Bad Debts Written Off in Books is Sufficient for Deduction under section 36(1)(vii)

CBDT vide its Circular No.12/2016 dated 30-05-2016 [F.No.279/Misc./140/2015-ITJ] has clarified that 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.


Circular No. 12/2016

F.No.279/Misc./140/2015-ITJ

Government of India

Ministry of Finance

Department  of Revenue

Central Boards of Direct Taxes

New Delhi, Dated 30th May, 20 1 6

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(I )(vii) and 36(2) of the Income Tax Act 1961, (hereafter 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  9.2.2010(available  in NJRS 201 0-LL-0209-8), has  stated  that  the  position  of  law  is  well  settled. “After 1.4. 1989, for the allowing deduction for the amount of any bad debt or part thereof under section 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.

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5.Accordingly, no appeals way 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

(Sadhana Panwar)

DCIT (OSD) (ITJ),

CBDT, New Delhi.


Source: http://www.incometaxindia.gov.in/communications/circular/circular122016.pdf