Bad debt or part thereof is allowed as a deduction if it is irrecoverable in the books of accounts irrespective of the fact whether the assessee to establish that the debt, in fact has become irrecoverable.

As per Section 36(1)(vii) and subject to conditions under section 36(2) of the Income Tax Act 1961, bad debt or part thereof is allowed as deduction ,if it is written off as irrecoverable in the books of accounts of the assessee for that previous year.

Now the disputes have been arising regarding on the issue of allowability of bad debt with the requirement for the assessee to establish that the debt, has in fact, become irrecoverable.

In the Supreme Court judgment dated 09.02.2010 (In the case of TRF Ltd. In CA Nos. 5292 to 5294 of 2003), has stated that the position of law is well settled. "After 1.4.1989, for allowing deduction for the amount of any bad debt or part thereof under section 36(1) (vii) of the Act and subject to conditions under section 36(2) of the Income Tax Act 1961, 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 assesse”.

Accordingly, if any appeal,already filed on same issue before various Courts/Tribunals,the same may be withdrawn/not pressed upon and no appeals may henceforth be filled on  the same issue.

Income tax Circular No. 12/2016, Dated 30^th May 2016.