2011 (1) TMI 1407 - AT - Income Tax

Summary

Issues Involved:
The issues involved in the judgment are:
1. Allowance of TDS receivable as bad debts u/s.36(1)(vii) when not arising during normal course of business.
2. Treatment of "TDS receivables" written off as bad debts when no proper claim made by the assessee.

Issue 1: Allowance of TDS receivable as bad debts u/s.36(1)(vii):
The Assessing Officer disallowed the deduction of Rs. 8,48,592 claimed by the assessee in respect of bad debts written off, specifically TDS receivables. The AO argued that TDS amount does not represent a debt and cannot be considered for deduction as bad debt u/s.36(1)(vii). The assessee contended that the un-claimable TDS represented dues recoverable from tax deductor/customer, hence written off as bad debts. The CIT (A) allowed the deduction based on the argument that the inability to claim credit for tax deductions at source was a loss incidental to business, citing the judgment in the case of CIT vs Shreyans Industries. The ITAT upheld the CIT (A)'s decision, stating that the TDS amounts represented a loss incurred by the assessee in the course of business activities, and approved the allowance of deduction for the written-off TDS receivables.

Issue 2: Treatment of "TDS receivables" written off without proper claim:
The Assessing Officer raised concerns about the treatment of "TDS receivables" written off as bad debts when no proper claim was made by the assessee to retrieve them by filing proper returns. The AO contended that since the TDS amount did not arise in the normal course of business, it should not be treated as bad debts. However, the CIT (A) relied on the judgment in the case of Shreyans Industries to allow the deduction for the loss incurred due to unclaimed tax deductions at source. The ITAT agreed with the CIT (A)'s decision, emphasizing that the TDS amounts represented a loss to the assessee and should be allowed as a deduction, dismissing the appeal of the revenue.