The Commissioner Of Income Taxaaykar Bhavan, Patto Panaji Goapan Aaccs87556Q v. M/S. Desouza Hotels Ltd. G-5, Monalisa Apts, Naikawado, Calangute-Goapan Aabcd3541K

IN THE HIGH COURT OF BOMBAY AT GOA TAX APPEAL NO. 7 OF 2013 The Commissioner of Income TaxAaykar Bhavan, Patto Panaji GoaPAN AACCS87556Q ...Appellant Versus M/s. Desouza Hotels Ltd. G-5, Monalisa Apts, Naikawado, Calangute-GoaPAN AABCD3541K ...Respondent …. Ms. Amira Abdul Razaq, Advocate for the Appellant. Mr. P. Pardiwala, Senior Advocate a/w Mr. Sukhsagar Syal and Mr. Parikshit Sawant for Respondent. …. CORAM : PRAKASH D. NAIK, &BHARAT P. DESHPANDE, JJ.Date of Reserving the Judgment :27[th] OCTOBER, 2023.Date of Pronouncing the Judgment:14[th] MARCH, 2024. -JUDGMENT (Per : Prakash D. Naik, J.): 1.This appeal is preferred under Section 260(A) of the IncomeTax Act, 1961 challenging order dated 11.01.2013 passed byIncome Tax Appellate Tribunal, Panaji Goa. 2.Brief facts which are necessary to adjudicate this appeal areas under: i)The assessee/respondent filed return of income on 25.09.2009 declaring income of Rs. Nil. Notice under Section 143(2) dated 31.08.2010 was issued and served upon theassessee. Subsequently notice under Section 142(1) alongwith detailed questionnaire dated 03.05.2011 was issued,calling for details in connection with return filed. ii)The assessment order under Section 143(3) wasfinalized. The assessee undertook an assignment work of2000 acres of land for M/s. Unitech Ltd. The assesseeappointed Dantras Estate Pvt. Ltd. at Sawantwadi to procurethe land for M/s. Unitech Ltd. for which Memorandum ofUnderstanding (MOU) was entered into between assessee andUnitech Ltd. iii)The MOU was also entered into between assessee andDantras Estate Pvt. Ltd. iv)The assessee arranged for sale of 2,500 acres of landfor M/s. Unitech Ltd. on which the assessee earned the profitof Rs.16,52,38,928/- and paid the tax on 31.03.2008. v)The income from the said transaction was shownunder the head "Income from Business". The return incomefor the assessment year 2008-09 was duly accepted. Duringthe year under consideration the assessee sold 68 acres of landfor a sum of Rs.9,52,00,000/-. All the transactions took place up to 30.06.2008. As on 30.06.2008, the assessee was toreceive a sum of Rs.7,99,37,826/- from M/s. Unitech Ltd. vi)The said amount was not received even after variousreminders and the assessee has to write of the amount in theirbooks of account by passing the board resolution. Theassessee filed the return showing nil income. vii)The assessing officer vide order dated 19.12.2011disallowed a sum of Rs.7,99,37,826/- as bad debts and addedback to income. 3.The assessing officer while passing the assessment orderdated 19.12.2011 has observed that in the instant case of theassessee, the debtor very much exists. Just because the shares ofdebtors has gone down in the market cannot be a reason toconsider a debt to be a bad debt which the assessee has done. Theassessee has not filed any arbitration nor any legal action taken.The assessee produced e-mail forwarded to M/s. Unitech Ltd. Thefirst correspondence between the assessee and the debtor was on25.03.2009. Only one mail was sent during the whole financialyear and the debt has been declared “Bad Debt”. The assessee hasnot taken enough measures to collect the debt. The letter underSection 133(6) dated 28.11.2011 was sent to M/s. Unitech Ltd. calling for information about the treatment given by the debtor forthe amount of Rs.7,99,37,826/- in their books of accounts. Thedebtor, M/s. Unitech Ltd. vide their letter dated 06.12.2011 hasshown the balance amount as outstanding demand in its books forthe year ending 31.03.2009, 31.03.2010 and 31.03.2011. Thedebtor has not made credit entry in his books. The assessee cannotclaim it as bad debts. Hence, considering all the facts, theassessee's claim of bad debt is being disallowed and added back toincome. 4.The assessee/respondent challenged the order dated19.12.2011 before the Commissioner of Income Tax (Appeals)Panaji by preferring Appeal No.455/PNJ/11-12/ACIT under Section250 of the Income Tax Act, 1961. calling for information about the treatment given by the debtor forthe amount of Rs.7,99,37,826/- in their books of accounts. Thedebtor, M/s. Unitech Ltd. vide their letter dated 06.12.2011 hasshown the balance amount as outstanding demand in its books forthe year ending 31.03.2009, 31.03.2010 and 31.03.2011. Thedebtor has not made credit entry in his books. The assessee cannotclaim it as bad debts. Hence, considering all the facts, theassessee's claim of bad debt is being disallowed and added back toincome. 4.The assessee/respondent challenged the order dated19.12.2011 before the Commissioner of Income Tax (Appeals)Panaji by preferring Appeal No.455/PNJ/11-12/ACIT under Section250 of the Income Tax Act, 1961. 5.The appellate authority vide order dated 31.10.2012dismissed the appeal preferred by Respondent and upheld theassessment order dated 19.12.2011. 6.While dismissing the appeal, the appellate authority observed that there was no business relations, no creditors and debtorsrelations, no credit entry were made in the books of accounts andthe isolated transactions cannot be considered as a business. 