{"id":272586,"date":"2022-08-30T09:00:57","date_gmt":"2022-08-30T03:30:57","guid":{"rendered":"https:\/\/www.scconline.com\/blog\/?p=272586"},"modified":"2022-08-30T09:00:57","modified_gmt":"2022-08-30T03:30:57","slug":"assessee-cannot-claim-deduction-by-merely-stating-bad-debt-irrecoverable-debt-appropriate-treatment-in-accounts-income-tax-act-supreme-court-legal-updates-research-news","status":"publish","type":"post","link":"https:\/\/www.scconline.com\/blog\/post\/2022\/08\/30\/assessee-cannot-claim-deduction-by-merely-stating-bad-debt-irrecoverable-debt-appropriate-treatment-in-accounts-income-tax-act-supreme-court-legal-updates-research-news\/","title":{"rendered":"Assessee cannot claim deduction by merely stating a bad debt as an irrecoverable write off without appropriate treatment in the accounts and non-compliance with Income Tax Act provisions: SC"},"content":{"rendered":"

Supreme Court<\/strong>: In the case where the Revenue had challenged Bombay High Court\u2019s judgment affirming Income Tax Appellate Tribunal (ITAT)\u2019s order for writing off assessee\u2019s \u20b9 10 crores as a bad debt, the 3-judge bench of UU Lalit, S. Ravindra Bhat*<\/strong> and Sudhanshu Dhulia, JJ has summarised the law on writing off a bad debt and has held that merely stating a bad and doubtful debt as an irrecoverable write off without the appropriate treatment in the accounts, as well as non-compliance with the conditions in Section 36(1)(vii), 36(2), and Explanation to Section 36(1)(vii) of the Income Tax Act, 1961 would not entitle the assessee to claim a deduction.<\/p>\n

The Court explained that before the amendment in 1989, the law was that even in cases where the assessee had made only a provision in its accounts for bad debts and interest thereon, without the amount actually being debited from the assessee\u2019s Profit and Loss account, the assessee could still claim deduction under Section 36(1)(vii) of the Act. With effect from 1 April 1989, with the insertion of the new Explanation under Section 36(1)(vii), any bad debt written-off as irrecoverable in the account of the assessee would not include any \u2018provision\u2019 for bad and doubtful debt made in the accounts of the assessee. In other words, before this date, even a provision could be treated as a write off. However, after this date, the Explanation to Section 36(1)(vii) brought about a change. As a result, a mere provision for bad debt per se was not entitled to deduction under Section 36(1)(vii).<\/p>\n

After going through the scheme of the Act and various authorities of the Supreme Court, the Court summarised the following points:<\/p>\n

(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 previous year;<\/p>\n

(ii) Such bad debt or part of it written-off as irrecoverable in the accounts of the assessee cannot include any provision for bad and doubtful debts made in the accounts of the assessee;<\/p>\n

(iii) No deduction is allowable unless the debt or part of it \u201chas been taken into account in computing the income of the assessee of the previous year in which the amount of such debt or part thereof is written off or of an earlier previous year\u201d, or represents money lent in the ordinary course of the business of banking or money-lending which is carried on by the assessee;<\/p>\n

(iv) The assessee is obliged to prove to the AO that the case satisfies the ingredients of Section 36(1)(vii) as well as Section 36(2) of the Income Tax Act, 1961.<\/p>\n

Coming to the facts of the case, the assessee had contended that an amount of \u20b9 10 crores was deposited with one M\/s C. Bhansali Developers Pvt. Ltd. towards acquisition of commercial premises in 2007. It was contended that the project did not appear to make any progress, and consequently, the assessee sought return of the amounts from the builder. When the latter did not respond, the assessee resolved to write off the amount as a bad debt in 2009. It was also contended that the amount could also be construed as a loan, since the assessee had \u2018financing\u2019 as one of its objects.<\/p>\n

