2014 (2) TMI 372 - AT - Income Tax

Bad debts written off - Held that - Relying upon the decision in TRF Ltd. vs. CIT 2010 (2) TMI 211 - SUPREME COURT - As per the amendment to Section 36(1)(vii) of the IT Act, 1961 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 if the bad debt is written off as irrecoverable in the accounts of the assessee - The issue has been restored for fresh adjudication.

Summary

Issues:
1. Challenge to the order passed by Ld. CIT(A) under section 250(6) on the grounds of being bad in law, wrong on facts, and against natural justice.
2. Disallowance of a sum claimed as bad debts written off by the appellant company under section 36(2) of the Income Tax Act for Assessment Year 2008-09.

Issue 1: Challenge to Ld. CIT(A) Order
The appellant challenged the order passed by Ld. CIT(A) under section 250(6) for Assessment Year 2008-09, contending that it was bad in law, wrong on facts, and against the principles of natural justice. The appellant raised concerns regarding the confirmation of disallowance of a substantial sum claimed as bad debts written off, arguing that necessary documents were filed during appellate proceedings, but additional evidence was not accepted by Ld. CIT(A) citing insufficient cause. The appellant cited a decision of the Hon'ble Delhi High Court emphasizing the acceptance of crucial additional evidence for appeal disposal. Furthermore, the appellant provided various evidences, including ledger accounts of parties with written-off balances, to support the genuineness of the bad debts claimed. The appellant also highlighted that certain parties denying transactions were based on outdated dealings, and the non-receipt of notices under section 133(6) did not signify lack of genuineness. The appellant argued that disallowance was based on conjectures and surmises without a precondition stipulated in section 36(2) of the Income Tax Act.

Issue 2: Disallowance of Bad Debts
The Assessing Officer disallowed a substantial sum claimed as bad debts written off by the appellant company under section 36(2) for Assessment Year 2008-09. The disallowance was based on inquiries revealing denials of business transactions by certain parties, raising doubts about the genuineness of the bad debts claimed. Notably, parties like Farmat India Ltd., Himani Alloys, Raipur Alloys, S.K. Carbon, and Hi-tech Trade denied any business dealings with the appellant, while others admitted transactions and confirmed balances due. The Assessing Officer questioned the rationale behind writing off amounts when parties admitted liabilities without denial. The appellant's inability to provide convincing explanations for the write-offs, coupled with a lack of identification of transactions written off as bad debts, led to the disallowance under section 36(2) of the Act. During appellate proceedings, the appellant's application for additional evidence was rejected, and the Ld. CIT(A) upheld the disallowance citing non-fulfillment of section 36(2) provisions and lack of bonafide write-offs. The Ld. CIT(A) emphasized the necessity of proving the bonafide nature of bad debt write-offs, as established by judicial precedents. The appellant's failure to establish the conditions prescribed in section 36(i)(vii) read with section 36(2) led to the dismissal of the appeal on this ground.

In conclusion, the appellate tribunal remanded the matter to the Assessing Officer for fresh consideration in light of the Supreme Court decision in 'TRF Ltd. vs. CIT', emphasizing that write-off as irrecoverable in the accounts is sufficient for claiming bad debts deduction. The appellant was directed to cooperate in the remand proceedings. The appeal was treated as allowed for statistical purposes, providing an opportunity for the appellant to present their case afresh before the Assessing Officer.