2014 (1) TMI 898 - AT - Income Tax

Disallowance in respect of bad debts written off u/s 36 of the Act - Held that - The decision in TRF. LTD. Versus COMMISSIONER OF INCOME-TAX 2010 (2) TMI 211 - SUPREME COURT followed - This is the case where CIT (A) is completely not judicious on the issue raised before him and has not regarded the established binding judicial pronouncements - When bad debt occurs the bad debt account is debited and the customer s account is credited - thus closing the account of the customer - In the case of Companies the provision is deducted from Sundry Debtors. Thus the assessee is entitled to relief on account of bad debts Decided in favour of Assessee. Disallowance as bad debts twice while computing disallowance u/s 14A of the Act Held that - It amounts to making addition twice which is not sustainable in law - assessee mentioned that there cannot be disallowance u/s 14A of the Act in respect of the claim of bad debts relying upon Star Television Entertainment Ltd 2010 (1) TMI 46 - AUTHORITY FOR ADVANCE RULINGS - The claim of the bad debts is allowable in favour of the assessee the issue remitted back to the AO for fresh adjudication after considering on bad debts - the expenditure of bad debt is outside the scope of the provisions of section 14A r w r 8D Decided partly in favour of Assessee.

Summary

Issues Involved:
1. Disallowance of bad debts written off during the year.
2. Disallowance of bad debts twice - as bad debts and under section 14A.

Analysis:

Issue 1: Disallowance of Bad Debts
The appellant, engaged in trading, letting out properties, and consultancy services, filed a return declaring income. The Assessing Officer (AO) determined the assessed income, including disallowance of bad debts written off. The AO disallowed the bad debts, stating the appellant failed to prove they were irrecoverable. The appellant cited the judgment in the case of DIT vs. Oman International Bank & SAOG and TRF Ltd vs. CIT to support their claim. The CIT (A) upheld the disallowance without considering the relevant judgments. During the appeal, the appellant's counsel argued that the CIT (A) disregarded binding judicial pronouncements and failed to apply the law correctly. The Tribunal found in favor of the appellant, stating that the debts were written off in the accounts, aligning with the Supreme Court and High Court judgments. Thus, the appellant was entitled to relief on bad debts.

Issue 2: Disallowance under Section 14A
The AO made a disallowance under section 14A, considering bad debts, which the appellant contested. The CIT (A) upheld the disallowance of a portion of expenses related to earning dividend income. The appellant argued that bad debts should not be considered for disallowance under section 14A, citing a relevant case law. The Tribunal agreed with the appellant, stating that the issue should be sent back to the AO for fresh adjudication, considering the Tribunal's decision on bad debts and other relevant judgments. The Tribunal set aside the matter for reconsideration, acknowledging the appellant's argument of facing double disallowance under different provisions. The appeal was partly allowed for statistical purposes.

In conclusion, the Tribunal ruled in favor of the appellant on both issues, allowing relief on bad debts and setting aside the disallowance under section 14A for reconsideration.