7. The respondent challenged the order dated 19.12.2011 and31.10.2012 before the Income Tax Appellate Tribunal vide ITANo.108/PNJ/2012. Vide order dated 11.01.2013, the appeal filedby respondent was allowed and the order passed by theCommissioner of Income Tax was set aside and deleted thedisallowance made on account of bad debt of Rs.7,99,37,826/-. 8.While allowing the said appeal it was observed that in viewof Section 36(2) of the Income Tax Act, it cannot be said that theassessee did not comply with the conditions laid under Section36(2). The assessee has taken into account the debt so written offin computing the income of the assessee in the previous year inwhich the amount of such debt is written off. It was furtherobserved that even if the income has been taken into account in theearlier previous year, it cannot be said that the assessee has notcomplied with the provisions of Section 36(2). It is the case whereultimately no recovery was made by the assessee from M/s. UnitechLtd. Once the assessee has sold the land to M/s. Unitech Ltd., thedebtor and creditor relationship has come into existence and thatrelationship has come into existence due to the business transactionentered into between the assessee and M/s. Unitech Ltd. 9.The appellant is aggrieved by order dated 11.01.2013 andthus preferred this appeal by invoking Section 260(A) of theIncome Tax Act, 1961. 10. This Appeal was admitted vide order dated 01.07.2013 onthe following substantial question of law : “Whether the I.T.A.T. was right in deleting disallowanceof bad debts under Section 36(1)(vii) claimed byassessee to the tune of Rs.7,99,37,286/-.” 11. Learned Advocate for the Appellant has submitted as under: i)The Income Tax Appellate Tribunal has committed anerror in allowing the appeal preferred by respondent andsetting aside the concurrent orders of assessing officer andappellate authority.error in allowing the appeal preferred by respondent andsetting aside the concurrent orders of assessing officer andappellate authority. ii)The bad debt in order to be eligible for deductionshould be written off in the books of the assessee. should be written off in the books of the assessee. iii)Where the assessee was dealing in units of mutualfunds in the course of money lending business with interestearned were offered for income from business, the amountclaimed as bad debt could not be allowed as a deduction. iv)Write off should be bonafide. The assessee has notfulfilled the conditions stipulated under Section 36 of the 6 of 30 Income Tax Act to declare the aforesaid amount as bad debt. v)The amount of Rs.7,99,37,826/- has been shown asincome in the financial year 2008-09 and was written off asbad debts in the same financial year 2008-09. ii)The bad debt in order to be eligible for deductionshould be written off in the books of the assessee. should be written off in the books of the assessee. iii)Where the assessee was dealing in units of mutualfunds in the course of money lending business with interestearned were offered for income from business, the amountclaimed as bad debt could not be allowed as a deduction. iv)Write off should be bonafide. The assessee has notfulfilled the conditions stipulated under Section 36 of the 6 of 30 Income Tax Act to declare the aforesaid amount as bad debt. v)The amount of Rs.7,99,37,826/- has been shown asincome in the financial year 2008-09 and was written off asbad debts in the same financial year 2008-09. vi)A debt can be considered bad on occurrence of theevents such as death of the debtor without leaving any assets,the debtor is bankrupt or in liquidation, the debt is statutebarred, the debtor is not traceable despite various attemptsand attempts at negotiation or arbitration of a dispute debthave failed. In the instant case, the debtor very much exists.Just because the shares of the debtors company depleted inthe market, cannot be a reason to consider a debt to be a baddebt. The assessee has not produced any documents withregards to correspondence made with M/s. Unitech Ltd. orarbitration filed or legal action taken against them. vii)The debtor has not made a credit entry in his booksand hence the assessee cannot claim it as bad debts. M/s.Unitech Ltd. had shown the amount as outstanding whereasthe assessee had declared it to be bad debt on the ground thatthey have bed debt. The order passed by the Income TaxAppellate Tribunal is bad in law. It is contrary to Section 36(1)(vii) of the Income Tax Act. viii)The bad debt presupposes the existence of a debt andrelationship of a creditor and debtor. The mere fact that theassessee has lost some money on which he has been taxed willnot be sufficient to justify the deduction under this Section. ix)There were no business relationship. No creditors anddebtors relationship. No credit entries were made in thebooks of account and the isolated transactions cannot beconsidered as a business. x)Income Tax Tribunal has erred in allowing the claim ofthe assessee towards bad debt and Rs.7,99,37,826/-. 