Rding That The Cit (Appeals) Had Gatheredincontrovertible Evidence Of Non-Genuineness Of Baddebts, Thereby Causing Grave Prejudice To The Interest Ofrevenue ? v. Circular

IN THE HIGH COURT AT CALCUTTASPECIAL JURISDICTION (INCOME TAX)ORIGINAL SIDE Present : THE HON’BLE JUSTICE T.S. SIVAGNANAM A N D THE HON’BLE JUSTICE HIRANMAY BHATTACHARYYA ITAT NO: 211 OF 2017Arising out ofIA NO: GA 2 OF 2017(OLD NO: GA 1829 OF 2017) PRINCIPAL COMMISSIONER OF INCOME TAX 2, PUNEVS.M/S. NALCO WATER INDIA LTD. (FORMERLY NLC NALCO INDIALTD.) Mr. Tilak Mitra, AdvocateMr. Arunava Ganguly, Advocate…for the appellant Mr. Paras S. Savla, AdvocateMr.Pratik Poddar, AdvocateMr. A.K. Dey, Advocate…for the respondent Heard on : 02.12.2021 Judgment on :02.12.2021 T.S.SIVAGNANAM, J.:This appeal by the Revenue filed under Section 260A of the Income Tax Act, 1961 (the Act in brevity) isdirected against the order dated 3rd February, 2016 passed by theIncome Tax Appellate Tribunal “B” Bench Kolkata (Tribunal) in ITAT/529/Kol/2008 and ITAT/1256/Kol/2009 for the AssessmentYears 2003-04 and 2004-05. The revenue has raised the followingsubstantial question of law for consideration : a)Whether on the facts and in the circumstances of thecase, the Learned Income Tax Appellate Tribunal, haserred in law in deleting the disallowance of bad debtsmade by the assessing officer and later confirmed by theCIT (Appeals), by disregarding that the disallowance wasmade as the assessee had failed to prove the genuinenessof the bad debts ?case, the Learned Income Tax Appellate Tribunal, haserred in law in deleting the disallowance of bad debtsmade by the assessing officer and later confirmed by theCIT (Appeals), by disregarding that the disallowance wasmade as the assessee had failed to prove the genuinenessof the bad debts ? b)Whether on the facts and in the circumstances of thecase the Learned Income Tax Appellate Tribunal, haserred in law in deleting the disallowance of bad debtsmade by the assessing officer and confirmed by the CIT(Appeals) by disregarding that the assessee had failed tofulfill the criteria for allowability of deduction underSection 36(1)(vii) of the Income Tax Act, 1961 anddisregarding that the CIT (Appeals) had gatheredincontrovertible evidence of non-genuineness of baddebts, thereby causing grave prejudice to the interest ofRevenue ?case the Learned Income Tax Appellate Tribunal, haserred in law in deleting the disallowance of bad debtsmade by the assessing officer and confirmed by the CIT(Appeals) by disregarding that the assessee had failed tofulfill the criteria for allowability of deduction underSection 36(1)(vii) of the Income Tax Act, 1961 anddisregarding that the CIT (Appeals) had gatheredincontrovertible evidence of non-genuineness of baddebts, thereby causing grave prejudice to the interest ofRevenue ? We have heard Mr. Tilak Mitra, learned Counsel appearingfor the appellant/revenue and Mr. Paras S. Savla, learned SeniorCounsel for the respondent. The short issue which falls for We have heard Mr. Tilak Mitra, learned Counsel appearingfor the appellant/revenue and Mr. Paras S. Savla, learned SeniorCounsel for the respondent. The short issue which falls for consideration in the instant case is whether the assessee has fulfilledthe conditions stipulated in Section 36(1)(vii) of the Act for beingeligible for protection with respect to bad debts. The assessing officerwhile completing the assessment by order dated 31[st] March, 2006under Section 143(3) of the Act, held that relevant entries were madein the books of accounts of the assessee and disallowed the claimsolely on the ground that the assessee had not proved that the debtsare in fact become bad. The assessee carried the matter on appealbefore the Commissioner of Income Tax Appeals (XI), Kolkata, andCIT(A) by an order dated 21[st] February 2008 accepted the legalposition as also the fact that the conditions stipulated under Section36(1)(vii) of the Act stood fulfilled but nevertheless chose to confirmthe order of the assessing officer solely on the ground that no internaldocument was produced to prove the debt has become bad during theyear. The assessee filed appeal before the Tribunal. The Tribunal hasallowed the assessee’s appeal by the impugned order. The Tribunalhas taken note of the decision of the Hon’ble Supreme Court