2015 (10) TMI 1874 - AT - Income Tax

Disallowance of advances given to transporters - whether it is provision and not actual written off in books of account though advances given during the normal course of business? - Held that - It is an undisputed fact that during the year under consideration, the Assessee had debited a sum under the head provision for bad debts and had claimed it as deduction. It is also an undisputed fact that the amount were not written off in the books of accounts in the year under consideration. According to Section 36(1)(vii), the Assessee can claim deduction of the amount of any bad debt or part thereof only of the portion which is written off as irrecoverable in the accounts of the Assessee subject to provisions of Section 36(2) of the Act. In the present case, since the Assessee has not written off the amount in the books of accounts, we are of the view that the amount was rightly disallowed by A.O and therefore find no reason to interfere with the order of ld. CIT(A). With respect to allowing the deduction in subsequent years, Before us, ld. A.R. has submitted that the amount which were claimed as provision for bad debts were in fact have been written off in subsequent years and in subsequent year, when the same have been written off in A.Y. 08-09, Assessee has not claimed the deduction in A.Y. 08-09 and therefore Assessee should not be denied the claim altogether. The aforesaid submission of the Assessee needs a factual verification. We therefore restore the issue back to the file of A.O and direct him to consider the allowability of deduction of bad debts on the facts and circumstances of the case and in accordance with law. - Decided in favour of assessee for statistical purposes.

Summary

Issues:
1. Disallowance of advances given to transporters as bad debts.

Analysis:
The appeal pertains to the disallowance of advances given to transporters amounting to Rs. 3,74,860 by the Assessing Officer (A.O) under the head "provisions for bad debts." The Assessee, engaged in transportation business, claimed that the advances were a normal practice in the industry. However, the A.O disallowed the claim as the advances were not adjusted against final bills and no steps were taken to recover them. The Commissioner (Appeal) upheld the disallowance, stating that unless the debt is admitted, write-off as bad debts is not allowed. The Assessee argued that the provision for bad advances was made as the advances were not recoverable, even though not written off in the books. The Tribunal held that as per Section 36(1)(vii), deduction for bad debts is allowed only if written off as irrecoverable in the accounts, which was not done in this case. The Tribunal directed the A.O to verify the Assessee's claim that the advances were written off in subsequent years and consider the allowability of deduction accordingly, providing an opportunity for the Assessee to submit necessary details.

In conclusion, the Tribunal allowed the Assessee's appeal for statistical purposes, directing the A.O to re-examine the allowability of deduction for bad debts based on the facts and circumstances of the case and in accordance with the law. The Assessee was instructed to provide all required details promptly, and the A.O was mandated to grant a fair hearing to the Assessee.