2016 (5) TMI 708 - AT - Income Tax

Sundry balances written off - AO disallowed the same on the ground that assessee could not establish the genuineness of the amount written off - CIT(A) allowed the claim relying on the decision of Hon ble Supreme Court in the case of TRF Ltd. 2010 (2) TMI 211 - SUPREME COURT - Held that - Held that - No infirmity in the order of the CIT(A). We find before CIT(A) the assessee had submitted that the amounts were taken into account while computing the profit of earlier year. In the assessment order although the AO has asked the assessee to prove the genuineness of the claim of bad debt, he has never put any question regarding taking of the amounts written off as bad debt as income of earlier years. Therefore, the grounds raised by the revenue at this juncture on the issue of taking the amount as income in preceding years in our opinion is without any merit. Nothing has been brought on record by the revenue that assessee has not taken into consideration the said amounts in the income of the preceding assessment order. Since the assessee in the profit and loss account has written off the amount, therefore, in view of the decision of Hon ble Supreme Court in the case of TRF Ltd. (Supra) assessee is not required to establish that the debt has become irrecoverable. Therefore, the Ld.CIT(A) is justified in deleting the disallowance. - Decided against revenue

Summary

Issues:
1. Allowance of sundry balances written off without submission of bad debts details.
2. Justification of allowing sundry balances written off without proof of debts being offered to tax in earlier years.

Analysis:
1. The appeal was filed by the revenue against the order of the CIT(A)-V, Pune for Assessment Year 2004-05, questioning the allowance of sundry balances written off by the assessee without submitting details of bad debts. The AO disallowed the amount as the genuineness of the write-off was not established by the assessee, who only provided a narration of expenses without documentary evidence.
2. The CIT(A) allowed the write-off based on the decision of the Supreme Court in TRF Ltd. Vs. CIT, stating that mere writing off of debts in the books suffices without further evidence. The revenue contended that the assessee failed to prove the debts were considered in earlier profits and lacked evidence of recovery efforts.
3. The Departmental Representative argued that statutory evidence of bad debts is not a formality, citing a Tribunal decision. They referenced a Madras High Court case requiring proof of debtors' financial inability to pay. The assessee's counsel relied on TRF Ltd., asserting that post-1989, establishing debt irrecoverability is unnecessary if written off. They distinguished cases cited by the revenue.
4. The tribunal upheld the CIT(A)'s decision, noting the assessee's claim was based on debts taken into account in prior profits. The AO's failure to question earlier income treatment rendered the revenue's argument baseless. The tribunal found the CIT(A) justified in deleting the disallowance based on TRF Ltd., dismissing the revenue's grounds and upholding the decision.

This judgment clarifies the legal standards for allowing write-offs as bad debts, emphasizing the importance of proper accounting treatment and adherence to established legal precedents.