2019 (6) TMI 45 - AT - Income Tax

Addition of TDS recoverable written off as bad debts U/s 36(1)(vii) - HELD THAT - When assessee has duly shown the amount on account of TDS recoverable in the profit and loss account which fact has otherwise not been disputed by the AO and pertains to the earlier years, we are of the considered view that the issue is required to be remanded back to the AO to decide afresh after providing an opportunity of being heard to the assessee. Ground No.1 is determined in favour of the assessee for statistical purposes. Addition on account of security deposit rent written off u/s 37(1) - HELD THAT - When it is not in dispute that 100 properties were taken on rent by the assessee to carry out its business out of which 30 properties have been vacated but assessee claimed to have not got the refund of security deposit, the same is allowable revenue expenditure lost in the ordinary course of business. AO has not questioned the books of account maintained by the assessee. So, CIT (A) has erred in confirming the addition which is not sustainable in the eyes of law hence it is ordered to be deleted subject to verification by the AO. Consequently, Ground No.2 is determined in favour of the assessee. Addition on account of advance given by the assessee to M/s. Centrum Direct Ltd. and written off as bad debt u/s 37(1) - HELD THAT - when assessee proved to have advanced the amount during the ordinary course of its business and books of account have not been disputed and due to non-availing of the services, the advance amount was not refunded, it certainly amounts to bad debt. Assessee has duly produced ledger account entry of sales and also showing debt entries during the assessment proceedings but ld. CIT (A) has confirmed the addition without deciding the issue in controversy. So this issue also requires to be remanded back to the AO to decide afresh after examining the documents relied upon by the assessee. Consequently, Ground No.3 is determined in favour of the assessee for statistical purposes. Disallowance of unrealized amount given for services to M/s. Easy Link on the ground that this debt does not form part of the previous year or earlier year - HELD THAT - Undisputedly, the amount was advanced by the assessee to M/s. Easy Link against hire charges and electricity charges but on closer of its Bombay branch, the said amount was forfeited by M/s. Easy Link and consequently the same was written off as on 31.03.2009. When the amount advanced by the assessee on account of security deposit was forfeited by the owner having been given in the ordinary course of business. Certainly it was incidental to the business and on business loss it is eligible for writing off as bad debt. Consequently, addition confirmed by the ld. CIT (A) is not sustainable in the eyes of law, hence ordered to be deleted. - Decided on favour of assessee.

Summary

Issues:
1. Addition of TDS recoverable written off as bad debts under section 36(1)(vii) of the Income Tax Act, 1961.
2. Addition of security deposit rent written off under section 37(1) of the Income Tax Act, 1961.
3. Addition of advance given for services written off under section 37(1) of the Income Tax Act, 1961.
4. Addition of amount given for services written off under section 37(1) of the Income Tax Act, 1961.

Issue 1: Addition of TDS Recoverable as Bad Debts:
The appellant sought to set aside the order confirming the addition of TDS recoverable written off as bad debts under section 36(1)(vii) of the Income Tax Act, 1961. The Assessing Officer (AO) disallowed the amount claimed by the assessee under 'bad debts written off' as unclaimed TDS and security deposits were not part of the income of earlier years. The Tribunal remanded the issue back to the AO for fresh consideration, stating that the amount was duly shown in the profit and loss account and pertained to earlier years.

Issue 2: Addition of Security Deposit Rent Written Off:
The addition of security deposit rent written off under section 37(1) of the Income Tax Act, 1961 was challenged by the appellant. The Tribunal held that the non-refund of security deposit for vacated properties constituted allowable revenue expenditure lost in the ordinary course of business. The Tribunal directed the deletion of the addition, noting that the AO did not question the books of account maintained by the assessee.

Issue 3: Addition of Advance Given for Services Written Off:
The confirmation of the addition of advance given to M/s. Centrum Direct Ltd. and written off as bad debt under section 37(1) of the Act was contested by the appellant. The Tribunal found that the advance was not refunded due to poor quality services, qualifying as a bad debt. It remanded the issue back to the AO for fresh examination after the ld. CIT (A) confirmed the addition without deciding the controversy.

Issue 4: Addition of Amount Given for Services Written Off:
The addition of the amount given for services written off under section 37(1) of the Income Tax Act, 1961 was challenged by the appellant. The Tribunal ruled that the unrecoverable advance was incidental to the business and eligible for writing off as a bad debt. Consequently, the addition was ordered to be deleted as it was considered a business loss.

In conclusion, the Tribunal allowed the appeal filed by the assessee for statistical purposes, directing the deletion of the additions made by the revenue authorities in relation to TDS recoverable, security deposit rent, advance given for services, and amount given for services written off.