Writing off bad debts sufficient ground for deduction u/s 36: ITAT

The Income Tax Appellate Tribunal (ITAT) in the case of ACIT Vs. Sh Syed Habibur Rehman held that deduction u/s 36 of The Income Tax Act, 1961 (The Act) is allowed on account of writing of bed debts, it is not necessary for thecassesee to establish that the bed debts have become irrecoverable.

In this matter, assessee was an individual and engaged in commodity trading during the previous year relevant to assesement year 2014-15. During the year, the assessee had written off bed debts amounting to Rs. 1,50,00,000. The Assessing Officer disallowed the claim of bad debts on geounds that the assessee had pre maturely written off bed debts without satisfying the conditions laid down u/s 36(2) of the Act and therefore added 1,50,00,000 to the income of the assessee. The assessee appealed before the ld. CIT(A). The Ld CIT(A) agreed with the contention of the assesee and deleted the impunged addition made by the assessing officer.

The Revenue had filed an appeal before the tribunal. The ld. DR submitted that the assessee had pre maturely written off bed debts as there was chance of recovery. He also stated that the assessee had written off only part of the income received from NSEL i.e. Rs. 1,50,00,000/- as against the receivable of Rs. 5,23,29,230/-. The ld. AR submitted that the outstanding debt which was recoverable as on 31.03.2014 amounted to Rs. 5,23,29,230/-. This amount was included in the income during the previous year 2013-14. The amount of sales during the year reflected in the profit and loss account included the said amount of Rs.5,23,29,230/- which has become irrecoverable. The outstanding bad debt was, thus taken as income of the assessment year 2014-15. To make it more explicit the assessee explained that the total amount of bad debt of Rs.5,23,29,230/- was included in the income of the assessee via the profit and loss account and out of the said amount Rs.1,50,00,000/- has been written off during the assessment year 2014-15. ITAT in its order stated that or 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.” Therefore, the tribunal rejected the appeal filed by the revenue and disallowed the addition made by assessing officer.

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