12. Learned Advocate for the Appellant has relied upon therecent decision of the Hon'ble Supreme Court in the case ofPr. Commissioner of Income Tax 6 Vs. Khyati Realtors Ltd[1]. It issubmitted that the decision of this Court in the case of Pr.Commissioner of Income Tax Vs. Khyati Realtors Ltd. dated30.04.2019 was challenged before the Apex Court and the saiddecision was set aside on 25.08.2022. The apex Court hadconsidered the law relating to Section 36 of the Income Tax Act. Itwas observed that merely stating the bad debt and doubtful debt asan irrecoverable write off without the appropriate treatment in the1AIR 2022 SC 4030. accounts as well as non-compliance with conditions in Section36(1)(vii), 36(2) and explanation to Section 36(1)(vii) would notentitle the assessee to claim a deduction. 13. Learned Senior Advocate Mr. Pardiwala appearing for therespondent submitted as under: i)The order passed by the assessment officer and theAppellate Authority were erroneous and the said orders wererightly set aside by the Income Tax Appellate Tribunal. accounts as well as non-compliance with conditions in Section36(1)(vii), 36(2) and explanation to Section 36(1)(vii) would notentitle the assessee to claim a deduction. 13. Learned Senior Advocate Mr. Pardiwala appearing for therespondent submitted as under: i)The order passed by the assessment officer and theAppellate Authority were erroneous and the said orders wererightly set aside by the Income Tax Appellate Tribunal. ii)The assessee has entered into an agreement withDantras Estate Pvt. Ltd. Sawantwadi, Sindhudurg for thepurchase of 2500 acres of land at Sindhudurg on 10.07.2005,26.06.2006 and 13.09.2006. Out of the said land, theassessee agreed to sell 2000 acres of land to M/s. Unitech Ltd.The assessee sold 205.234 acres of land for Rs.28,73,27,600/-to M/s. Unitech Ltd. on which profit of Rs.16,52,38,928/- wasearned and returned as business income. As on 31.03.2008amount payable to M/s. Unitech Ltd. against the advance wasRs.2,20,81,480/-. Subsequently, from April to June 2008, theassessee sold 67.998 acres of land for Rs.9,51,97,200/-.Rs. 68,22,106/- were incurred on their behalf. Thus, therewas balance of Rs.7,99,37,826/- recoverable from M/s. Unitech Ltd. Thereafter, inspite of several reminders andattempts by the assessee, no amount was received by theassessee from M/s. Unitech Ltd. iii)After the sale of land to M/s. Unitech Ltd. there wascrash in the share price of M/s. Unitech Ltd. from Rs.546/- toRs.18/-. The properties of M/s. Unitech Ltd. were put on sale.M/s. Unitech Ltd. was not in a position to honour thecommitment. The assessee forwarded the reminders but therewas no response. The matter was discussed in board meetingand resolution was passed thereby deciding to write offRs.7,99,37,826/- as bad debts and passed the entries in itsbooks of accounts. iv)The assessee has shown the income from business fromthe sale and purchase of land and the income as such beenaccepted by the assessing officer. The assessing officer hasbelieved that the assessee has to prove that the debt hasbecome bad during the year. The assessee is entitled for thededuction under Section 36(1)(vii) in the year in which he hasrecovered the same. v)The assessee has written off the bad debts. Theschedule of profit and loss account was produced before the authorities along with account of M/s. Unitech Ltd. in theledger of the assessee. vi)The bad debts claimed by the assessee relate to theassessee's business as the income from sale of the land to M/s.Unitech Ltd. and it has been duly shown as business income.The amount was never recovered by assessee. The write off,of the amount was genuine. The amount was duly written offas such the amount has been treated due to the assessee in hisbooks due to the business transaction entered into by theassessee with M/s. Unitech Ltd. There was clear relationshipof debtor and creditor. vii)The assessing officer and the Appellate Authority hasignored the fact that Section 36(1)(vii) as it stood before andafter its amendment would show that prior to the amendment,the assessee was required to establish that the debt in questionhad become bad in the previous year. Subsequent to theamendment to the language of the Section, it sufficient if thebad debt or part thereof is written off as irrecoverable in theaccounts of the assessee. 14. Mr. Pardiwala has relied upon the decision of the SupremeCourt in the case of T.R.F. Ltd. Vs. Commissioner of Income-tax2and the decision of this Court in the case of Director of Income Tax(International Taxation) Vs. Oman International Bank SAOG[3]. vii)The assessing officer and the Appellate Authority hasignored the fact that Section 36(1)(vii) as it stood before andafter its amendment would show that prior to the amendment,the assessee was required to establish that the debt in questionhad become bad in the previous year. Subsequent to theamendment to the language of the Section, it sufficient if thebad debt or part thereof is written off as irrecoverable in theaccounts of the assessee. 14. Mr. Pardiwala has relied upon the decision of the SupremeCourt in the case of T.R.F. Ltd. Vs. Commissioner of Income-tax2and the decision of this Court in the case of Director of Income Tax(International Taxation) Vs. Oman International Bank SAOG[3]. 