-ITJ

Government of India

Ministry of Finance

Department of Revenue

Central Board of Direct Taxes

******

New Delhi, Dated 30th  May, 2016

Subject: – Admissibility of claim of deduction of Bad Debt under section 36(1) (vii) read with section 36(2) of the Income-Tax Act, 1961— reg.

Proposals have been received by the Central Board of Direct Taxes regarding filing of appeals/pursuing litigation on the issue of allowability of bad debt that are written off as irrecoverable in the accounts of the assessee. The dispute relates to cases involving failure on the part of assessee to establish that the debt is irrecoverable.

2. Direct Tax Laws (Amendment) Act, 1987 amended the provisions of sections 36(1)(vii) and 36(2) of the Income Tax Act 1961, (hereafter referred to as the Act) to rationalize the provisions regarding allowability of bad debt with effect from the 1st April, 1989.

3. The legislative intention behind the amendment was to eliminate litigation on the issue of the allowability of the bad debt by doing away with the requirement for the assessee to establish that the debt, has in fact, become irrecoverable. However, despite the amendment, disputes on the issue of allowability continue, mostly for the reason that the debt has not been established to be irrecoverable. The Hon’ble Supreme Court in the case of TRF Ltd. In CA Nos. 5292 to 5294 of 2003 vide judgment dated 9.2.2010′, has stated that the position of law is well settled. “After 1.4.1989, for allowing deduction for the amount of any bad debt or part thereof under section 36(1)(vii) of the Act, it is not necessary for assessee to establish that the debt, in fact has become irrecoverable; it is enough if bad debt is written off as irrecoverable in the books of accounts of assessee.”

4. In view of the above, claim for any debt or part thereof in any previous year, shall be admissible under section 36(1)(vii) of the Act, if it is written off as irrecoverable in the books of accounts of the assessee for that previous year and it fulfills the conditions stipulated in sub section (2) of sub-section 36(2) of the Act.

5. Accordingly, no appeals may henceforth be filed on this ground and appeals already filed, if any, on this issue before various Courts/Tribunals may be withdrawn/not pressed upon.

6. This may be brought to the notice of all concerned.

Sd/-

(Sadhana Panwar)

DCIT (OSD) (ITJ),

CBDT, New Delhi.

Copy to:

  1. The Chairman, Members and officers of the CBDT of the rank of Under Secretary and above.
  2. OSD to Revenue Secretary.
  3. All Pr. Chief Commissioners of Income-Tax & All Directors General of Income-Tax with a request to bring to the attention of all officers.
  4. The Pr. Director General of Income-Tax, NADT, Nagpur.
  5. The Pr. DGIT (Systems), ARA Centre, Jhandewalan Extension, New Delhi.
  6. The Pr. DGIT (Vigilance), New Delhi.
  7. The ADG (PR, PP & OL), Mayur Bhawan, New Delhi for printing in the quarterly tax bulletin and for circulation as per usual mailing list.
  8. The Comptroller and Auditor General of India.
  9. The ADG-4 (Systems) for uploading on ITD website.
  10. Data Base Cell for uploading on irsofficersonline.
  11. Guard file.

Sd/-

(Sadhna Panwar)

DCIT (OSD)(ITJ),

CBDT, New Delhi.

Download Original Circular

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