in TRFLIMITED Vs. CIT 323 ITR 397 (SC) and VIJAYA BANK Vs. CIT 323 ITR166 (SC) and held that there is no requirement for assessee toestablish that the debt in fact had become bad. The learned SeniorCounsel appearing for the respondent assessee pointed out that thislegal position having been well settled, the CBDT has issued a circularNo. Circular No. 12/2016 New Delhi, Dated 30[th] May, 2016 which isreproduced hereinunder;- F.No.279/Misc./140/2015-ITJ Governmentof IndiaMinistry of FinanceDepartment of RevenueCentral Board of Direct Taxes New Delhi, Dated 30[th] May, 2016 Subject: - Admissibility of claim of deduction of Bad Debt under section36(1)(vii) read with section 36(2) of the Income-Tax Act, 1961-reg. “Proposals have been received by the Central Board of Direct Taxesregarding filing of appeals/pursuing litigation on the issue of allowability of baddebt that are written off as irrecoverable in the accounts of the assessee. Thedispute relates to cases involving failure on the part of assessee to establishthat the debt is irrecoverable. 2. Direct Tax Laws (Amendment) Act, 1987 amended the provisions ofsections 36(1)(vii) and 36(2) of the Income Tax Act 1961, (hereinafter referredto as the Act) to rationalize the provisions regarding allowability of bad debtwith effect from the 1[st] April, 1989. 3. The legislative intention behind the amendment was to eliminate litigationon the issue of the allowability of the bad debt by doing away with therequirement for the assessee to establish that the debt, has in fact, becomeirrecoverable. However, despite the amendment, disputes on the issue ofallowability continue, mostly for the reason that the debt has not beenestablished to be irrecoverable. The Hon’ble Supreme Court in the case of TRFLtd. In CA Nos. 5292 to 5294 of 2003 vide judgment dated 9.2.2010[1] hasstated that the position of law is well settled. “After 1.4.1989, for allowingdeduction 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 thedebt, in fact has become irrecoverable; it is enough if bad debt is writtenoff as irrecoverable in the books of accounts of assessee. 4.In view of the above, claim for any debt or part thereof in anyprevious year, shall be admissible under section 36(1)(vii) of the Act, ifit is written off as irrecoverable in the books of accounts of the assesseefor that previous year and it fulfills the conditions stipulated in subsection (2) of sub-section 36(2) of the Act. 5.Accordingly, no appeals may henceforth be filed on this groundand appeals already filed, if any, on this issue before variousCourts/Tribunals may be withdrawn/not pressed upon. 36(1)(vii) of the Act, it is not necessary for assessee to establish that thedebt, in fact has become irrecoverable; it is enough if bad debt is writtenoff as irrecoverable in the books of accounts of assessee. 4.In view of the above, claim for any debt or part thereof in anyprevious year, shall be admissible under section 36(1)(vii) of the Act, ifit is written off as irrecoverable in the books of accounts of the assesseefor that previous year and it fulfills the conditions stipulated in subsection (2) of sub-section 36(2) of the Act. 5.Accordingly, no appeals may henceforth be filed on this groundand appeals already filed, if any, on this issue before variousCourts/Tribunals may be withdrawn/not pressed upon. 6.This may be brought to the notice of all concerned.” (Sadhana Panwar)DCIT (OSD) (ITJ)CBDT, New Delhi.” However, by dint of the above CBDT Circular informing theauthorities of the department that there is no necessity for assessee toprove that the debt in fact has become bad, it is sufficient if the debtis written off in the books of accounts and if it is done the assesseewould be entitled for deduction. In fact in the Circular the authoritieshave been advised to withdraw the appeal, if any, which has alreadybeen filed before the various High Courts in a country. Be that as itmay, the legal position having been well settled in the aforementioneddecision, we find that the substantial questions of law raised by therevenue have to be answered against the revenue. In the result, theappeal is dismissed and substantial questions of law are answeredagainst the revenue. Consequently, the applications stand dismissed. (T. S. SIVAGNANAM, J.) I agree. (HIRANMAY BHATTACHARYYA, J.) GH/RS.