Central board of direct taxes issued a circular no. 12/2016 dated 30 May 2016 about admissibility of claim of deduction of Bad Debt under section 36(1) (vii) read with section 36(2) of the Income-Tax Act, 1961. Full circular is as under.
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 ground before various Courts/Tribunals may be withdraw/not presssed upon.
6. This may be brought to the notice of all concerned.
nice
ReplyDelete