15. The factual matrix of this case indicate that the assessee filedthe return of income on 25.09.2009 declaring income of Rs.Nil.The assessee undertook an assignment of land for M/s. UnitechLtd. and appointed Dantras Estate Pvt. Ltd. to procure the land forM/s. Unitech Ltd. for which MOU was executed between theparties. The assessee arranged for sale of 2500 acres of land forM/s. Unitech Ltd. on which the assessee earned profit ofRs.16,52,38,928/-. The tax was paid on 31.03.2008. The incomefrom said transaction was shown under the head “Income fromBusiness”. The return income for the assessment year 2008-09 wasaccepted. The assessee sold 68 acres of land for sum ofRs.9,52,00,000/-. As on 30.06.2008, the assessee was to receive asum of Rs.7,99,37,826/- from M/s. Unitech Ltd. The said amountwas not received. The assessee decided to write off the amount inhis books of accounts. The resolution was passed. Return wasfiled. 16. The resolution dated 25[th] June 2009 passed by the assessee in its board meeting reads as follows: 3[2009] 184 Taxman 314 (Bombay) " The issue of recovery of amount from M/s. Unitech Ltd wasdiscussed in detailed including the financial position of M/s.Unitech Ltd., extent of the deliveries of plots given vis-a-vis a totalcontracted deliveries and the issue arising in the title for those plotsas well as tenancies, which are claimed in respect of number ofthese plots. Based upon this discussion it was resolved that theamount of Rs.7,99,37,826/- receivable from M/s. Unitech Ltd. bewritten off in the financial year 2008-09." 17. Section 36 of the Act post amendment dated 01.04.1989 occurs under the heading ‘other deductions’, and its relevant extract, for the purpose of this case, is as follows: “36. (1) The deductions provided for in the following clauses shall beallowed in respect of the matters dealt with therein, in computingthe income referred to in section 28 - *** (vii) subject to the provisions of sub-section (2), the amount of anybad debt or part thereof which is written off as irrecoverable in theaccounts of the assessee for the previous year: Provided that in the case of an assessee to which clause (viia)applies, the amount of the deduction relating to any such debt orpart thereof shall be limited to the amount by which such debt orpart thereof exceeds the credit balance in the provision for bad anddoubtful debts account made under that clause: Provided further that where the amount of such debt or part thereofhas been taken into account in computing the income of the assesseeof the previous year in which the amount of such debt or part thereofbecomes irrecoverable or of an earlier previous year on the basis ofincome computation and disclosure standards notified under sub-section (2) of Section 145 without recording the same in theaccounts, then, such debt or part thereof shall be allowed in theprevious year in which such debt or part thereof becomesirrecoverable and it shall be deemed that such debt or part thereofhas been written off as irrecoverable in the accounts for the purposesof this clause. Explanation 1.—For the purposes of this clause, any bad debt or partthereof written off as irrecoverable in the accounts of the assesseeshall not include any provision for bad and doubtful debts made in Explanation 1.—For the purposes of this clause, any bad debt or partthereof written off as irrecoverable in the accounts of the assesseeshall not include any provision for bad and doubtful debts made in the accounts of the assessee. Explanation 2.—For the removal ofdoubts, it ishereby clarified that for the purposes of the proviso toclause (vii) of this sub-section and clause(v) of sub- section (2), theaccount referred to therein shall be only one account in respect ofprovision for bad and doubtful debts under clause (viia) and suchaccount shall relate to all types of advances, including advancesmade by rural branches;…. *** (2) In making any deduction for a bad debt or part thereof, thefollowing provisions shall apply— (i) no such deduction shall be allowed unless such debt or partthereof has been taken into account in computing the income of theassessee of the previous year in which the amount of such debt orpart thereof is written off or of an earlier previous year, or representsmoney lent in the ordinary course of the business of banking ormoney-lending which is carried on by the assessee; (ii) if the amount ultimately recovered on any such debt or partof debt is less than the difference between the debt or part and theamount so deducted, the deficiency shall be deductible in theprevious year in which the ultimate recovery is made; (iii) any such debt or part of debt may be deducted if it hasalready been written off as irrecoverable in the accounts of an earlierprevious year (being a previous year relevant to the assessment yearcommencing on the 1[st] day of April, 1988, or any earlier assessmentyear), but the Assessing Officer had not allowed it to be deducted onthe ground that it had not been established to have become a baddebt in that year; (iv)where any such debt or part of debt is written off asirrecoverable in the accounts of the previous year (being a previousyear relevant to the assessment year commencing on the 1st day ofApril, 1988, or any earlier assessment year) and the Assessing Officeris satisfied that such debt or part became a bad debt in any earlierprevious year not falling beyond a period of four previous yearsimmediately preceding the previous year in which such debt or partis written off, the provisions of sub-section (6) of Section 155 shallapply; (v) where such debt or part of debt relates to advances made byan assessee to which clause (viia) of sub-section (1) applies, no suchdeduction shall be allowed unless the assessee has debited theamount of such debt or part of debt in that previous year to theprovision for bad and doubtful debts account made under thatclause.” 