2012 (7) TMI 763 - AT - Income Tax

Additions u/s 145A and allowing deductions - assessee filed copies of tax audited report of the current year as well as the last year to show that the assessee has been following the exclusive method of accounting and thereafter prepared adjustments u/s 145A regularly - claim of the assessee was correct In favor of assessee Disallowance of bad debt - assessee s contention was that the bad debts now claimed were part of its income in earlier years which has also been admitted by the A.O. and the same have been now written off in their books of accounts and this is sufficient for claiming deduction for bad debts Held that - As only two conditions are required to be satisfied for claiming deduction for bad debts; one is that it should have been part of income in the earlier year and that it should be existing and it should be written off in the books of accounts. Since both these conditions are fulfilled in this case, ld. CIT(A) has rightly allowed the claim of the bad debts of the assessee In favor of assessee

Summary

Issues:
1. Disallowance of Rs.15,38,129/- u/s 145A
2. Addition of Rs.6,67,233/- on account of bad debts

Analysis:

Issue 1: Disallowance of Rs.15,38,129/- u/s 145A
The Assessing Officer (A.O.) disallowed the deduction claimed by the assessee under Section 145A amounting to Rs.15,38,129/-, stating that there would be no effect in respect of this adjustment as per the guidance note of ICAI. The assessee contended that it followed the exclusive method of accounting, and the net difference claimed was in accordance with Section 145A. The A.O. disallowed the deduction, but before the Commissioner of Income Tax (Appeals) [CIT(A)], the assessee provided tax audited reports to support its claim. The CIT(A) upheld the claim, stating that the adjustment was as per the provisions of the Income Tax Act, and if positive, it would be added to the total income, and if negative, it could be deducted. The CIT(A) found the assessee's claim to be correct, leading to the dismissal of this ground of the Revenue's appeal.

Issue 2: Addition of Rs.6,67,233/- on account of bad debts
The A.O. made an addition of Rs.6,67,233/- on account of bad debts, which was later deleted by the CIT(A). The A.O. questioned the bad debts claimed by the assessee for various entities, stating that the efforts to recover the amounts were insufficient. The assessee explained that the bad debts were part of its income in earlier years and had been now written off in its books of accounts, fulfilling the conditions for claiming deduction for bad debts. The CIT(A) accepted the assessee's contention, highlighting that the two necessary conditions for claiming deduction for bad debts were satisfied in this case. Consequently, the CIT(A) upheld the claim for bad debts, leading to the dismissal of this ground of the Revenue's appeal.

In conclusion, both grounds raised by the Revenue were dismissed, and the order of the CIT(A) upholding the assessee's claims was affirmed. The Revenue's appeal was ultimately dismissed by the Appellate Tribunal ITAT, Ahmedabad, in the judgment pronounced on 06.06.2012.