SURESH GAGGAL Vs. INCOME TAX OFFICER

JUDGEMENT

(1.) THIS appeal has been admitted on the following substantial question of law: Whether even after the amendment to Section 36(1)(vii) which after amendment provides that deduction on account of bad debt should be allowed once the same is established to have been written off in the books of accounts without proving anything else, the Tribunal was correct in law in upholding the disallowance on the ground that the assessee appellant had failed to prove that the debt had become irrecoverable?

(2.) IN this case, we are concerned with the assessment year 1993 -94. The provisions of Section 36(1)(vii) as existing for the assessment year in question reads as follows: Section 36(1)(vii): Any bad debt or part thereof which is written off as irrecoverable in the accounts of the assessee for the previous year.... Prior to its amendment, which came into effect on 1st April, 1989 Clause (vii) read as follows: Subject to the provision of Sub -section (2), the amount of any debt, or part thereof which is established to have become a bad debt in the previous year.

(3.) THE aforesaid interpretation, which we are giving is supported by the amendment made to Section 36(2) of the Act, which also came into effect on 1st April, 1989. Section 36(2)(iii), which is relevant for the purpose, reads as follows:Section 36(2)(iii) : any such debt or part of debt may be deducted if it has already been written off as irrecoverable in the accounts of an earlier previous year (being a previous year relevant to the assessment year commencing on the 1st day of April, 1988, or any earlier assessment year), but the AO had not allowed it to be deducted on the ground that it had not been established to have become a bad debt in that year.This clause makes it clear that even if in the previous year, relevant to the asst. yr. 1988 -89 or any previous assessment year the AO had not allowed any debt to be deducted on the ground that it had not been established that it had become a bad debt, then also after the amendment the assessee was entitled to claim deduction of the same in the next assessment year.