14 of 30 18. Prior to the amendment dated 1.4.1989, Section 36(1)(vii) was as follows: " 36. Other deductions – (1) The deductions provided for in thefollowing clauses shall be allowed in respect of the matters dealtwith therein, in computing the income referred to in section 28 –(i) to (vi) ** (vii)subject to the provisions of sub-section (2), the amount ofany debt, or part thereof, which is established to have become abad debt in the previous year. " 19. Subsequent to the amendment dated 01.04.1989, the board had issued circular No.551 dated 23.01.1990. The issue pertaining to the bad debt was set out in Paragraph 6.6 of the said circular which reads as follows: " In order to eliminate the disputes in the matter of determining theyear in which a bad debt can be allowed and also to rationalise theprovisions, the Amending Act, 1987 has amended clause (vii) ofsub-section (1) and clause (i) of sub-section (2) of the section toprovide that the claim for bad debt will be allowed in the year inwhich such a bad debt has been written off as irrecoverable in theaccounts of the assessee. " 20. Another Circular was issued on 30.05.2016 by theGovernment of India, Ministry of Finance, Department of RevenueCentral Board of Direct Taxes Viz. Circular No.12 of 2016. The saidCircular reads as follows: 21. The comparison between the pre amendment and post to the bad debt was set out in Paragraph 6.6 of the said circular which reads as follows: " In order to eliminate the disputes in the matter of determining theyear in which a bad debt can be allowed and also to rationalise theprovisions, the Amending Act, 1987 has amended clause (vii) ofsub-section (1) and clause (i) of sub-section (2) of the section toprovide that the claim for bad debt will be allowed in the year inwhich such a bad debt has been written off as irrecoverable in theaccounts of the assessee. " 20. Another Circular was issued on 30.05.2016 by theGovernment of India, Ministry of Finance, Department of RevenueCentral Board of Direct Taxes Viz. Circular No.12 of 2016. The saidCircular reads as follows: 21. The comparison between the pre amendment and post amendment of Section 36(1)(vii) shows that prior to theamendment the assessee was required to establish that the debt inquestion had become bad in the previous year. Post amendment itis sufficient if the bad debt or part thereof is written off as 17 of 30 irrecoverable in the accounts of the assessee based on commercialexpediency. 22. In the case of Director of Income Tax (InternationalTaxation), V/s. Oman International Bank SAOG (Supra) theDivision Bench of this Court considered the question of lawwhether as per the existing provisions even after the amendmentw.e.f. 01.04.1989 is it obligatory on the part of the assessee toprove that the debt written off by him is indeed bad debt for thepurpose of allowing it under Section 36(1)(vii). The assesseetherein had claimed writing of bad debt in the sum ofRs.4,59,60,393/-. The contention of the assessee was that thewrite of done by following RBI guidelines was bonafide and as suchcontention should be allowed. The Appellate Authority waspleased to hold that as per the amended provisions under Section36(1)(vii), the assessee is not required to establish that the debthad actually become bad and what was required was whether theamount is written off during the year or not. The order ofappellate authority was challenged before the tribunal and it wasurged on behalf of the revenue that two conditions had to besatisfied before the deduction under Section 36(1)(vii) could beallowed viz. i)The debt in respect of which the deduction is claimed,is a bad debt. ii)Such debt is written of in the account of assessee forthe previous year. the previous year. However, the assessee contended that one has to look intothe intention of the legislature. If the provisions are amended inorder to remove hardship or mischief of the pre-amendedprovision, then the Hyden's Mischief Rule of interpretation shouldbe applied. As per the pre-amended provision, the assessee wasrequired to establish that the debt which was claimed as deductionhad become bad during the previous year and Assessing Officer wasempowered in terms of Section 36(2) to allow the deduction inanother year, if he was of the view that the debt had become in anearlier or later year. The tribunal held that considering theexpression "bad debt" in Section 36(1)(vii) strict proof is notrequired to be established and/or it is uneasy to prove that the debttoo has become bad. It would be within the personal knowledge ofthe businessman whether the debt has become bad or not as longas it is bona fide and no demonstrative proof can be demandedfrom the assessee to establish that the debt had actually becomebad. Writing off a bad debt, is an evidence on the part of theassessee with whom the information rests and is a sufficient requirement of the amended provision. 