The order of the Bench was delivered by
1. R. P. Tolani (Judicial Member).-The appeal is filed by the assessee against the order of the learned Commissioner of Income-tax (Appeals), Kota dated January 21, 2013 for the assessment year 2007-08. The sole ground raised by the assessee is as under :
"That the learned Commissioner of Income-tax (Appeals) has erred in confirming the disallowance of bad debts of Rs. 2,20,870 made by the learned Assessing Officer."
2. The brief facts of the case are that the assessee is a commission agent in the field of agricultural goods and received commission from farmers who sold the goods through him. To maintain the clientage and relationship with these farmers, the assessee used to give advances to them. This ensures that the farmers will bring the goods for sale through him. In the relevant year the assessee earned commission income of Rs. 24,52,939 and claimed write off of bad debts amounting to Rs. 2,20,870. According to the Assessing Officer, the assessee did not produce adequate evidence to establish that debt has really become bad. The debts were outstanding since last 3-6 years. The Assessing Officer, however, disallowed the claim by the following observations :
"The reply of the assessee was considered but not found satisfac tory. It is not clear when the assessee treated that debt as income and it is not proved that debt has become irrecoverable to the assessee. Just writing off of bad debts cannot be genuine and there will be no certainty that the assessee will treat income if bad debt will recover after writing off because amount will be received in cash and that settlement can be out of books. Deduction cannot be claimed for debts, simply by writing off them from the books of account and without proving that these have become bad debts. Writing off is only one of the conditions to claim deduction for bad debts. The other condition is that debt has become bad debt."
3. Aggrieved, the assessee preferred first appeal. However, the learned Commissioner of Income-tax (Appeals) held that the provisions of section 36(1)(vii) are subjected to provisions of section 36(2) and since the assessee is not in money lending business, the claim could not be allowed. Apropos the assessee's contention that it may be allowed under section 37, it was held that the assessee has failed to prove that debt had actually become bad. Therefore, the same are not allowable under section 37 also.
4. Aggrieved, the assessee is in second appeal. Learned counsel for the assessee contends that the business and its module have not been disputed by both the lower authorities. The assessee as a commission agent has earned commission of more than Rs. 24,00,000 which indicate that his business is voluminous. The advancing of these debts has also not been disputed which is reflected by the finding that they were continuing for the last 3-6 years. The genuineness thereof is not under challenge and there is no doubt that debts have actually become bad.
5. Both the lower authorities have denied the claim on the following observations :
(1) The assessee has failed to establish that the debts have actually become bad.
(2) The assessee is not a money lender in terms of section 36(2).
(3) The claim is not allowable under section 37 also as the assessee could not prove the loss and it was not suffered during business expedi ency.
6. On the first issue, it is contended that consequent to amendment in section 36(1)(vii), the Central Board of Direct Taxes issued Circular No. 551 dated January 23, 1990 ([1990] 183 ITR (St.) 7 ) as under (page 37) :
"6.6. Amendments to sections 36(1)(vii) and 36(2) to rationalise provisions regarding allowability of bad debts.-The old provisions of clause (vii) of sub-section (1) read with sub-section (2) of the section laid down conditions necessary for allowability of bad debts. It was provided that the debt must be established to have become bad in the previous year. This led to enormous litigation on the question of allowability of bad debt in a particular year, because the bad debt was not necessarily allowed by the Assessing Officer in the year in which the same had been written off on the ground that the debt was not established to have become bad in that year. In order to eliminate the disputes in the matter of determining the year in which a bad debt can be allowed and also to rationalise the provisions, the Amending Act, 1987, has amended clause (vii) of sub-section (1) and clause (i) of sub-section (2) of the section to provide that the claim for bad debt will be allowed in the year in which such a bad debt has been written off as irrecoverable in the accounts of the assessee."
7. This circular clearly demonstrates that there is no onus on the assessee to establish that the debt has actually become bad. Further, reliance is placed on various judgments, out of which main judgments are as under :
(i) T. R. F. Ltd. v. CIT [2010] 323 ITR 397 (SC) ;
(ii) Deputy CIT v. Oman International Bank SAOG [2006] 286 ITR (AT) 8 (Mum) [SB] ;
(iii) CIT v. Autometers Ltd. [2007] 292 ITR 345 (Delhi) ;
(iv) CIT v. Krone Communication Ltd. [2011] 333 ITR 497 (Karn) ; and
(v) CIT v. Morgan Securities and Credits P. Ltd. [2007] 292 ITR 339 (Delhi).
8. Apropos the second objection that about applicability of section 36(2), it is trite law that for money lending business section 36(2) is there but for other businesses section 36(1)(vii) will prevail, which is the case of the assessee. On third count, it was pleaded that advancing of loans to farmers is intrinsically connected to the assessee's business, the same has not been disputed. The fact that debts were outstanding since 3-6 years itself indicates that they were unrecoverable.
9. The learned Departmental representative supported the order of the learned Commissioner of Income-tax (Appeals).
10. I have heard rival contentions and perused the material on record. We find merit in the written submissions and arguments of learned counsel. The assessee was carrying out commission business and having business dealings with farmers which is not disputed by the lower authorities. As held by the hon'ble Supreme Court in the case of T. R. F. Ltd. v. CIT [2010] 323 ITR 397 (SC), if the assessee has written off bad debts as irrecoverable in the accounts of the assessee, the claim is to be allowed under section 36(1)(vii). The fact that the same were outstanding for last 3-6 years has not been disputed. It has not been disputed that the nature of business of the assessee is such that the assessee was required to give advance to farmers. Therefore, the debts are connected with the business income earned by the assessee. The same is allowable under section 36(1)(vii). Alternately, it is allowable under section 37 also. In view thereof, I allow the assessee's claim as the assessee is eligible to claim bad debt.
11. In the result, the assessee's appeal is allowed.
The order pronounced in the open court on August 11, 2015.