2017 (3) TMI 83 - AT - Income Tax

Addition u/s 68 in respect of cash credit on account of receipt of deposits by the assessee and consequent disallowance of interest on such cash credit - Held that - This is a settled position of law by now that for the purpose of section 68, the burden is on the assessee to establish identity of the cash credit or and his credit worthiness and genuineness of the transactions. In the present case, the assessee has failed to carry out his obligations and hence, the burden cannot be shifted to the revenue to find out from the creditors about their identity and credit worthiness after receiving the names and addresses of the creditors. Hence, in the facts of the present case, find no infirmity in the orders of the authorities below on this issue. Claim of the assessee for deduction under section 36(1)(vii) in respect of write off of bad debts - Held that - As find that for this deduction, the assessee has to establish that the bad debts in question were actually written off by the assessee as irrecoverable in the accounts of the assessee for the relevant previous year. In the present case, it is seen that the books of accounts of the assessee were impounded in the month of September 2003 and therefore, the entries could be made in all the 4 years which are in dispute before me because the books of accounts were very much available with the assessee during relevant time and it is not shown by the assessee that the assessee has written off the bad debts in the books of accounts. Hence, after amendments in the provision of section 36(1)(vii) w.e.f. 1.40.1989, the claim of the assessee is not allowable in the absence of actual write off in the books of accounts. Judgment in the case of Vithaldas Dhanjibhari v. Commissioner of Income Tax (1980 (8) TMI 40 - GUJARAT High Court ) on which reliance has been placed by the learned AR of the assessee is not applicable in the present case because this judgment is for a period prior to the amendment in section 36(1)(vii).

Summary

Issues:
- Addition under section 68 and disallowance of interest
- Disallowance of claim under section 36(1)(vii) for write off of bad debts

Analysis:

Issue 1: Addition under section 68 and disallowance of interest
In the assessment years 1998-99, 2001-02, 2002-03, and 2003-04, the assessee contested the addition under section 68 and consequent disallowance of interest. The burden to establish the identity, creditworthiness, and genuineness of transactions lies on the assessee for section 68 cases. The assessee failed to fulfill these obligations, leading to the disallowance of the claimed amounts. The tribunal found no fault in the lower authorities' decisions on this issue, as the assessee did not provide sufficient evidence to shift the burden to the revenue.

Issue 2: Disallowance of claim under section 36(1)(vii) for write off of bad debts
Regarding the claim for deduction under section 36(1)(vii) for write off of bad debts, the tribunal observed that the assessee must demonstrate the actual write-off of bad debts in the accounts for the relevant year to claim this deduction. The books of accounts were available to the assessee during the disputed years, but no evidence was presented to show the write-off of bad debts. The tribunal emphasized that post-amendments to section 36(1)(vii), the claim cannot be allowed without actual write-offs in the books. The judgment cited by the assessee from the Hon'ble Gujarat High Court was deemed inapplicable due to the timing of the amendment. Consequently, the tribunal upheld the decision of the CIT(A) on this issue as well.

In conclusion, all four appeals by the assessee were dismissed by the tribunal, emphasizing the importance of meeting statutory requirements for claiming deductions and proving the legitimacy of transactions to avoid disallowances under relevant sections of the Income Tax Act.