2014 (7) TMI 460 - AT - Income Tax

Claim of deduction of bad debts/business loss Held that - Assessee has written off the amount and explained that the assessee engaged in the sale and servicing of computers and related activities was raising bills to its customers - Many of its customers deducted certain amount from the bills on account of various reasons such as rate difference, lack of proper servicing i.e. upto the satisfaction of the customers - This amount being not realized/realizable was debited to the rate difference amount - there is no material on record to doubt the genuineness of the claim of the assessee Relying upon TRF. LTD. Versus COMMISSIONER OF INCOME-TAX 2010 (2) TMI 211 - SUPREME COURT Decided in favour of Assessee. Deduction of interest Held that - The assessee has advanced the amount to third party for making purchases in the normal course of its business, it was a business advance on which no interest was chargeable - disallowance of interest by the AO that the advance was out of borrowed capital is not sustainable Decided in favour of Assessee.

Summary

Issues:
1. Deduction of bad debts/business loss claimed.
2. Deduction of interest amounting to Rs. 6000.

Issue 1: Deduction of bad debts/business loss claimed

The appeal was regarding the assessment year 2007-2008 against the order of the CIT(A). The main contention was the non-deduction of bad debts/business loss claimed by the assessee amounting to Rs. 2,38,287. The assessee had written off the amount, citing the decision of the Hon'ble Apex Court in the case of T.R.F. Ltd. vs. CIT. The Departmental Representative (DR) argued that necessary details and evidence to prove the bad debt were lacking, and the amount had been offered for taxation in previous years. After considering the submissions and reviewing the orders of the AO and CIT(A), it was found that the assessee had explained the situation where customers had deducted amounts from bills for various reasons, leading to non-realization of certain amounts. The Tribunal found no reason to doubt the genuineness of the claim, applying the ratio of the Apex Court decision in the TRF Ltd. case, and ruled in favor of the assessee, allowing ground no.1.

Issue 2: Deduction of interest amounting to Rs. 6000

The second ground of appeal was related to the disallowance of interest amounting to Rs. 6000. The assessee argued that the advance payments made to parties for purchases were business advances on which no interest was chargeable. The AO's decision to disallow interest on the basis that the advance was from borrowed capital was deemed unsustainable. The Tribunal considered that since the advances were made in the normal course of business to third parties for purchases, they were business advances not subject to interest charges. Consequently, ground no.2 of the assessee was allowed.

In conclusion, the Tribunal allowed the appeal of the assessee, granting the deduction of both the bad debts/business loss claimed and the interest amounting to Rs. 6000.