2014 (4) TMI 782 - AT - Income Tax

Debit balance written off as bad debt Applicability of TRF. LTD. Versus COMMISSIONER OF INCOME-TAX 2010 (2) TMI 211 - SUPREME COURT Held that - The assessee has furnished the detail of the irrecoverable advances in composite amount without segregation of advances and bad debts - The CIT(A) has not discussed about the not furnishing of details by the assessee in respect of 9 units/branches - the assessee has not furnished the details by segregating the bad debts and advances treated as irrecoverable and written off during the course of assessment proceedings If the details were furnished before CIT(A) then the AO should have been given opportunity to consider the same and rebut the same if so desired. As far as the claim of bad debts regarding treating the same as irrecoverable there was no error in the order of CIT(A) while allowing the claim following TRF. LTD. Versus COMMISSIONER OF INCOME-TAX 2010 (2) TMI 211 - SUPREME COURT it is not clear from the record that how much amount out of the total claim of the assessee is regarding the advances given to the various parties and whether the advances were given during the course of business of the assessee and can be allowed as business loss, which has not been properly examined, may be for want of necessary details thus, the issue regarding claim of writing off of advances treating them as irrecoverable is remitted back to the AO for fresh adjudication Decided partly in favour of Revenue.

Summary

Issues:
1. Disallowance of bad debts and irrecoverable advances claimed by the assessee.
2. Completeness of details provided by the assessee during assessment proceedings.
3. Allowability of bad debts and advances as business loss.

Analysis:
1. The Revenue appealed against the CIT(A)'s order deleting the addition of Rs.5,34,32,152/- as bad debts and irrecoverable advances for the assessment year 2006-07. The Revenue contended that the assessee did not provide complete details of the bad debts and advances written off, and the decision to write off the amount was not bona fide. The CIT(A) relied on the Supreme Court's decision in TRF Ltd. vs. CIT (320 ITR 397) to allow the claim of the assessee.

2. The Assessing Officer (AO) found that the assessee had not furnished complete details of the bad debts and irrecoverable advances during the assessment proceedings. The AO noted that the details provided were incomplete and that the irrecoverable advances were not taken as income in earlier years. The CIT(A) deleted the addition made by the AO based on the TRF Ltd. case. The Revenue argued that the assessee made no effort to recover the debts, justifying the disallowance.

3. The assessee argued that due to the closure of various branches, it was not feasible to recover outstanding receivables, leading to the decision to write off the amount. The assessee claimed that the advances were related to its business activities and should be considered as allowable business loss. The CIT(A) supported the assessee's claim, emphasizing the business nature of the advances. However, the Tribunal found discrepancies in the details provided by the assessee and directed the AO to verify and adjudicate the claim of writing off advances as irrecoverable, requiring the assessee to furnish relevant details for proper examination.

In conclusion, the Tribunal partly allowed the Revenue's appeal, setting aside the issue of writing off advances as irrecoverable for further verification and directed the assessee to provide necessary details.