2015 (7) TMI 717 - AT - Income Tax

Disallowance of bad debts claimed - Held that - Hon ble Supreme Court has held in the case of T.R.F. Ltd. Vs. Commissioner of Income Tax 2010 (2) TMI 211 - SUPREME COURT that in order to obtain a deduction in relation to bad debt it is not necessary for the assessee to establish that the debt, in fact, has become irrecoverable. It is enough if the debt is written off as irrecoverable in the accounts of the assessee. In the present case, the assessee has written off as irrecoverable bad debt in its accounts this fact is not disputed by the Revenue. Thus disallowance deleted - Decided in favor of assessee. Addition on account of stock of work in progress - Held that - It is not disputed by Revenue that in A.Y. 2005-06 the assessee was allowed to treat the closing stock of earlier year as opening stock of next year. It is well settled that the closing stock of earlier becomes the opening stock of succeeding year. In this view of matter, and examining all aspects it would be in the interest of justice if the assessing officer is directed to allow the closing stock of last year as the opening stock of current year. We accordingly, hereby direct the assessing officer to allow the closing stock of last year as the opening stock of current year. - Decided in favour of assessee for statistical purpose.

Summary

Issues:
1. Disallowance of claim of Bad Debts
2. Addition on account of alleged Stock of Work in Progress

Analysis:

Issue 1: Disallowance of claim of Bad Debts
The appeal was against the disallowance of a claim of bad debts amounting to Rs. 13,18,904. The Assessing Officer (AO) and the Ld. CIT(A) disallowed the claim, citing a judgment of the Hon'ble High Court of Gujarat. However, the appellant argued that the issue was covered by a judgment of the Hon'ble Supreme Court in the case of T.R.F Ltd. vs. Commissioner of Income Tax. The Supreme Court held that it is not necessary for the assessee to establish that the debt has become irrecoverable; it is sufficient if the debt is written off as irrecoverable in the accounts. As the assessee had done so, and this fact was not disputed by the Revenue, the Tribunal allowed this ground of appeal.

Issue 2: Addition on account of alleged Stock of Work in Progress
The second ground of appeal was against the addition of Rs. 17,51,509 on account of stock of work in progress. The AO made this addition as the assessee had not shown the closing stock of work in progress. The appellant argued that in a previous assessment year, a direction was issued to allow the closing stock of the previous year as the opening stock of the next year. The Tribunal noted that it is established that the closing stock of the earlier year becomes the opening stock of the succeeding year. Considering this, the Tribunal directed the assessing officer to allow the closing stock of the last year as the opening stock of the current year. Consequently, this ground of appeal was allowed for statistical purposes.

In conclusion, the appeal of the assessee was partly allowed for statistical purposes, with the Tribunal ruling in favor of the assessee on both issues of disallowance of bad debts and addition on account of stock of work in progress.