The Assessing Officer as well as the Appellate Commissioner of Income Tax [CIT(A)] had disallowed the sum of \u20b9 10 crores claimed as a bad debt in determining its income under \u201cProfits and Gains of Business or Profession\u201d. The ITAT, however, allowed the assessee\u2019s plea.<\/p>\n

The Court noticed that there was nothing on record to suggest that the requirement of the law that the bad debt was written-off as irrecoverable in the assessee\u2019s accounts for the previous year had been satisfied. Another reason why the amount could not have been written-off, was that the assessee\u2019s claim was that it was given to M\/s Bhansali Developers Pvt. Ltd. for acquiring immovable property \u2013 it therefore, was in the nature of a capital expenditure. It could not have been treated as a business expenditure.<\/p>\n

Hence, it was held that the assessee\u2019s claim for deduction of \u20b9 10 crore as a bad and doubtful debt could not have been allowed. The findings of the ITAT and the High Court, to the contrary, are therefore, insubstantial and have to be set aside.<\/p>\n

[CIT v. Khyati Realtors Pvt Ltd, 2022 SCC OnLine SC 1082<\/a>, decided on 25.08.2022]<\/p>\n

\n

*Judgment by: Justice S Ravindra Bhat<\/h4>\n
\n

For Petitioner(s): ASG N. Venkataraman, Advocate H. Raghavendra Rao and AOR Raj Bahadur Yadav<\/p>\n

For Respondent(s): AOR Kavita Jha and Advocate Aditeya Bali<\/p>\n","protected":false},"excerpt":{"rendered":"

