2013 (6) TMI 403 - AT - Income Tax

Write off the bad debts disallowed - CIT(A) held assessee eligible for deduction under section 36(1)(vii) - Held that - The write off has been effected after following well laid down procedure for recovery at various levels in the organisation. Borrowers had also been given facility of re-schedulement which was objected by some of them and the write off was effected only when the borrowers failed in terms of re- schedulement of loans. However, where any amount was recovered subsequently against bad debts written off, the same has been offered as income by the assessee and tax has also been paid. Taking into account the number of borrowers who are about 28034 and also the fact that the borrowers are poor women with low level of literacy, assessee tried his best for recovery by issuing a public notice and other methods appropriate in the circumstances of the case. Thus remit the issue to the file of AO to verify whether write off of bad debts has been with respect to the individual accounts of the assessee s borrowers and after verification the AO shall decide the issue in accordance with law, after giving a reasonable opportunity of being heard to the assessee - appeal of the Revenue is allowed for statistical purposes.

Summary

Issues:
1. Delay in filing the appeal by the Revenue.
2. Disallowance of bad debts claimed by the assessee for A.Y. 2008-2009.
3. Eligibility of the assessee for deduction under section 36(1)(vii) of the I.T. Act, 1961.
4. Grounds raised by the Revenue against the Order of the CIT(A).
5. Verification of write off of bad debts in individual accounts of borrowers.

Issue 1: Delay in filing the appeal by the Revenue
The appeal was filed with a delay of 9 days, and the learned D.R. filed an affidavit seeking condonation of the delay. The Tribunal was satisfied with the reasons provided and thus condoned the delay.

Issue 2: Disallowance of bad debts claimed by the assessee for A.Y. 2008-2009
The assessee had claimed a write-off of Rs. 8,72,26,925 as bad debts for the assessment year 2008-2009. The Assessing Officer disallowed the claim, stating that the majority of loans were not related to the relevant financial year. The assessee argued that the write-off was based on the age of the loan and provided details on the micro-finance services undertaken. The CIT(A) allowed the claim under section 36(1)(vii) of the I.T. Act, 1961.

Issue 3: Eligibility of the assessee for deduction under section 36(1)(vii) of the I.T. Act, 1961
The learned Counsel for the assessee argued that the write-off of bad debts was within the limits prescribed under section 36(1)(vii) and relied on a Supreme Court decision to support the claim. The CIT(A) held that the assessee was eligible for the deduction and allowed the claim.

Issue 4: Grounds raised by the Revenue against the Order of the CIT(A)
The Revenue raised grounds challenging the CIT(A)'s decision, including the failure to write off bad debts in the books of account and the disallowance of social development and security expenses. The Tribunal noted that some grounds were general and required no adjudication.

Issue 5: Verification of write off of bad debts in individual accounts of borrowers
The Tribunal remitted the issue to the Assessing Officer to verify whether the write-off of bad debts was done with respect to individual borrower accounts. The verification was to be conducted in accordance with the law, giving the assessee a reasonable opportunity to be heard.

In conclusion, the appeal of the Revenue was allowed for statistical purposes, and the Tribunal pronounced the order on June 7, 2013.