2015 (5) TMI 318 - HC - Income Tax

Disallowance of writing off of the irrecoverable advances and other debit balances claimed u/s 36(1)(vii) - ITAT allowed claim - Held that - Tribunal has deleted the addition made by the AO and not allowing the deduction in relation to the aforesaid amount as bad debts and/or it become irrecoverable. It is not in dispute that as such the assessee written off the said debt in the balance sheet. In the case of T.R.F. Ltd. (2010 (2) TMI 211 - SUPREME COURT ), the Hon'ble Supreme Court has observed and held that for claiming deduction in relation to bad debts, the assessee is only required to establish that the debt has been written off and it is necessary to establish that the debt has infact become irrecoverable. In view of the aforesaid decision of the Hon'ble Supreme Court, it cannot be said that the learned Tribunal has committed any error in deleting the addition made by the AO of which the deduction was claimed as written off and as irrecoverable in the accounts of the assessee. - Decided in favour of assessee.

Summary

Issues:
1. Disallowance of deduction in respect of writing off irrecoverable advances and debit balances under section 36(1)(vii) of the Income Tax Act, 1961.

Analysis:

Issue 1: Disallowance of deduction under section 36(1)(vii) of the Act
The case involved an appeal by the Revenue against the impugned order passed by the Income Tax Appellate Tribunal, where the Tribunal had deleted the addition made by the Assessing Officer (AO) regarding the disallowance of deduction claimed by the assessee under section 36(1)(vii) of the Income Tax Act, 1961. The AO had added back an amount of Rs. 1,58,529 to the income of the assessee, as the assessee had written off advances without justifying how the debts had become bad. The CIT(A) confirmed the addition made by the AO, stating that the amount was not in the nature of bad debts. However, the Tribunal relied on the decision of the Supreme Court in T.R.F. Ltd. v. Commissioner of Income Tax, where it was held that for claiming deduction in relation to bad debts, the assessee only needs to establish that the debt has been written off and has become irrecoverable. The Tribunal, therefore, deleted the addition of Rs. 1,58,529. The Revenue contended that the advances were not arising out of sale and, therefore, were not bad debts. However, the Court upheld the Tribunal's decision, stating that the Tribunal had not erred in deleting the addition made by the AO, as the assessee had established the debts were written off and irrecoverable, as required by the law.

In conclusion, the Court found no substantial question of law in the appeal and dismissed it, upholding the Tribunal's decision to delete the addition made by the AO regarding the disallowance of deduction in respect of writing off irrecoverable advances and debit balances claimed by the assessee under section 36(1)(vii) of the Income Tax Act, 1961.