2016 (2) TMI 734 - AT - Income Tax

Addition on account of bad debt - CIT(A) deleted the addition - Held that - In this case their lordship referred to the Circular no. 551 dated 23.01.1990 of the CBDT and held that the amendment made to Section 36(1)(vii) of the act was a decision taken to eliminate litigation with regard to establishing their lordship what is bad debt further observed if the assessee writes off a debt as to bad debt without giving any reason he will not get any benefit from this as by virtue of Section 41(1) of the Act where a deduction has been allowed in respect of a bad debt which is irrecoverable but the amount or a part thereof is subsequently recovered then that amount shall be deemed to be profit and gains of business or profession of the relevant year. However, we may point out that the amendment of year, 1989 incorporates only the year of allowability but does not dispenses with the requirement of the assessee to prove that the debts has become a bad debt. In the present case, the assessee submitted party-wise detail, copies of the invoices/ bills raised against the debtors and other relevant documentary evidence to prove that the amounts was incorporated as revenue receipts and offered as income in the earlier financial year. The assessee also submitted copies of the e-mails and other correspondence with the debtors showing that the conscious and sincere efforts made by the assessee company towards recovery of impugned amounts and the assessee also submitted relevant copies of the ledger accounts and other evidence to show that the claimed debts has become bad and the same was properly submitted before the assessing officer during assessment proceedings. On the basis for foregoing discussion, we reach to a conclusion that the claim of the assessee supported by the required documentary proof about the offering the same income in the earlier financial year and efforts of the assessee for recovery as well as the intention of the assessee to treat the amounts of debts as bad debts. Thus, the issues is squarely covered in favour of the assessee by the ratio laid down by Hon ble Apex Court in the case of TRF Ltd. v. CIT 2010 (2) TMI 211 - SUPREME COURT and hence we hold that the CIT(A) rightly granted to relief to the assessee. We are unable to see any valid reason to interfere with the impugned order and thus we confirm the same. - Decided against revenue

Summary

Issues:
Appeal against deletion of addition of bad debt by AO.

Analysis:
The revenue appealed against the deletion of a bad debt addition made by the AO. The revenue argued that the assessee failed to prove that the debt had become bad and was written off in the books of accounts. The Departmental Representative (DR) emphasized that if the debts had not become bad, they could not be considered as bad debts written off. The revenue contended that the CIT(A) granted relief without a valid basis and requested the impugned order to be set aside. On the other hand, the Assessee's Representative (AR) relied on the decision in TRF Ltd. vs. CIT and submitted that the bad debts were genuine. The AR argued that the AO misinterpreted the law and that the bad debts should be allowed as per Section 36(i)(vii) of the Income Tax Act. The AR presented evidence to support the genuineness of the bad debts and the offering of income in the previous financial year.

The CIT(A) granted relief to the assessee after considering all submissions. The CIT(A) observed that the assessee provided detailed information on the bad debts, rebate, and discounts. The CIT(A) noted that the expenses claimed under different heads were distinct and related to the relevant assessment year. The CIT(A) acknowledged the evidence submitted by the assessee, including emails with debtors and invoices, to prove the bad debts. The CIT(A) referred to relevant case laws and the provisions of Section 36(1)(vii) to support the decision to allow the bad debts claimed by the assessee. The CIT(A) emphasized that the assessee had fulfilled the requirements to prove the bad debts and that the claim was justified.

The Tribunal upheld the CIT(A)'s decision, stating that the assessee had provided sufficient evidence to support the bad debts claimed. The Tribunal highlighted that the assessee had shown the bad debts were offered as income in the previous financial year and had made efforts for recovery. The Tribunal emphasized the importance of documentary proof and the intention of the assessee to treat the debts as bad debts. The Tribunal concluded that the CIT(A) rightly granted relief to the assessee based on the legal provisions and case laws cited. The Tribunal dismissed the revenue's appeal, confirming the decision in favor of the assessee.

In conclusion, the Tribunal upheld the CIT(A)'s decision to grant relief to the assessee regarding the bad debts claimed, emphasizing the importance of fulfilling the legal requirements and providing documentary evidence to support the claim. The Tribunal dismissed the revenue's appeal, affirming the decision in favor of the assessee.