Mere Write Off Is Sufficient for Claiming Deduction of Bad Debt: The Supreme Court

The Supreme Court in the case of T. R. F. Ltd. v. CIT (2010) 323 ITR 397/190 Taxman 391/35 DTR 156/(2011) 220 Taxation 88 (SC) held that as per S. 36(1)(vii) of the Income Tax Act: Bad debt – Mere write off is sufficient for claiming deduction of bad and subsequent to 01.04.1989, no requirement to establish that the debt has become irrecoverable


The assessee submitted a claim for a write-off of bad debt following the provisions of section 36(1)(vii) of the Act. The claim for bad debts was denied by the ITO because the assessee was unable to provide sufficient evidence to support the notion that the debt had become uncollectable.


To claim a deduction following subsection 36(1)(vii) of the Act, does the assessee need to provide evidence that the debt is no longer collectible, or is the simple act of writing off such obligation in the books of account sufficient?


Before 1-4-1989, deduction under section 36(1)(vii) of the Act was permitted in respect of the amount of any debt, or portion thereof, which was proven to have been irrecoverable in the preceding year. Nevertheless, when an amendment was made to the Act on January 4, 1989, a deduction was made available in respect of the amount of any bad debt or portion thereof that was written down as irrecoverable in the accounts of the assessee for the preceding year. This deduction was available in effect. So, the criteria for the availability of deductions for bad debts was modified from demonstrating the debt to be irrecoverable to just writing off such bad debts in the books of account. This modification allowed for the deductions to become more widely available.


From January 1, 1989, the person who is being assessed does not have to prove that the debts have become uncollectable to avoid having to pay them. It is sufficient if the accounts of the assessee are altered to reflect that they have been written off as unrecoverable.

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Judgement Reviewed by Jay Kumar Gupta

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