2015 (10) TMI 539 - HC - Income Tax

Deduction of the bad debts written off - rejection of claim on the ground that it could have only been made by way of revised return under Section 139(5) - Held that - The said decision in Goetze (India) Ltd. 2006 (3) TMI 75 - SUPREME Court is in the context of the lack of the power of the AO to entertain a claim for deduction, during assessment proceedings, otherwise than by a revised return. The ITAT is right in without a revised return being filed by the Assessee, there was no such restraint on the CIT (A) during the appellate proceedings. However, while permitting such a claim the CIT (A) ought to have examined whether in fact the bad debts were written off by the Assessee in the first instance in the accounts and then taken into consideration while computing the income. The remand of the matter to the AO for that purpose was, therefore, justified.

Summary

Issues: Appeal against ITAT order for deduction of bad debts written off during assessment proceedings without filing a revised return under Section 139(5) of the Act.

Analysis:
1. The ITAT rejected the claim for deduction of bad debts made by the Assessee during assessment proceedings, stating it should have been done through a revised return under Section 139(5) of the Act. However, the CIT (A) accepted the claim, leading to an appeal. The ITAT observed that bad debts written off during the previous year could be allowed as a deduction if taken into account in computing the Assessee's income for the relevant year. The ITAT remanded the matter to the AO to determine if the bad debts were considered in the income computation.

2. The Appellant argued that the ITAT erred in allowing the deduction without requiring a revised return, citing the decision in Goetze (India) Ltd. The cited case pertains to the AO's lack of power to entertain a deduction claim without a revised return. However, the ITAT correctly noted that the CIT (A) could consider such claims during appellate proceedings without a revised return. The CIT (A) should have verified if the bad debts were initially written off and factored into income computation, justifying the remand to the AO.

3. The Court found no substantial question of law, leading to the dismissal of the appeal. The judgment underscores the distinction between the AO's limitation on deduction claims without a revised return and the CIT (A)'s authority to consider such claims during appellate proceedings, emphasizing the need for verification of bad debts' treatment in income computation for allowance as a deduction.