23. This Court in Paragraph-6 of above decision has observed asfollows: requirement of the amended provision. 23. This Court in Paragraph-6 of above decision has observed asfollows: 6. A comparison, therefore, between the provisions as it stoodand after its amendment with effect from 1st April, 1989 wouldshow that prior to the amendment the assessee was required toestablish that the debt in question had become bad in the previousyear. Subsequent to the amendment from the language of thesection it is sufficient if the bad debt or part thereof is written off asirrecoverable in the accounts of the assessee based on commercialexpediency. If we apply the Rule of interpretation as spelt out inHyden's case, it would lead to an irresistible conclusion, that theLegislature by the amendment has sought to exclude the burden onthe assessee to prove that the debt is bad debt and leaves it to thecommercial wisdom of the assessee to treat the debt as bad, once itis written off as irrecoverable in the accounts of the assessee." 24. The Court also referred to the Circular No.551 dated23.01.1990 and More particularly Paragraph 6.6 of the saidCircular and it was observed that the Circular of the Board clearlyspells out that it is to eliminate the dispute in the matter ofdetermining the year in which the bad debt is written off asirrecoverable. If in spite of this provision the assessee is againcalled upon to establish that the debt has become bad debt, theobject behind the amendment will not be achieved. The legislativeintent appears to be to avoid litigation and to do away withdisputes regarding the allowability of bad debts as a deduction incomputing the income of an assessee. The dispute regarding the year in which the debt has to be allowed as a deduction has beenresolved by the clear statement of the amended law that thededuction shall be allowed in the year in which the debt has beenwritten off as irrecoverable. Considering these aspects, it would beclear that there is no burden now on the assessee to establish thatin fact the debt has become bad. If this interpretation is read withthe Board's circular it would be clear that the Board's circularreflects this very object which the Legislature had in its mind whileamending the provision. The amendment clearly was brought tocure a defect and/or in other words to avoid the mischief. ThisCourt then referred to the dictionary meaning of the word "baddebt". In Chambers 20[th] Century Dictionary "bad debt" is referredto as "a debt that cannot be recovered". The dictionary meaning of'bad debt' reflected in Mitra's Legal and Commercial Dictionary wasalso quoted wherein the 'bad debt' is referred to as a debt becomebad when the creditor has no reasonable chance of recovering itfrom the debtor. This Court also noted the meaning of 'bad debt'reflected on the Law Laxicon wherein it is explained that debtwhich cannot be reasonably be collected. A debt about which thereis no reasonable expectation recovery; a debt believed to beunrecoverable. 25. Analyzing the definition of 'in Paragraph it was observed as follows: bad debt' and Section 36(1)(vii) "11. All this would indicate that when the assessee treatsthe debt as a bad debt in his books the decision whichhas to be a business or commercial decision and notwhimsical or fanciful. The decision must be based onmaterial that the debt is not recoverable. The decisionmust be bona fide. The difference between the position,pre-amendment and post amendment would be that theburden is no longer on the assessee and can be claimedin the year it is written off in the books of account asirrecoverable. The A.O if he is to disallow the debt as abad debt must arrive at a conclusion that the decisionwas not bona fide. The A.O only in those circumstancesand to that extent may interfere. All that the assesseemust do is to be prima facie satisfied based on theinformation available that the debt is bad and that wouldbe sufficient requirement of the amended provisions." 26. The apex Court in the case of T.R.F. Ltd. Vs. Commissioner ofIncome-tax (supra)considered the scope of Section 36(1)(vii) priorto 01.04.1989 and post 01.04.1989 on account of amendment tothe said Section. After analyzing the said provisions prior toamendment and post amendment it was observed that after01.04.1989, it is not necessary for assessee to establish that thedebt, in fact, has become irrecoverable; it is enough if bad debt iswritten off as irrecoverable in the accounts of assessee. Theassessing officer has not examined whether the debt has in fact,been written off in accounts of the assessee. When bad debt occurs, the bad debt account is debited and the customer's accountis credited, thus, closing the account of the customer. In the case ofcompanies, the provision is deducted from sundry debtors. 