2015 (6) TMI 842 - AT - Income Tax

Disallowance made on account of bad debt written off account - CIT(A) allowed part claim - Held that - No infirmity in the order of the ld.CIT(A) as he has given a finding on fact that the condition has envisaged u/s.36(1)(vii) of the Act is not complied with by the assessee and the finding of the ld.CIT(A) on fact is not controverted by the assessee by placing any material contrary on record suggesting that the conditions for writing off has been fulfilled. Therefore, in our considered view, the judgement of of TRF Ltd. vs. CIT (2010 (2) TMI 211 - SUPREME COURT) as relied upon by the ld.counsel for the assessee would not help to the assessee. Under these facts, we see no reason to take a different view than taken by the ld.CIT(A). - Decided against assessee.

Issues:
1. Disallowance of bad debts in the case of Reliance Industries Ltd.
2. Interpretation of the expression "Write-Off" in the context of bad debts.
3. Timing of writing off accounts during the year.
4. Disallowance of accounts written off in party's accounts.
5. Applicability of the decision in the case of TRF Ltd.
6. Transfer of bad debts to sundry balances written off account.
7. Compliance with conditions for allowance of bad debts.
8. Adjudication of general ground in nature.

Issue 1: Disallowance of Bad Debts - Reliance Industries Ltd.
The appeal involved the disallowance of bad debts in the case of Reliance Industries Ltd. The assessee argued that once a debt is written off as irrecoverable in its accounts, it should be allowed as a bad debt under Section 36(1)(vii) of the Income Tax Act, citing the judgment in TRF Ltd. vs. CIT. The Commissioner of Income Tax (Appeals) partially allowed the appeal, restricting the disallowance amount. However, the tribunal found that the condition for writing off bad debts was not fulfilled as per the provisions of the Act, leading to the rejection of the appeal.

Issue 2: Interpretation of "Write-Off" for Bad Debts
The expression "Write-Off" was analyzed in the context of bad debts. The tribunal examined whether the debts were properly written off as irrecoverable in the accounts, as required by law. The tribunal referred to the dictionary definition of "write off" as transferring the balance of an account previously considered an asset to an expense or profit and loss account. It was observed that the balance of the debts in question was not transferred to the sundry balance written off account, indicating non-compliance with the write-off condition.

Issue 3: Timing of Writing Off Accounts
There was an objection raised regarding the timing of writing off accounts during the year instead of at the year-end. The tribunal considered this objection but ultimately focused on the fulfillment of conditions for writing off bad debts as per the Act, rather than the timing of the write-off process.

Issue 4: Disallowance of Accounts Written Off
The tribunal addressed the disallowance of accounts aggregating a specific amount that were actually written off in the party's accounts but were wrongly clubbed and transferred to sundry balances written off. The tribunal examined the correctness of the accounts and the transfer process, emphasizing the need for compliance with the prescribed procedures for bad debt write-offs.

Issue 5: Applicability of TRF Ltd. Decision
The tribunal evaluated the applicability of the TRF Ltd. decision cited by the assessee to support the allowance of bad debts. While acknowledging the judgment, the tribunal emphasized the importance of fulfilling the conditions for bad debt write-offs as specified in the Act. The tribunal found no reason to deviate from the Commissioner's decision based on the facts presented.

Issue 6: Transfer of Bad Debts
The tribunal scrutinized the transfer of bad debts to the sundry balances written off account and highlighted discrepancies in the accounts where balances were incorrectly clubbed. The tribunal emphasized the need for accurate recording and transfer of bad debts to ensure compliance with the legal requirements for claiming bad debt allowances.

Issue 7: Compliance with Conditions for Bad Debts
The tribunal focused on the conditions outlined in Section 36(1)(vii) for the allowance of bad debts, emphasizing the sequential fulfillment of these conditions. The tribunal referred to case law and legal provisions to assess whether the assessee had met the criteria for claiming bad debt write-offs. Non-compliance with the conditions led to the rejection of the appeal.

The judgment addressed various issues related to the disallowance of bad debts, interpretation of write-off criteria, timing of account write-offs, and compliance with legal provisions. The tribunal relied on case law, legal definitions, and factual assessments to determine the eligibility of the assessee for claiming bad debt allowances. Ultimately, the appeal was dismissed based on non-compliance with the prescribed conditions for writing off bad debts.

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