2018 (3) TMI 431 - AT - Income Tax

Eligibility to deduction u/s 36(1)(vii) - Held that - For an amount to be claimed as deduction u/s 36(1)(vii), the same should be written off as irrecoverable in the accounts of the assessee for the previous year. Further condition for allowance of the claim u/s 36(1)(vii) is mentioned in Section 36(2) of the I.T.Act. The Hon ble High Court had restored to the issue for the reason that no inquiry was made by the Tribunal in this regard. Both the parties have agreed that it would suffice, if the matter is restored to the A.O. for examination whether there is actual write off of amount of ₹ 1,16,521 during the relevant assessment year. In view of the submission of both AR and DR, restore the issue to the A.O. - Decided in favour of assessee for statistical purposes.

Summary

Issues:
1. Prior period expenses claimed by the assessee disallowed by the Assessing Officer.
2. Appeal to first appellate authority rejected, leading to further appeals to the Tribunal and High Court.
3. High Court directed Tribunal to reconsider if the claimed amount can be treated as bad debt under Section 36 of the Income Tax Act.

Analysis:
1. The assessee, engaged in trading of stocks and shares, claimed &8377; 1,16,521 as prior period expenses for the assessment year 2006-2007. The Assessing Officer disallowed the claim, stating the expenses were pertaining to earlier years and not incurred during the relevant assessment year.
2. The assessee contended before the first appellate authority that the amount was written off as an expenditure in the absence of customer-wise break-up of DP charges debited by the principal broker. The CIT(A) rejected the contentions, leading to appeals to the Tribunal and subsequently to the High Court.
3. The High Court directed the Tribunal to consider if the claimed amount can be treated as bad debt under Section 36 of the Income Tax Act. The Court highlighted the conditions under Section 36(1)(vii) and Section 36(2)(i) for allowing a deduction for bad debt, emphasizing that the debt must be written off as irrecoverable and taken into account in computing the income of the assessee in a previous year.
4. The Tribunal was instructed to reconsider the matter, giving the assessee an opportunity to substantiate the case with additional materials. The Tribunal was directed to undertake an inquiry to ascertain if the claimed amount was actually written off during the relevant assessment year.
5. The Tribunal, after hearing both parties, decided to restore the issue to the Assessing Officer for examination of the actual write-off of the amount during the relevant assessment year. The Assessing Officer was directed to consider the evidence produced by the assessee and make a decision in accordance with the law.
6. Consequently, the appeal filed by the assessee was allowed for statistical purposes, and the matter was remitted to the Assessing Officer for further examination and decision-making.

This detailed analysis outlines the progression of the case, the contentions raised by the parties, the directions given by the High Court and Tribunal, and the final decision to remit the issue to the Assessing Officer for reevaluation.