2018 (5) TMI 1607 - AT - Income Tax

Addition u/s 68 - additional income disclosed before the Settlement Commission - addition of peak balances - Held that - While arriving at the additional income disclosed before the Settlement Commission, the peak balances in various undisclosed bank accounts were worked out by the assessee and the revised balance sheets in question were prepared. Thus, the claim of the assessee made before the Settlement Commission was accepted by the Assessing Officer. For the financial year ending 31/03/2008, the closing cash balance is ₹ 30,23,746/-. This figure was not disturbed by the Assessing Officer and the additional income declared by the assessee before the Settlement Commission was taken as income. Hence the submission for the assessee has force. We accept the same and consider that the source of funds for deposits aggregating to ₹ 20,62,298/-, made during the year, as explained by the opening cash balance of the year. - Decided in favour of assessee Provision for bad debts allowability - Held that - What was created was a provision for doubtful debts. It is not a case where the bad debts were written off in the accounts. On the contrary, the provision for doubtful debts continues to be in the accounts and is reflected in the balance sheet. The decision in the case of Vijaya Bank V. CIT 2010 (4) TMI 46 - SUPREME COURT as a case where the loans and advances, which was provisioned for, were actually written off and this figure of loans and advances were reduced from the asset side of the balance sheet. No such netting off is done in the case on hand. Though the provision is made for an identified debt, these debts were not written off and do appear in the balance sheet of the assessee.- Decided against assessee

Summary

Issues:
1. Addition of undisclosed bank account deposits and interest income.
2. Disallowance of deduction for provision for doubtful debts.

Issue 1: Addition of undisclosed bank account deposits and interest income

The assessee, an individual engaged in trading electrical goods, filed an appeal against the order of the Commissioner of Income Tax (Appeals) concerning the Assessment Year 2009-10. The Assessing Officer added deposits made in an undisclosed HDFC Savings Bank Account and undisclosed interest income, totaling to &8377; 20,62,298. The assessee claimed the opening cash balance of the year as the source for these deposits, supported by a recast balance sheet and the acceptance of additional income by the Assessing Officer for a previous year. The Tribunal accepted the submission, relying on the similarity with a previous case, and deleted the addition under section 68 of the Income Tax Act.

Issue 2: Disallowance of deduction for provision for doubtful debts

The assessee claimed a deduction of &8377; 10,66,700 for provision for doubtful debts, which was disallowed as the debts were not written off in the books of accounts. The assessee argued that the provision was for specific identified debts not recoverable, citing legal principles that focus on substance over nomenclature. However, the Tribunal upheld the disallowance, distinguishing the case from instances where bad debts were actually written off and removed from the balance sheet. As the provision for doubtful debts remained in the accounts without write-off, the disallowance was deemed appropriate.

In conclusion, the appeal of the assessee was partially allowed, with the addition of &8377; 20,62,298 being deleted while the disallowance of the deduction for provision for doubtful debts was upheld.