2014 (4) TMI 198 - AT - Income Tax

Deletion of disallowance on account of bad debt AO was of the view that it is not only the requirement to write-off the amounts in the books of account but the assessee also has to establish that the debt has become bad which has not been done by the assessee. - Held that - assessee had continuously shown in its account that there were non-recoveries of dues from customers, which were earlier shown as sales in books of account, owing to shipment defaults by the assessee on account of natural calamity in form of cyclone at Kandla in the year 1998 in which the assessee suffered a huge loss of goods lying at docks and the adjacent stores - Owing to this non-fulfillment of outstanding contracts, the assessee in the passage of time decided to write off these dues in the books of account, which were earlier offered as sales - Commissioner (Appeals) has recorded a very categorical finding that in the audited accounts for the financial year 1998-99 - Findings recorded by Commissioner (Appeals) is wholly in accordance with law as laid down by Hon ble Supreme Court in TRF Limited 2010 (2) TMI 211 - SUPREME COURT and the same is confirmed - Do not find any substance in ground raised by Revenue and, accordingly, same is treated as dismissed Decided against Revenue. Bad Debt - Condition u/s 36(1)(vii) r/w 36(2) Held that - Amounts in question represented transactions made in F.Y. 1998-99 and subsequently were written off by the appellant in the books of account on account of non-recovery - Conditions of sec. 36(1)(vii) r/w section 36(2) are satisfied and the claim of the appellant as a bad debt deserves to be allowed.

Summary

Issues:
Challenge to deletion of disallowance of bad debt under section 143(3) of the Income Tax Act, 1961 for the assessment year 2006-07.

Analysis:

Issue 1: Disallowance of Bad Debt
The Revenue challenged the deletion of disallowance of Rs. 2,90,68,996 on account of bad debt by the learned Commissioner (Appeals). The Assessing Officer disallowed the claim as the assessee failed to establish that the debt had become bad, despite writing off the amount in the Profit & Loss account. However, the assessee provided detailed explanations in the notes to accounts and submitted old debtors' accounts to show the irrecoverable nature of the debts. The learned Commissioner (Appeals) accepted the evidence, citing reasonable cause due to the main partner's ill health, and allowed the claim based on the conditions of section 36(1)(vii) r/w section 36(2) and the decision in TRF Limited v/s CIT. The Revenue's objection regarding the previous year of the claimed amount was deemed untenable, and the disallowance was deleted.

Issue 2: Judicial Review
The Appellate Tribunal confirmed the learned Commissioner (Appeals)'s findings, emphasizing the audited accounts for the financial year 1998-99, which detailed the invoices and the impact of the cyclone at Kandla, leading to the write-off of bad debts. The Tribunal noted the pending proceedings before the Debt Recovery Tribunal, which prevented earlier write-offs. The Tribunal upheld the decision based on the Supreme Court precedent and found no merit in the Revenue's appeal, ultimately dismissing it.

In conclusion, the Appellate Tribunal upheld the allowance of bad debt by the learned Commissioner (Appeals) for the assessment year 2006-07, emphasizing the detailed explanations provided by the assessee and the legal compliance with relevant provisions and judicial precedents.