2016 (3) TMI 644 - AT - Income Tax

Rectification of assessment order u/s 154 for withdrawal of claim of bad debts - Held that - The AO has disallowed the claim of the assessee on the ground that the submissions are not supported by contemporary evidence. It is pertinent to note that the entire record was available with the AO and particularly the ledger accounts of the debtors wherein entries for bad debts written off has been carried out by the assessee along with provision for bad and doubtful debts made during the financial year 2003-04 relevant to assessment year 2004-05. Therefore as per provisions of sec.36(1)(vi) the assessee is not required to establish that debts actually gone bad once the assessee has written off the amounts in the books of account. The CIT(A) has allowed the claim of the assessee by taking note of the fact that in the books of account assessee has made entries in respect of reversal of provision for bad and doubtful debts made in the assessment year 2004-05. Therefore in view of the above facts and circumstances of the case we do not find any error or illegality in the impugned order of the CIT(A). The same is upheld.

Summary

Issues:
1. Rectification of assessment order under sec. 154 regarding claim of bad debts written off.
2. Violation of rule 46A of the IT Rules by CIT(A) in considering new material without giving AO an opportunity.
3. Disallowance of claim by AO due to lack of contemporary evidence.
4. Allowability of claim of bad debts written off by the assessee.

Analysis:

Issue 1: Rectification of assessment order under sec. 154 regarding claim of bad debts written off
The appeal by the revenue and cross objections by the assessee were directed against the order passed u/s 154 of the IT Act, 1961 for the assessment year 2009-10. The AO proposed to rectify a mistake in the order related to the claim of bad debts written off by the assessee. The CIT(A) accepted the explanation of the assessee and allowed the claim in respect of the amount of &8377; 98,00,327/-, stating that this issue cannot be examined in proceedings u/s 154.

Issue 2: Violation of rule 46A of the IT Rules by CIT(A) in considering new material without giving AO an opportunity
The Departmental Representative argued that the CIT(A) considered fresh material without giving an opportunity to the AO, violating rule 46A of the IT Rules. However, the AR of the assessee contended that no new evidence was filed before the CIT(A), and all relevant documents were produced before the AO. The Tribunal found that the assessee adequately explained the treatment of bad debts in the books of account, and the AO did not dispute these facts.

Issue 3: Disallowance of claim by AO due to lack of contemporary evidence
The AO disallowed the claim of the assessee on the ground of lack of contemporary evidence. However, the Tribunal noted that the ledger accounts of the debtors showed entries for bad debts written off, along with provisions for bad and doubtful debts made in the relevant assessment year. As per sec.36(1)(vi), once the assessee has written off the amounts in the books of account, they are not required to establish that the debts actually went bad.

Issue 4: Allowability of claim of bad debts written off by the assessee
The Tribunal upheld the CIT(A)'s order, stating that the assessee had reversed the provision for bad and doubtful debts made in the assessment year 2004-05 and written off the bad debts in the current year. The Tribunal found no error or illegality in the CIT(A)'s decision to allow the claim of the assessee. The cross objections raised by the assessee regarding the lack of opportunity of being heard by the AO were deemed infructuous, and the delay in filing cross objections was condoned.

In conclusion, both the appeal and cross objections were dismissed, and the order of the CIT(A) allowing the claim of bad debts written off by the assessee was upheld.