2013 (4) TMI 175 - AT - Income Tax

Clim of Bad debts in Block Assessment proceedings - search and seizure operation was conducted at the business places of the assessee as well as his four sons - assessee filed block return showing an income of Rs.15,00,000/- in response to notice u/s 158BC(a) - CIT directed to AO to allow a further the claim of bad debt of Rs.2,83,760 Rs.14,84,677 in addition to claim of bad debt already allowed by him in the assessment order and reduce the undisclosed income of Block assessment year accordingly - Held that - The undisclosed income for the block period had to be computed in respect of the previous years falling with the block period in accordance with the provision of the Income Tax Act on the basis of the evidences found as a result of such requisition of books of accounts or other documents such other material or information are available with the AO and relatable to such evidences. The income so computed is to be reduced by the aggregating of the total income or is to be increased by aggregate of the total loss of such previous year as has been mentioned u/s 158BB(1)(a) to 158BB(1)(f). No doubt there had been search in the case of the assessee where certain documents were seized in the case of the assessee which consists of list of the debts but no evidence had been found or seized which may prove that the assessee had written off these debts. The assessee can claim the debts in the regular assessment when these debts are being written off. But in the block assessment the assessee is not entitled to claim the deduction. There is no evidence recorded which may prove that the evidence has been found or seized during the course of the search which may prove that the debts claimed by the assessee as bad debt were written off in the accounts of the assessee. Thus no other alternative else to except to confirm the order of the CIT(A). This Tribunal do not have any power for enhancement. We therefore sustain the addition on account of the bad debts only to the extent of Rs.27,88,438/- out of which debts claimed by the assessee before the AO to the extent of Rs.72,07,147/- appeal of the assessee stands dismissed.

Summary

Issues:
1. Disallowance of bad debts amounting to Rs.27,88,438 claimed by the assessee.

Analysis:
The appeal was filed by the assessee against the order of the ld. C.I.T. (A)- Central-II, Kolkata dated 31.01.2011, specifically challenging the disallowance of Rs.27,88,438 claimed as bad debts. The assessee, engaged in wholesale commission business of fruits, had filed a block return showing an income of Rs.15,00,000 in response to a search and seizure operation. The undisclosed income offered in the block return was based on undisclosed sales noted in seized accounts. The assessee claimed bad debts amounting to Rs.72,07,147, supported by a list of debtors. However, the Assessing Officer disallowed a portion of the claim, leading to a total addition of Rs.54,61,661. The ld. CIT(A) confirmed the disallowance of Rs.27,88,438, emphasizing the need for the appellant to produce evidence of bad debts and prove nonpayment by debtors.

Upon hearing the rival submissions, the Tribunal noted that while the seized papers contained a list of debts, there was no evidence proving that the claimed bad debts were written off in the assessee's accounts before the search. The Tribunal highlighted the requirement under section 36(1)(vii) of the IT Act that debts must be written off as irrecoverable in the assessee's accounts for the previous year to be deductible. Despite some deduction allowed by the authorities, the Tribunal held that in the absence of evidence confirming the write-off of bad debts, the assessee was not entitled to claim the deduction in the block assessment. Consequently, the Tribunal sustained the addition on account of bad debts to the extent of Rs.27,88,438, dismissing the appeal of the assessee.

In conclusion, the Tribunal upheld the disallowance of bad debts amounting to Rs.27,88,438 claimed by the assessee, emphasizing the necessity for the assessee to provide evidence of write-off in the accounts to support such claims during block assessments.