Bad debt — After April 1, 1989, it is not necessary for the assessee to establish that the debt, in fact, has become irrecoverable.

[T.R.F. Ltd. v. CIT,
(2010) 323 ITR 397 (SC)]

The Supreme Court was
concerned with the appeals for the A.Y. 1990-91 and the A.Y. 1993-94. The
Supreme Court observed that prior to April 1, 1989, every assessee had to
establish, as a matter of fact, that the debt advanced by the assessee had, in
fact, become irrecoverable. That position got altered by deletion of the word
‘established’, which earlier existed in S. 36(1)(vii) of the Income-tax Act,
1961 (‘the Act’, for short).

The Supreme Court held that
this position in law was well settled. After April 1, 1989, it is not necessary
for the assessee to establish that the debt, in fact, has become irrecoverable.
It is enough if the bad debt is written off as irrecoverable in the accounts of
the assessee. The Supreme Court further held that however, in the present case,
the Assessing Officer had not examined whether the debt had, in fact, been
written off in the accounts of the assessee. When a bad debt occurs, the bad
debt account is debited and the customer’s account is credited, thus, closing
the account of the customer. In the case of companies, the provision is deducted
from sundry debtors. This exercise having not been undertaken by the Assessing
Officer, the Supreme Court remitted the matter to the Assessing Officer for de
novo consideration of the above-mentioned aspect only and that too only to the
extent of the write-off.