2012 (10) TMI 815 - AT - Income Tax

Disallowance of Bad debts - Held that - No infirmity in the order of CIT(A) in allowing the claim as after the assessment of section 36(1)(vii) w.e.f. 01.04.1989, in order to obtain a deduction in relation to bad debts, it is not necessary for the assessee to establish that the debt, in fact has become irrecoverable. It is enough of the bad debt is written off as irrecoverable in the accounts of the assessee as decided in TRF Ltd. vs CIT 2010 (2) TMI 211 - SUPREME COURT . Bad debt should be allowed in the year of write off - in favour of assessee.

Summary

Issues:
1. Deletion of addition made by the Assessing Officer on account of bad debt claim.
2. Allowability of bad debt as business expenditure.
3. Failure of the assessee to discharge onus in the form of documentary evidence.
4. Applicability of the judgement of the Hon'ble Supreme Court in TRF Ltd. vs CIT case.
5. Dismissal of the appeal by the Revenue.

Analysis:
The appeal before the Appellate Tribunal ITAT, Delhi involved the deletion of an addition made by the Assessing Officer regarding a bad debt claim by a Partnership firm engaged in the business of manufacturing and export of garments for the Assessment Year 2007-08. The Assessing Officer had determined the income of the assessee at Rs.1,25,306/-, while the assessee had declared a loss of Rs.15,69,595/-. The specific issue was the disallowance of an amount of Rs.13,54,284/- claimed as bad debt recoverable from AEPC and its allowance as business expenditure.

Despite the absence of the assessee during the proceedings, the Appellate Tribunal considered the facts of the case. The assessee had to make a deposit with AEPC to obtain an export quota, and in case of non-utilization, the deposit would be forfeited. The assessee claimed the amount as bad debt, which the Assessing Officer disallowed due to lack of documentary evidence and the debt being from an earlier year. However, the First Appellate Authority allowed the claim based on the judgement of the Hon'ble Supreme Court in TRF Ltd. vs CIT case, which stated that bad debts should be allowed in the year of write-off after an amendment to the Income Tax Act, 1961.

The Appellate Tribunal found no fault in the order of the Commissioner of Income Tax (Appeals) as the assessee had produced letters from AEPC as evidence of the forfeiture of the deposit. The Tribunal noted that the Supreme Court's decision supported allowing bad debts in the year of write-off. Consequently, the appeal by the Revenue was dismissed, upholding the decision to allow the bad debt claim as business expenditure for the assessee. The judgement was pronounced in open court on 12th October 2012, with the appeal by the Revenue being dismissed in its entirety.