2014 (7) TMI 1063 - AT - Income Tax

Claim of bad debts - Held that - CIT(A) was rightly of the view that the Chartered Accountant has given a certificate mentioning that all the bad debts written off are relating to trade of the Company and income referring to those has been offered for tax in earlier years and impugned debts have been written off in the year Relying upon TRF. LTD. Versus COMMISSIONER OF INCOME-TAX 2010 (2) TMI 211 - SUPREME COURT - after the amendment of section 36(1)(vii) of the Income tax Act, 1961, with effect from April 1, 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 Decided against Revenue. Prior paid expenses Held that - CIT(A) rightly of the view that the assessee rightly submitted that out of ₹ 4.8 lacs, ₹ 1,690,585/- relate to purchases of components, the same entering the stocks during the year upon the purchases made, cannot be considered as disallowable prior period expenses and there is another identical amount ₹ 90,134/- of Courrier DHL Worldwide, which amount had been in dispute was ultimately settled towards the end of the year and considered as expenditure upon settlement and payment and can be considered as occurring only during the year the order of the CIT(A) is upheld Decided against Revenue.

Summary

Issues:
1. Disallowance of bad debts
2. Disallowance of prior period expenses

Analysis:
1. Disallowance of Bad Debts:
The Revenue appealed against the deletion of disallowance of bad debts amounting to Rs. 10,77,651 made by the Assessing Officer (AO). The argument focused on whether the bad debts were genuinely irrecoverable. The appellant cited a High Court judgment, which was countered by the respondent referencing a Supreme Court ruling in TRF Ltd. vs. CIT. The ITAT, after reviewing the facts and submissions, upheld the decision of the ld.CIT(A) based on the TRF Ltd. case. The ITAT emphasized that post the amendment of section 36(1)(vii) of the Income Tax Act, establishing the irrecoverability of the debt was not necessary; it was sufficient if the bad debt was written off in the accounts. The ITAT rejected the Revenue's appeal on this ground.

2. Disallowance of Prior Period Expenses:
The second issue concerned the deletion of disallowance of Rs. 2,50,719 out of a total disallowance of Rs. 4,80,020 on prior period expenses. The appellant argued for the full disallowance, while the respondent supported the decision of the ld.CIT(A). The ITAT noted that the ld.CIT(A) had provided a detailed finding, which was not challenged by the Revenue with any contradictory evidence. The ITAT upheld the decision of the ld.CIT(A) regarding the specific components of expenses and settled amounts, leading to the partial allowance of the ground. Consequently, the ITAT rejected the Revenue's appeal on this issue as well.

3. General Grounds:
The remaining grounds of appeal were of a general nature and did not require separate adjudication. The ITAT dismissed these grounds without further elaboration.

In conclusion, the ITAT upheld the decisions of the ld.CIT(A) regarding the disallowance of bad debts and prior period expenses, ultimately dismissing the Revenue's appeal.