2023 (1) TMI 169 - AT - Income Tax

Addition on account of bad debts claimed by the assessee - assessee submitted that it had given a loan of in earlier years to Shri Jayesh Mamoya, which was not recoverable and therefore was written back as bad debts and further submitted that the said loan was recovered in the next year and was offered as income - AO did not agree with the submissions of the assessee and held that the loan given is not in the nature of capital receipt or loss and therefore not in the nature of a revenue expenditure or income, thus, the expenses cannot be routed through the profit and loss account and since the conditions of section 36(2) are not satisfied, therefore, the claim of bad debts is not allowable - HELD THAT - We find that during the assessment proceedings, in response to the query of the AO, the assessee submitted that Rs.4 lakh given as a loan was recovered in the subsequent assessment year and was also offered for taxation. However, the lower authorities despite the aforesaid fact proceeded to disallow the claim of bad debts and made the addition to the total income of the assessee. We find from the perusal of the profit and loss account for the year ended 31/03/2014, on page 15 of the paper book, that the amount of bad debts of Rs.4 lakh was received by the assessee and the same was declared as income in the subsequent assessment year. Thus, once the assessee has offered the income to tax in the subsequent assessment year, we find no basis in upholding the disallowance made by the lower authorities. Accordingly, we direct the AO to delete the addition - As a result, grounds no.3 (b) and 3(c) raised in assessee s appeal are allowed. Addition on account of bad debts claimed by the assessee - CIT(A) dismissed assessee s appeal by observing that the claim has no legs to stand upon, thus the disallowance is confirmed - assessee submitted that during the year the assessee had written off the amount due from the firm from the year 1994 95 AND that in the said firm 3 brothers and their mother was partner, which may have stopped doing the business - HELD THAT - We find that the learned CIT(A) provided no reasons for coming to the aforesaid conclusion. Further, there is no basis whatsoever provided in the order dismissing the appeal filed by the assessee. As decided in SHIVSAGAR VEG. RESTAURANT 2008 (11) TMI 64 - HIGH COURT BOMBAY Reasons provide live link between conclusion and evidence that vital link is a safe guard against arbitrariness, passion and prejudice. Reason is a manifestation of mind of adjudicator. It is a tool for judging the validity of the order under challenge. It gives opportunity to the higher court to see whether or not the adjudicator has proceeded on the relevant consideration, material and evidence. Therefore in view of the above, we deem it appropriate to remand this issue to the file of learned CIT(A) for de novo adjudication. Needless to mention that no order shall be passed without affording reasonable opportunity of being heard to both parties. Accordingly, ground No. 3(d) raised in assessee s appeal is allowed for statistical purposes.

Summary

Issues:
Delay in filing appeal for condonation, Disallowance of bad debts claimed by the assessee

Delay in filing appeal for condonation:
The assessee filed an appeal challenging an order passed under section 250 of the Income Tax Act, 1961, for the assessment year 2013-14. The appeal was delayed by 1395 days, and the assessee sought condonation of delay due to various reasons, including the demise of the Chartered Accountant handling the tax matters, health issues faced by the assessee, and lack of awareness about the impugned order. The Tribunal, after considering the submissions and affidavit filed by the assessee, found sufficient cause for condonation of delay as per the parameters laid down by the Supreme Court. The Tribunal emphasized that rules of procedure are meant to serve justice and decided to proceed with the appeal on merits after condoning the delay.

Disallowance of bad debts claimed by the assessee:
The assessee claimed bad debts of Rs. 6.82,855 in the assessment year. The Assessing Officer disallowed Rs. 4 lakh claimed as bad debts, stating it was not in the nature of revenue expenditure/income and did not satisfy the conditions of section 36(2) of the Act. The CIT(A) upheld the AO's decision. However, during the hearing, it was revealed that the Rs. 4 lakh loan was recovered in the subsequent year and offered for taxation, leading to double disallowance. The Tribunal directed the AO to delete the addition of Rs. 4 lakh. Another issue involved the disallowance of Rs. 2,82,855 claimed as bad debts by the assessee. The AO disallowed this amount as well, and the CIT(A) dismissed the appeal without providing any reasons or basis for the decision. The Tribunal, citing the requirement of recording reasons for orders, remanded this issue back to the CIT(A) for fresh adjudication, emphasizing the importance of self-explanatory orders to prevent arbitrariness. The Tribunal allowed this ground for statistical purposes.

In conclusion, the Tribunal allowed the appeal by the assessee for statistical purposes, directing the deletion of the disallowed amounts of bad debts and remanding one issue back to the CIT(A) for proper adjudication.