Income Tax - Deduction of Bad Debt- No need to prove that debt is irrecoverable - CBDT Clarifies
DIRECT Tax Laws (Amendment) Act, 1987 amended the provisions of sections 36(1)(vii) and 36(2) of the Income Tax Act to rationalize the provisions regarding allowability of bad debt with effect from the 1st April, 1989.
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.
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 Supreme Court in the case of TRF Ltd - , ruled 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."
Board clarifies that 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.
Board has decided that no appeals will henceforth be filed on this ground and appeals already filed, if any, on this issue before various Courts/Tribunals will be withdrawn/not pressed upon.
CBDT Circular No. 12/2016., Dated: May 30, 2016