2015 (10) TMI 1420 - AT - Income Tax

Disallowance of bad debt u/s 36(1)(vii) read with section 36(2) - assessee contented that the amount was actually written off in its books of accounts, therefore, in view of the decision in T.R.F. Ltd. vs CIT (2010 (2) TMI 211 - SUPREME COURT) the claim of the assessee has to be allowed - Held that - If the observation made in the assessment order, leading to addition made to the total income, conclusion drawn in the impugned order, material available on record, assertions made by the ld. respective counsel, if kept in juxtaposition and analyzed, we note that after 01/04/1989, it is not necessary for the assessee to establish that debt, in fact, has become irrecoverable, it is enough, if bad debt is written off as irrecoverable in the accounts of the assessee as was held in T.R.F. Ltd. vs CIT supra The fact of amendment to section 36(1)(vii) read with section 36(2) is only that now for claiming deduction u/s 36(1)(vii) mere writing off debt or part thereof as irrecoverable is a substantial compliance. Our view is further supported by the decision in CIT vs Kohli Brothers Color Lab Pvt. Ltd. (2009 (11) TMI 3 - ALLAHABAD HIGH COURT ) and CIT vs Smt. Nilopher I. Singh (2008 (8) TMI 165 - DELHI HIGH COURT ) . In view of the aforementioned judicial pronouncements, the claim of the assessee is allowed - Decided in favour of assessee.

Summary

Issues:
1. Disallowance of bad debt claimed under section 36(1)(vii) of the Income Tax Act, 1961.

Analysis:
The Appellate Tribunal, ITAT Mumbai, heard the appeal of the assessee against the order of the First Appellate Authority. The counsel for the assessee did not press one ground related to deduction under section 10A, which was subsequently dismissed. The main contention revolved around the disallowance of Rs. 61,91,965 claimed as bad debt under section 36(1)(vii) of the Act. The assessee argued that the amount was genuinely written off in its books, citing the decision in T.R.F. Ltd. vs CIT. On the contrary, the Departmental Representative contended that the transaction was a means to reduce tax liability. The Tribunal examined the facts, noting that the debt was written off by the assessee, engaged in developing graphic animation images. The Assessing Officer had denied the claim, stating it was related to the parent company, a 100% subsidiary of the debtor, and not a bona fide commercial decision. The Commissioner of Income Tax (Appeals) upheld this decision, leading to the appeal before the Tribunal.

Upon analysis of the assessment order, impugned order, and arguments of both counsels, the Tribunal observed that post-April 1989, it was not necessary to prove irrecoverability of a debt; writing it off in the accounts was sufficient, as per established legal precedents. The Tribunal referenced various cases, including T.R.F. Ltd. vs CIT, CIT vs Auto Meters Ltd., and others, to support its conclusion that the mere writing off of a debt as irrecoverable was a substantial compliance for claiming deduction under section 36(1)(vii). The Tribunal also cited judgments like CIT vs Kohli Brothers Color Lab Pvt. Ltd. and CIT vs Smt. Nilopher I. Singh to strengthen its decision. Consequently, the Tribunal allowed the claim of the assessee, partially allowing the appeal.

In conclusion, the Tribunal pronounced the order in the presence of representatives from both sides, allowing the ground related to bad debt claimed under section 36(1)(vii) of the Income Tax Act, 1961, based on the legal principles and precedents discussed during the proceedings.