27. Learned counsel for the Appellant has heavily relied upon thedecision of the apex Court in the case of Pr. Commissioner ofIncome Tax 6 Vs. Khyati Realtors Ltd. (supra) wherein the decisionof this Court was challenged by the revenue. This Court haddismissed the Appeal preferred by the revenue challenging theJudgment of Income Tax Tribunal. The tribunal had come to theconclusion that the transaction undertaken by the assessee was partof business activities. The amount had become irrecoverable and inview of the matter the loss was to assessee's business and wasrequired to be allowed under Section 37(1) of the Act. 28. The Hon'ble Supreme Court analysed Section 36(1)(vii) andSection 37 of the Income Tax Act. It was observed that merelystating a bad and doubtful debt as irrecoverable write off withoutappropriate treatment in the accounts, as well as non compliancewith the conditions in Section 36(1)(vii), 36(2) and explanation toSection 36(1)(vii) would not entitle the assessee to claim thededuction. The Apex Court referred to the decision in the case isalso referred to the decision in T.R.F. Ltd. Vs. Commissioner of Income-tax (supra). The apex Court also referred to the decision of in the case of Catholic Syrian Bank Ltd Vs. Commissioner OfIncome Tax, Thrissur4 and M/s. Southern Technologies Ltd Vs. Joint 5 and by referring to the said decisions Commissioner of Income Tax it was observed in Paragraph 18 as follows: " 18. It is evident from the above rulings of this court, that: (i)The amount of any bad debt or part thereof has to be written-off as irrecoverable in the accounts of the assessee for the previousyear; (ii) Such bad debt or part of it written-off as irrecoverable in theaccounts of the assessee cannot include any provision for bad anddoubtful debts made in the accounts of the assessee; (iii) No deduction is allowable unless the debt or part of it “hasbeen taken into account in computing the income of the assessee ofthe previous year in which the amount of such debt or part thereofis written off or of an earlier previous year”, or represents moneylent in the ordinary course of the business of banking or money-lending which is carried on by the assessee; (iv) The assessee is obliged to prove to the AO that the casesatisfies the ingredients of Section 36(1)(vii) as well as Section36(2) of the Act." 29. It is pertinent to note that in the case of Pr. Commissioner of Income Tax 6 Vs. Khyati Realtors Ltd. (supra) the assessee wascarrying out real estate development business, trading intransferable development rights (TDR) and finance. The assesseecontended that an amount of Rs.10 crores was deposited withM/s. C. Bhansali Developers Pvt. Ltd. towards acquisition of 4AIR 2012 SC 1538 5320 ITR 577 (SC) (iv) The assessee is obliged to prove to the AO that the casesatisfies the ingredients of Section 36(1)(vii) as well as Section36(2) of the Act." 29. It is pertinent to note that in the case of Pr. Commissioner of Income Tax 6 Vs. Khyati Realtors Ltd. (supra) the assessee wascarrying out real estate development business, trading intransferable development rights (TDR) and finance. The assesseecontended that an amount of Rs.10 crores was deposited withM/s. C. Bhansali Developers Pvt. Ltd. towards acquisition of 4AIR 2012 SC 1538 5320 ITR 577 (SC) commercial premises two years prior to assessment year inquestion. The project did not appear to make any progress andassessee sought return of the amounts from the builder. However,the latter did not respond. The assessee's board resolved to writeoff the amount as a bad debt in 2009. It was contended thatamount could also be construed as a loan, since the assessee had'financing ' as one of its objects. The assessee further contendedthat his case would fall within the provisions of Section 36(2)hence, the write off of advance is liable under Section 36(1)(vii).The assessment officer disallowed sum of Rs.10 Crores as a baddebt in determining the income under the profits and Gains ofBusiness or profession. The Court observed that merely stating abad and doubtful debt as an irrecoverable write off without theappropriate treatment in the accounts, as well as non-compliancewith the conditions in Section 36(1)(vii), 36(2), and Explanation toSection 36(1)(vii) would not entitle the assessee to claim adeduction. It is relevant to note that the accounts of the assesseenowhere showed that the advance was made by it to M/s. C.Bhansali Developers Pvt. Ltd in the ordinary course of business. Itsprimary argument was that amount of Rs.10 Crores was given forthe purpose of purchase of constructed premises. However, theamount was written off on 28.03.2009. There was no material to substantiate this submission, in respect of payment of the amount,the time by which the constructed unit was to be given to it, thearea agreed to be purchased, etc. In support of the argument thatthe amount was given as a loan, the assessee nowhere establishedthe duration of the advance, the terms and conditions applicable toit, interest payable, etc. The assessee conceded that it had receivedinterest income for the relevant assessment year. However, it couldnot establish that any interest was paid (or shown to be payable inits accounts) for the sum of Rs.10 Crores. There was nothing onrecord to suggest that the requirement of the law that the bad debtwas written off as irrecoverable in the assessee's accounts for theprevious year had been satisfied. The assessee's claim was that itwas given to M/s. Bhansali Developers Pvt. Ltd. for acquiringimmovable property. It was in the nature of a capital expenditure.It could not have been treated as a business expenditure. Theassessee's claim for deduction of Rs.10 crores as a bad and doubtfuldebt cannot be allowed. The facts of the said case differs frompresent proceedings. 