2019 (9) TMI 1339 - AT - Income Tax

Disallowance towards bad debts written off - AO disallowed the bad debts written off observing that the claim of bad debt due to non-delivery of stock is premature at this stage as final deficiency in amount cannot be arrived at now. He also observed that the case is under investigation and seized assets are yet to be realized and hence the amount cannot be treated as bad - CIT(A) sustained the disallowance - HELD THAT - It is not in dispute that the assessee company has shown the income from trading as revenue income in its profit and loss account and part of the outstanding amount has been written off as bad debts in its books of accounts. In such circumstances the decision of the Hon ble Supreme Court in the case of T.R.F Ltd v. CIT 2010 (2) TMI 211 - SUPREME COURT squarely apply to the facts of the case. It has been held by the Hon ble Supreme Court that it is not necessary for the assessee to establish that the debt in fact has become irrecoverable and it is enough if the bad debt is written off as irrecoverable in the accounts of the assessee. Since there is no dispute of write off of bad debts in the books of accounts of the assessee respectfully following the decision of the Hon ble Supreme Court we hold that the lower authorities are not justified in not allowing the claim for deduction of bad debts. Thus we direct the Assessing Officer to delete the disallowance made towards bad debts and recompute the income of the assessee. - Decided in favour of assessee.

Summary

Issues:
Sustainability of disallowance made by the Assessing Officer towards bad debts written off.

Analysis:
The appeal was filed by the assessee against the order of the Ld. Commissioner of Income-tax (Appeals) for the A.Y. 2014-15, specifically challenging the disallowance of bad debts written off by the Assessing Officer. The assessee, engaged in trading activities, had claimed bad debts amounting to a significant sum, justifying it by explaining that the debts were written off due to the failure of National Spot Exchange Ltd. (NSEL) to make payments as declared quantities of commodities vanished from warehouses. The Assessing Officer disallowed the claim, stating it was premature and subject to investigation. On appeal, the Ld. CIT(A) upheld the disallowance.

The Ld. Counsel for the assessee argued that the bad debts were written off in accordance with section 36(2) of the Act, as the income from trading was shown as revenue in the profit and loss account, and part of the outstanding amount was written off as bad debts. Referring to a Supreme Court decision, the counsel emphasized that it is not necessary to establish the irrecoverability of the debt, but sufficient to write it off in the accounts. The Ld. DR supported the lower authorities' decisions.

After considering the submissions and the Supreme Court decision cited, the Tribunal found that the assessee had appropriately treated the bad debts in its accounts, meeting the requirements of the law. Following the Supreme Court's precedent, the Tribunal held that the lower authorities erred in disallowing the deduction for bad debts. Consequently, the Tribunal directed the Assessing Officer to delete the disallowance and recalculate the assessee's income, ultimately allowing the appeal.

In conclusion, the Tribunal's judgment favored the assessee, emphasizing the importance of correctly reflecting bad debts in the accounts as per the provisions of the law, and citing relevant legal precedents to support its decision.