Calcutta High Court
Principal Commissioner Of Income ... vs M/S. Nalco Water India Ltd. ... on 2 December, 2021
Form No.(J2)
IN THE HIGH COURT AT CALCUTTA
SPECIAL JURISDICTION (INCOME TAX)
ORIGINAL SIDE
Present :
THE HON'BLE JUSTICE T.S. SIVAGNANAM
AND
THE HON'BLE JUSTICE HIRANMAY BHATTACHARYYA
ITAT NO: 211 OF 2017
Arising out of
IA NO: GA 2 OF 2017
(OLD NO: GA 1829 OF 2017)
PRINCIPAL COMMISSIONER OF INCOME TAX 2, PUNE
VS.
M/S. NALCO WATER INDIA LTD. (FORMERLY NLC NALCO INDIA
LTD.)
Mr. Tilak Mitra, Advocate
Mr. Arunava Ganguly, Advocate
...for the appellant
Mr. Paras S. Savla, Advocate
Mr.Pratik Poddar, Advocate
Mr. 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) is
directed against the order dated 3rd February, 2016 passed by the
Income Tax Appellate Tribunal "B" Bench Kolkata (Tribunal) in
ITAT/529/Kol/2008 and ITAT/1256/Kol/2009 for the Assessment
Years 2003-04 and 2004-05. The revenue has raised the following
substantial question of law for consideration :
a) Whether on the facts and in the circumstances of the
case, the Learned Income Tax Appellate Tribunal, has
erred in law in deleting the disallowance of bad debts
made by the assessing officer and later confirmed by the
CIT (Appeals), by disregarding that the disallowance was
made as the assessee had failed to prove the genuineness
of the bad debts ?
b) Whether on the facts and in the circumstances of the
case the Learned Income Tax Appellate Tribunal, has
erred in law in deleting the disallowance of bad debts
made by the assessing officer and confirmed by the CIT
(Appeals) by disregarding that the assessee had failed to
fulfill the criteria for allowability of deduction under
Section 36(1)(vii) of the Income Tax Act, 1961 and
disregarding that the CIT (Appeals) had gathered
incontrovertible evidence of non-genuineness of bad
debts, thereby causing grave prejudice to the interest of
Revenue ?
We have heard Mr. Tilak Mitra, learned Counsel appearing
for the appellant/revenue and Mr. Paras S. Savla, learned Senior
Counsel for the respondent. The short issue which falls for
consideration in the instant case is whether the assessee has fulfilled
the conditions stipulated in Section 36(1)(vii) of the Act for being
eligible for protection with respect to bad debts. The assessing officer
while completing the assessment by order dated 31st March, 2006
under Section 143(3) of the Act, held that relevant entries were made
in the books of accounts of the assessee and disallowed the claim
solely on the ground that the assessee had not proved that the debts
are in fact become bad. The assessee carried the matter on appeal
before the Commissioner of Income Tax Appeals (XI), Kolkata, and
CIT(A) by an order dated 21st February 2008 accepted the legal
position as also the fact that the conditions stipulated under Section
36(1)(vii) of the Act stood fulfilled but nevertheless chose to confirm
the order of the assessing officer solely on the ground that no internal
document was produced to prove the debt has become bad during the
year. The assessee filed appeal before the Tribunal. The Tribunal has
allowed the assessee's appeal by the impugned order. The Tribunal
has taken note of the decision of the Hon'ble Supreme Court in TRF
LIMITED Vs. CIT 323 ITR 397 (SC) and VIJAYA BANK Vs. CIT 323 ITR
166 (SC) and held that there is no requirement for assessee to
establish that the debt in fact had become bad. The learned Senior
Counsel appearing for the respondent assessee pointed out that this
legal position having been well settled, the CBDT has issued a circular
No. Circular No. 12/2016 New Delhi, Dated 30th May, 2016 which is
reproduced hereinunder;-
Circular No.12/2016
F.No.279/Misc./140/2015-ITJ Government
of India
Ministry of Finance
Department of Revenue
Central Board of Direct Taxes
New Delhi, Dated 30th May, 2016
Subject: - Admissibility of claim of deduction of Bad Debt under section
36(1)(vii) read with section 36(2) of the Income-Tax Act, 1961-reg.
"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, (hereinafter 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 9.2.20101 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
available in NJRS 2010-LL-0209-8
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 issue before various
Courts/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 the
authorities of the department that there is no necessity for assessee to
prove that the debt in fact has become bad, it is sufficient if the debt
is written off in the books of accounts and if it is done the assessee
would be entitled for deduction. In fact in the Circular the authorities
have been advised to withdraw the appeal, if any, which has already
been filed before the various High Courts in a country. Be that as it
may, the legal position having been well settled in the aforementioned
decision, we find that the substantial questions of law raised by the
revenue have to be answered against the revenue. In the result, the
appeal is dismissed and substantial questions of law are answered
against the revenue.
Consequently, the applications stand dismissed.
(T. S. SIVAGNANAM, J.)
I agree.
(HIRANMAY BHATTACHARYYA, J.)
GH/RS.
