In a circular issued recently [Circular no.12/2016],  the CBDT has called for truce with Taxpayers on litigation involving claim for Tax deduction on Bad-debts which have been written off by Taxpayers in their books as irrecoverable. In deference to the decision of the Honorable Supreme Court in the case of TRF Ltd., the CBDT has decided that no further appeal will be filed by the Department on this issue henceforth and all pending appeals on the issue would also not be pressed by the Department.

It may be noted that despite the ruling of the Apex Court, Tax officers have often been found taking the stand that write-off in the books of account does not automatically entitle a Taxpayer to claim deduction for Bad debts and that there exists a further onus on the Taxpayer to prove  that the debt has infact become ‘bad’ or irrecoverable. Tax officers have also gone to the extent of asking Taxpayers to furnish evidence that the Taxpayers have taken necessary steps for recovery of the debt and only on failure of all such efforts, the Taxpayer has has take a write-off.

Our Comment

The Circular is a continuation of similar decisions in the recent past not to perpetrate futile litigation where the Department’s case is on weak footing and judicial forums have decided the issue in favor of Taxpayers.While the decision of the Supreme Court in TRF’s case was rendered way back in 2010, the decision of the CBDT, though belated is a welcome move.

It is hoped that the circular issued by CBDT would not only serve to bury the hatchet on outstanding litigation on this issue, but also pre-empt any future litigation on this front, going forward.