30. In the present case, the assessee have entered into anagreement with Dantras Estate Pvt. Ltd, for purchase of 2,500 acresof lad at Sindhudurg on 10.07.2005, 29.06.2006 & 13.09.2006.Copies of the agreements were produced on record. Out of the said 30. In the present case, the assessee have entered into anagreement with Dantras Estate Pvt. Ltd, for purchase of 2,500 acresof lad at Sindhudurg on 10.07.2005, 29.06.2006 & 13.09.2006.Copies of the agreements were produced on record. Out of the said land the assessee agreed to sell 2,000 acres of land to M/s. UnitechLtd. The MOU was executed between the parties. The assesseesold 205.234 acres of land to M/s. Unitech Ltd. Profit ofRs.16,52,38,928/- was earned and returned as business income. Ason 31.03.2008 amount payable to M/s. Unitech Ltd. wasRs.2,20,81,480/-. From April to June 2008, 67.998 acres of landwas sold for Rs.9,51,97,200/- excluding the amount incurred. Thebalance amount was Rs.7,99,37,826/- was recoverable from M/s.Unitech Ltd. as on 30.06.2008. Inspite of several reminders andattempts by the assessee no amount was received by assessee fromM/s. Unitech Ltd. There was crash in the share price of M/s.Unitech Ltd from Rs.546/- to Rs.18/-. The properties of M/s.Unitech Ltd were put on sale. M/s. Unitech Ltd. was not in aposition to honour the commitment. There was no response to thereminders made by the assessee. Resolution was passed in theboard meeting to write off the said amount as bad debt and entrieswere passed in books of account. The assessee had shown theincome from business from the sale and purchase of land and theincome as such has been accepted by the assessing officer. Theassessee had proved that the debt had become bad during the year.In view of the amendment to Section 36(1)(vii) necessity ofestablishing beyond what was brought on record by the assessee was not warranted. The assessee has written off the bad debt. Theassessee had placed before the tribunal the schedule of the profitand loss account as well as the copy of the account of M/s. UnitechLtd. in the ledger of the assessee. It was pointed that the bad debtclaimed by the assessee relate to the assessee's business as theincome from sale of the land to M/s. Unitech Ltd. has duly beenshown as business income and accepted as such. Thus, there issufficient evidence to show that the income was related toassessee's business. The amount was never recovered by theassessee. There is nothing to infer that the write off was notgenuine. The amount was duly written off and the amount hasbeen treated as income due to the assessee in his books due to thebusiness transactions entered into by the assessee with M/s.Unitech Ltd. There was relationship of debtor and creditor. It ispertinent to note that the income from the sale of the land has beenaccepted by the revenue in the preceding year as such income frombusiness. The assessee has also shown the income as businessincome. We find that the claim of the assessee is in consonancewith Section 36(1)(vii) and Section 36(2) of the Act. It cannot besaid that assessee has not complied with the conditions underSection 36(2) of the said Act. The assessee has taken into accountthe debt so written off in computing the income of assessee in the previous year in which the amount of such debt is written off. Thetribunal has taken into consideration these aspects. It wasobserved that even if the income has not been taken into account inthe earlier previous years it cannot be said that the assessee has notcomplied with provisions of Section 36(2). It is the case whereultimately no recovery has been made by the assessee from M/s.Unitech Ltd. Once the assessee sold the land to M/s. Unitech Ltd,the debtor and creditor relationship has come into existence due tothe business transaction between the assessee and M/s. UnitechLtd. 31. The legislature by amendment has sought to exclude theburden on the assessee to prove that the debt is bad debt. Thesubsequent circulars reflects the object of amendment. The objectof provision is to avoid litigation and to do away with disputesregarding allowing bad debts as deduction in computing income ofassessee as observed by this Court in the decision referred above. 31. The legislature by amendment has sought to exclude theburden on the assessee to prove that the debt is bad debt. Thesubsequent circulars reflects the object of amendment. The objectof provision is to avoid litigation and to do away with disputesregarding allowing bad debts as deduction in computing income ofassessee as observed by this Court in the decision referred above. 32. Considering the aforesaid circumstances we do not find anyreason to interfere in the order dated 11.01.2013 passed by theIncome Tax Appellate Tribunal. The appeal would not sustain andis required to be dismissed. ORDER i)Tax Appeal No.7 of 2013 is dismissed and disposed off. (BHARAT P. DESHPANDE, J.) (PRAKASH D. NAIK, J.) ESHA SAINATH Digitally signed by ESHA SAINATH VAIGANKAR VAIGANKARDate: 2024.03.19 18:14:58 +05'30'