2014 (1) TMI 1631 - AT - Income Tax

Disallowance of bad debt claim - Proofs of bad debts not produced - Held that - It clearly emerges that the amounts in question are unpaid hospital bills of earlier years, which were included in the income of the charitable hospital. It has not been disputed that assesse could not have detained the patients and not discharge them due to unpaid bills. This would have been a matter of jeopardy for the assessee as these patients had no money and for detaining them the lodging and boarding was to be provided by the assessee. Besides, its object being charitable, if some amount remained unpaid, the letting go of the patient does not militate against the object of the assessee. - assessee has no obligation to give a demonstrative proof that the dues have become actually bad. - there is a possibility that these patients may be related to some of the trustees, there is no instance or material available on record to suggest any specific allegation - Claim of bad debt allowed - Decided in favour of assessee.

Summary

Issues:
Addition of bad debts written off in the assessment for A.Y. 2009-10.

Detailed Analysis:

Issue 1: Addition of Bad Debts
The assessing officer disallowed an amount of &8377; 20,19,950/- claimed as bad debts written off by the assessee, specifically focusing on an amount of &8377; 5,86,052/- being unpaid medical bills. The assessing officer required the assessee to provide details and reasons for the bad debts, which the assessee explained were outstanding bills from patients who had undergone treatment and failed to pay. The CIT(A) called for a remand report where the assessing officer highlighted that the patients' identities were unverifiable and efforts to recover the debts were lacking. The CIT(A) upheld the addition, stating that the bills could pertain to persons specified under section 13 of the Income Tax Act, and the taxability of the trust under sections 11 to 13 should be determined based on these provisions. The CIT(A) dismissed the appeal on this ground.

Issue 2: Benefit of Sec. 11 and 12
The second issue raised was the denial of the benefit of sections 11 and 12 of the IT Act. The assessing officer noted a violation under section 13 of the IT Act, which was upheld. The CIT(A) dismissed this ground of appeal as well.

Assessee's Arguments and Court's Decision
The assessee contended that as a charitable hospital for the relief of blind persons, outstanding bills were included in the hospital's income in earlier years. The assessee relied on the Supreme Court judgment in TRF Ltd. Vs. CIT, stating that it is not necessary to prove irrecoverability, and the debts were written off as bad debts in the accounts. The court agreed with the assessee, emphasizing that the unpaid bills were part of the hospital's income and that the patients could not be detained due to poverty. The court found no justification for invoking section 13 based on assumptions and conjectures. Ultimately, the court allowed the claim of writing off bad debts, overturning the lower authorities' decisions.

In conclusion, the appellate tribunal allowed the assessee's appeal, emphasizing the charitable nature of the hospital's operations and the lack of evidence to support the assessing officer's assumptions regarding the bad debts.