2013 (5) TMI 663 - HC - Income Tax

Advances written off - CIT(A) deleted the addition by holding that the amount involved was a trade debt - Held that - Revenue was unable to point out any infirmity in the order of the Tribunal in allowing the appeal of assessee except that the provision of Section 36 was not followed to appellant, rightly answered that the claim for the written off amount in this case is based under Section 37 and not under Section 36, as contended by revenue. Appeal in favour of assessee.

Summary

Issues:
1. Whether the Tribunal erred in law by upholding the deletion of an addition of Rs.2,84,28,000 being the advance written off as a trade debt?
2. Whether the Tribunal erred in law by upholding the deletion of the addition of Rs.2,84,28,000 pertaining to advances written off by disregarding the method of adjustment to the provision?

Analysis:

Issue 1:
The assessee had a trilateral barter arrangement with Fertilizers Corporation of India, where a sum of Rs.2,84,28,000 remained payable by Fertilizers Corporation of India to the assessee. The Fertilizers Corporation of India became sick, leading the assessee to make a provision for bad debt in 2003-04 and offer it for taxation. In 2005-06, the amount receivable was written off and adjusted against the provision for bad debt. The Assessing Officer disallowed the bad debt deduction under Section 36, stating that the debt should have been taken into account in the previous year's income calculation. The Appellate Tribunal found that the provision for doubtful advances was not allowed as a deduction when made, and the Profit & Loss Account was not debited again when the amount was written off. The Tribunal also noted evidence showing the debt had been taken into account in computing the assessee's income in previous years.

Issue 2:
The Revenue appealed to the Income Tax Appellate Tribunal, which dismissed the appeal. The Tribunal considered the trilateral barter arrangement, confirmed the advance as a trade advance, and found that the sales had been considered in computing the assessee's income in previous years. The Tribunal held that the Revenue failed to prove the agreement was bogus or sham and could not dislodge the findings of the Appellate Authority. The Revenue argued non-compliance with Section 36 of the Income Tax Act, but the Senior Advocate for the appellant clarified that the claim for the written-off amount was under Section 37, not Section 36. The Court rejected the appeal, agreeing with the interpretation under Section 37.

In conclusion, the Court upheld the Tribunal's decision, emphasizing that the written-off amount was correctly claimed under Section 37 and not Section 36. The Court found no grounds for admitting the appeal and rejected it accordingly.