2014 (1) TMI 1184 - AT - Income Tax

Validity of deduction u/s 36(1)(vii) of the Act Bad debts - Held that - The decision in TRF Ltd. vs. CIT 2010 (2) TMI 211 - SUPREME COURT followed - it is no longer necessary for the assessee to establish the irrecoverability of the debt written off to validate its claim qua the same u/s.36(1)(vii) of the Act - The write off of the sum as irrecoverable by the assessee in its accounts, or the bona fides, is not in doubt or dispute 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 - Absence of any examination of the assessee s claim in respect of the said sum, which would fall for consideration u/s. 37(1) of the Act this aspect of the matter needs to be re-adjudicated - the issue id remitted back to the AO for fresh adjudication Decided partly in favour of Assessee.

Summary

Issues: Validity of deduction u/s. 36(1)(vii) of the Income Tax Act, 1961.

Analysis:

1. Issue: Validity of deduction u/s. 36(1)(vii)
- The appeal by the Revenue was against the Order by the Commissioner of Income Tax (Appeals) partly allowing the assessee's appeal contesting its assessment u/s.143(3) of the Income Tax Act, 1961 for the assessment year 2008-09.
- The main issue was the validity of the deduction u/s. 36(1)(vii) of the Act in the sum of Rs.85,92,188/- allowed to the assessee by the CIT(A).
- The Assessing Officer had disallowed the claim in the absence of requisite details, but the assessee explained that the debts written off were on account of sales, supported by sale invoices.
- The assessee relied on the decision by the jurisdictional High Court to support its claim.
- The Tribunal considered the irrecoverability of the debt written off and the satisfaction of section 36(2) as crucial.
- It was found that only a portion of the amount related to debtors, while the rest was miscellaneous balances.
- The Tribunal confirmed the order for all except the sum of Rs.7,78,318/- related to miscellaneous balances.
- As there was no separate finding on this amount, the matter was restored back to the assessing authority for further examination and adjudication.

2. Conclusion:
- The appeal of the Revenue was partly allowed and partly allowed for statistical purposes.
- The Tribunal's decision emphasized the importance of satisfying the conditions of section 36(2) for claiming deductions under section 36(1)(vii) of the Income Tax Act, 1961.
- The case highlighted the necessity of providing necessary details and evidence to support claims for deductions, especially concerning the nature of debts written off and their treatment in the accounts.
- The judgment also underscored the need for a thorough examination of all aspects of a claim before reaching a final decision, ensuring compliance with legal requirements and principles.

This detailed analysis of the judgment emphasizes the critical aspects of the case, including the specific issue of deduction u/s. 36(1)(vii) and the Tribunal's decision regarding the validity of the claim. The summary provides a comprehensive overview of the legal proceedings and the key considerations that influenced the final outcome of the case.