Law:

Section:

Section 36(1)(vii), read with section 143(2), of the Income-tax Act, 1961 - Bad debts - Assessment year 2002-03 - Whether effect of amendment to section 36(1)(vii), read with section 36(2), with effect from 1-4-1989 is only that now for claiming deduction under section 36(1)(vii) it is not necessary for assessee to establish that debt had become bad in previous year and mere writing off of debt or part thereof as irrecoverable is substantial compliance of same - Held, yes - Whether on strength of amendment, it cannot be said that an enquiry is not permissible to see and satisfy that there is some semblance of genuineness in such entry and same is not totally fake entry - Held, yes - Whether under scheme of Act, Assessing Officer, before allowing/refusing deduction, is fully empowered to make an enquiry as to whether entry of writing off bad debt or part thereof is genuine entry and not imaginary and fanciful entry - Held, yes - Whether, however, in such exercise, wisdom of assessee cannot be questioned and no demonstrative or infallible proof of debt having become bad is required, and commercial expediency is to be seen from point of view of assessee, depending on nature of transaction, capacity of debtor, etc. - Held, yes FACTS The assessee had written off certain amount as bad debt in its income and expenditure account. The Assessing Officer disallowed the assessee's claim holding that it had failed to furnish the information regarding persons with reference to whom bad debts written off were claimed. On appeal, the Commissioner (Appeals) confirmed the disallowance. On second appeal, the Tribunal, relying on the decision of Dy. CIT v. Oman International Bank SAOG[2006] 100 ITD 285 (Mum.) (SB), deleted the disallowance and held that as per the existing provisions of section 36(1)(vii) after its amendment with effect from 1-4-1989, it is not obligatory on part of the assessee to prove that the debt written off by him is indeed a bad debt for purpose of allowance under section 36(1)(vii). On the revenue's appeal to the High Court : HELD The intention of the Legislature is clear that once debt or part thereof has been written off in assessment year in question as…

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