Supreme Court: In the case where the Revenue had challenged Bombay High Court\u2019s judgment affirming Income Tax Appellate Tribunal (ITAT)\u2019s order for <\/p>\n","protected":false},"author":121,"featured_media":272601,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[3,9],"tags":[51280,51281,43774,34161,2592,51086,41788,30953,2621,46996],"class_list":["post-272586","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-casebriefs","category-supremecourt","tag-bad-debt","tag-business-expenditure","tag-capital-expenditure","tag-commissioner-of-income-tax","tag-Income_Tax","tag-income-tax-act-1961","tag-income-tax-deduction","tag-itat","tag-Tax","tag-taxation-law"],"yoast_head":"\nAssessee cannot claim deduction by merely stating a bad debt as an irrecoverable write off without appropriate treatment in the accounts 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The assessee, manufacturers of TV parts,\u2026","rel":"","context":"In "Case Briefs"","block_context":{"text":"Case Briefs","link":"https:\/\/www.scconline.com\/blog\/post\/category\/casebriefs\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":236349,"url":"https:\/\/www.scconline.com\/blog\/post\/2020\/09\/26\/itat-can-exempted-income-which-is-not-part-of-the-total-income-alone-be-considered-for-disallowance-u-s-14a-of-income-tax-act\/","url_meta":{"origin":272586,"position":2},"title":"ITAT| Can exempted income which is not part of the total income alone be considered for disallowance u\/s 14A of Income Tax Act?","author":"Editor","date":"September 26, 2020","format":false,"excerpt":"by Akshat Malpani\u2020","rel":"","context":"In "Case Briefs"","block_context":{"text":"Case Briefs","link":"https:\/\/www.scconline.com\/blog\/post\/category\/casebriefs\/"},"img":{"alt_text":"Income Tax Appellate Tribunal","src":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2017\/11\/ITAT.jpg?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2017\/11\/ITAT.jpg?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2017\/11\/ITAT.jpg?resize=525%2C300&ssl=1 1.5x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2017\/11\/ITAT.jpg?resize=700%2C400&ssl=1 2x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2017\/11\/ITAT.jpg?resize=1050%2C600&ssl=1 3x"},"classes":[]},{"id":254042,"url":"https:\/\/www.scconline.com\/blog\/post\/2021\/09\/10\/interest-free-funds-not-kept-in-separate-account-can-proportionate-disallowance-on-interest-under-section-14a-of-it-act-be-allowed-sc-explains\/","url_meta":{"origin":272586,"position":3},"title":"Interest free funds not kept in separate account. 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SC explains","author":"Prachi Bhardwaj","date":"September 10, 2021","format":false,"excerpt":"\u201c\u2026 in taxation regime, there is no room for presumption and nothing can be taken to be implied.\"","rel":"","context":"In "Case Briefs"","block_context":{"text":"Case Briefs","link":"https:\/\/www.scconline.com\/blog\/post\/category\/casebriefs\/"},"img":{"alt_text":"","src":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2021\/02\/sc-3-3.jpg?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2021\/02\/sc-3-3.jpg?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2021\/02\/sc-3-3.jpg?resize=525%2C300&ssl=1 1.5x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2021\/02\/sc-3-3.jpg?resize=700%2C400&ssl=1 2x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2021\/02\/sc-3-3.jpg?resize=1050%2C600&ssl=1 3x"},"classes":[]},{"id":268812,"url":"https:\/\/www.scconline.com\/blog\/post\/2022\/06\/22\/when-can-loss-due-to-embezzlement-be-allowed-as-a-deduction-in-computation-of-income-tax-itat-elucidates\/","url_meta":{"origin":272586,"position":4},"title":"When can loss due to embezzlement be allowed as a deduction in computation of income tax? ITAT elucidates","author":"Editor","date":"June 22, 2022","format":false,"excerpt":"Income Tax Appellate Tribunal (ITAT), Bangalore: The coram of N.V. Vasudevan (Vice President) and Padmavathy S. (Accountant Member), considered the instant appeal, wherein, the issue that came to the forefront was when can a loss due to embezzlement, be allowed as a deduction during computation of income tax. It was\u2026","rel":"","context":"In "Case Briefs"","block_context":{"text":"Case Briefs","link":"https:\/\/www.scconline.com\/blog\/post\/category\/casebriefs\/"},"img":{"alt_text":"Income Tax Appellate Tribunal","src":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2017\/11\/ITAT.jpg?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2017\/11\/ITAT.jpg?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2017\/11\/ITAT.jpg?resize=525%2C300&ssl=1 1.5x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2017\/11\/ITAT.jpg?resize=700%2C400&ssl=1 2x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2017\/11\/ITAT.jpg?resize=1050%2C600&ssl=1 3x"},"classes":[]},{"id":354549,"url":"https:\/\/www.scconline.com\/blog\/post\/2025\/07\/25\/itat-rejects-congress-party-tax-exemption-appeal-rs-199-15-crores\/","url_meta":{"origin":272586,"position":5},"title":"Read why ITAT rejected Congress Party\u2019s appeal for exemption of Rs 199.15 Crores due to delay in filing ITR","author":"Sonali Ahuja","date":"July 25, 2025","format":false,"excerpt":"The ITAT reiterated that so far as an interpretation of such an exemption provision in a fiscal statute was concerned, a stricter interpretation had to be employed rather than a liberal one.","rel":"","context":"In "Case Briefs"","block_context":{"text":"Case Briefs","link":"https:\/\/www.scconline.com\/blog\/post\/category\/casebriefs\/"},"img":{"alt_text":"Congress party's tax exemption appeal","src":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2025\/07\/Congress-partys-tax-exemption-appeal.webp?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2025\/07\/Congress-partys-tax-exemption-appeal.webp?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2025\/07\/Congress-partys-tax-exemption-appeal.webp?resize=525%2C300&ssl=1 1.5x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2025\/07\/Congress-partys-tax-exemption-appeal.webp?resize=700%2C400&ssl=1 2x"},"classes":[]}],"amp_enabled":true,"_links":{"self":[{"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/posts\/272586","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/users\/121"}],"replies":[{"embeddable":true,"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/comments?post=272586"}],"version-history":[{"count":0,"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/posts\/272586\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/media\/272601"}],"wp:attachment":[{"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/media?parent=272586"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/categories?post=272586"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/tags?post=272586"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}