2024 (11) TMI 642 - AT - Income Tax

Disallowance of provision for bad and doubtful debts and provision for doubtful advances - debtor s accounts are not closed and the debts are not written off as irrecoverable - HELD THAT - As per the documents submitted by the assessee, it is very clear that the assessee had written off the entire provision for bad and doubtful debts and advances by closing the account of the debtors. Even though, the assessee has demonstrated that the amounts were written off as irrecoverable and therefore the assessee is eligible for the deduction as per section 36(1)(vii) of the Act, the Ld.CIT(A) had not considered the records properly and gave a finding that the assessee had failed to demonstrate. We found that the balance sheet as well as the other records produced by the assessee would demonstrate that the said amounts were written off by deducting the same in the P L account and thereafter the said set off was also properly recorded in the balance sheet and therefore the balance amounts after deducting the same of Rs. 94 Lakhs has been taken into consideration for the purpose of arriving the financial status of the assessee. he finding of the Ld.CIT(A) is without appreciating the facts properly and hence we are in agreement with the arguments advanced by the assessee We have also gone through the judgment of Hon ble Supreme Court in the case of Vijaya Bank 2010 (4) TMI 46 - SUPREME COURT wherein it was held that whether the assessee had written off the bad debts in its books by way of a debit to profit and loss account, simultaneously reducing the corresponding amount from loans and advances to debtors depicted on asset side in balance sheet at the close of the year, the assessee was entitled to deduction u/s. 36(1)(vii) of the Act and for that purpose, it was not necessary to close individual account of each of its debtors in its books. In the present case also, the assessee had written off the bad and doubtful debts and advances by debiting the P L account and also the balance sheet was prepared after considering the said written off and the debtors account has been closed by making necessary entries such as being debtors accounts set off against provision and therefore we allow the appeal filed by the assessee.

Summary

Issues:
Appeal challenging order of NFAC regarding A.Y. 2012-13 - Disallowance of provision for bad and doubtful debts, provision for doubtful advances, and additional depreciation.

Analysis:
The assessee, a company engaged in manufacturing activated carbon, filed an appeal against the order disallowing provisions for bad and doubtful debts, doubtful advances, and additional depreciation. The AO disallowed the provisions as the debts were not written off as irrecoverable and assets were used for less than 180 days. The CIT(A) accepted the additional depreciation but confirmed the disallowance of provisions. The assessee contended that the provisions were actual write-offs and relied on legal precedents. The AR presented evidence showing the write-offs in the financial statements. The DR supported the lower authorities' orders.

The Tribunal examined the financial statements and found that the assessee had written off the amounts of bad and doubtful debts and advances, closing the debtors' accounts. Despite the assessee demonstrating the write-offs, the CIT(A) did not consider the records properly. The Tribunal agreed with the assessee, citing a Supreme Court judgment that allowed deductions under section 36(1)(vii) without the need to close individual debtor accounts. The Tribunal noted that the balance sheet and records supported the write-offs, leading to the allowance of the appeal.

In conclusion, the Tribunal allowed the appeal filed by the assessee, emphasizing that the provisions for bad and doubtful debts and advances were eligible for deduction as per legal provisions and established practices. The judgment highlighted the importance of proper documentation and adherence to legal requirements in claiming such deductions.