2023 (8) TMI 514 - AT - Income Tax

Disallowance of bad debts - credit for the TDS denied to assessee against the purchases made from supplier party to whom late payment of purchase cost paid - Since this amount was not reimbursed by the supplier party, the assessee wrote off this amount in its account as bad debt, Alternatively, the assessee claimed this amount as a business expenditure since payment was made to the supplier party as interest on the late payment of purchase cost - HELD THAT - As amount cannot be claimed as a bad debt, as rightly been held by the AO, since the amount in question was not taken into account in computing the income of the assessee in any previous year as required u/s 36(2) of the Act. Nor this amount is in the nature of revenue receipt in any earlier year. Rather the amount in question is excess payment made by the assessee. Further, as rightly been held by the CIT(A), this amount cannot also be claimed as business expenditure since the liability of the assessee to make payment of interest on late payment of purchase cost was only limited to Rs. 2,90,070. The assessee being the payer was required to deduct tax as per law. Thus any excess payment made by the assessee over the amount net of TDS cannot be said to be an expenditure incurred wholly and exclusively for the purpose of the business under section 37(1) - Decided against assessee. Disallowance of LC Discounting Charges paid by the assessee - HELD THAT - In the present case, it cannot be doubted that the interest of the supplier was sufficiently protected as the assessee had opened the letter of credit account and it is only because the supplier insisted on early payment the invoices were discounted by the assessee s bank. Thus any liability to pay the interest cost is only of the supplier. However, the assessee has claimed that the interest cost has been borne by it towards purchases and therefore it is a business expenditure. No documentation has been brought on record to show that it was the assessee s liability to bear the LC Discounting Charges in case the supplier insists on early payment. Therefore, in the interest of justice, we deem it appropriate to grant one more opportunity to the assessee to submit necessary evidence/documentation to support its claim that it was assessee s liability to bear the LC Discounting Charges in case of early payment to the supplier. Accordingly, we restore this issue to the file of the AO for de novo adjudication. Ground raised by the assessee are allowed for statistical purpose.

Summary

Issues Involved:
The judgment involves issues related to the disallowance of bad debt claimed by the assessee and the disallowance of LC Discounting Charges paid by the assessee.

Issue 1 - Disallowance of Bad Debt:
The assessee challenged the disallowance of Rs. 58,014 claimed as bad debt in the books of account. The Assessing Officer (AO) disallowed the claim stating that the amount in question was not a revenue receipt and could not be considered as a bad debt. The AO held that the TDS amount could not be claimed as an expenditure by simply reversing the entries. The CIT(A) upheld the AO's decision, stating that the amount was an excess payment made by the assessee and could not be considered a business expenditure. The tribunal agreed with the CIT(A) and dismissed the grounds raised by the assessee.

Issue 2 - Disallowance of LC Discounting Charges:
The assessee claimed Rs. 8,48,605 as LC Discounting Charges paid to Delta Iron and Steel Company Private Limited. The AO disallowed the claim as the assessee failed to provide evidence that the expenditure was incurred wholly and exclusively for the purpose of business. The CIT(A) also dismissed the ground raised by the assessee, stating that the interest liability was of the supplier and not the assessee. However, the tribunal found that the assessee had not provided sufficient documentation to prove that it was liable to bear the LC Discounting Charges in case of early payment to the supplier. Therefore, the tribunal set aside the CIT(A)'s decision and allowed the grounds raised by the assessee for statistical purposes.

In conclusion, the appeal by the assessee was partly allowed for statistical purposes, and the matter related to the disallowance of LC Discounting Charges was remanded back to the AO for further adjudication with the requirement of additional evidence from the assessee.