2015 (10) TMI 1382 - AT - Income Tax

Disallowance of bad debts claim - assessee submitted that there is no onus on the assessee to show that the debt has become bad and mere writing off the debt in the books is sufficient to claim deduction of bad debts u/s 36(1)(vii) - CIT(A) dismissed the appeal filed by the assessee - Held that - There is no dispute between the parties that there was fire accident in the business premises of the assessee. Under these circumstances, in our view, one should duly take into account the inability of the assessee to produce the necessary details due to the reasons beyond its control. As submitted by the Ld A.R, the names of all the parties, except Smooth Sky Tours Pvt Ltd shows that they are also in chemical business. Under these circumstances, in our view, there is some merit in the contention of the assessee that they are trade debtors. The very fact that these amounts are outstanding since 1997-98 (almost 10 years old) would show that the assessee had cut off the relationship with them and in this peculiar circumstance, one cannot expect that the above said parties would co-operate with the assessee. In the case of Smooth Sky Tours Pvt Ltd, the submission of the assessee is hard to accept, since the name of the above said party shows the nature of business carried on by it and hence he could not have been in the chemical business. The submission made by the assessee needs to be accepted, viz., that the above said parties excepting Smooth Sky Tours Pvt Ltd are trade debtors of the assessee. Accordingly, we are of the view that the Ld CIT(A) was justified in confirming the disallowance of the claim of ₹ 2,50,000/- relating to M/s Smooth Sky Tours Pvt Ltd. In respect of the claim relating to remaining parties, we are of the view that there is no justification in disbelieving the claim of assessee - Decided partly in favour of assessee.

Summary

Issues: Disallowance of bad debts claim

Analysis:
1. The appeal concerns the disallowance of bad debts claim amounting to Rs. 4,23,602 for the assessment year 2007-08.
2. The assessee, engaged in the business of buying and selling chemicals, claimed a deduction of Rs. 10,25,758 for bad debts but lacked details for ten parties.
3. The Assessing Officer (AO) disallowed the claim due to insufficient evidence. The assessee cited the decision in DIT Vs. Oman International Bank SA OG to support the claim.
4. The CIT(A) required proof that the amounts were offered as income in the relevant years. The assessee, citing a fire accident destroying records, failed to provide evidence. The claim was also sought under Section 37(1) as a trading loss.
5. The CIT(A) rejected the claim, stating the assessee failed to prove transactions with the parties or offer them to tax in earlier years. The alternative claim under Section 37(1) was dismissed for lack of proof of loss in the current year.
6. The assessee argued the fire accident hindered record production and ceased transactions with the parties since 1997-98. The nature of the parties' businesses supported the bad debt claim.
7. The Departmental Representative (D.R) supported the CIT(A)'s decision, emphasizing the lack of tax assessment proof and loss verification for the current year.
8. The ITAT considered the inability to produce records due to the fire accident and the parties' long-standing debts. It accepted the claim for most parties as trade debtors, except for one not in the chemical business.
9. The ITAT upheld the disallowance for one party but allowed the claim for the remaining amount of Rs. 1,73,602 under Section 36(1)(vii) as bad debts.
10. Consequently, the appeal was partly allowed, setting aside the CIT(A)'s decision for the remaining amount.

This detailed analysis highlights the legal proceedings surrounding the disallowance of the bad debts claim and the considerations leading to the partial allowance of the appeal.