2016 (10) TMI 159 - AT - Income Tax

Allowability of deduction on account of write off of bad debts - Held that - Section 36(2)(i) of the Act allows deduction on account of satisfaction of any of one of the two conditions; namely (a) bad debts or part thereof taken into account in computing the income of the assessee for an earlier assessment year before such date or part thereof is written off or (b) the debts represents money lend in the ordinary course of business of bank or money lending which is carried on by the assessee. Therefore even if one of the two conditions of section 36(2)(i) is satisfied, then bad debts claimed u/s.36(1)(vii) has to be allowed. So far as first part of section 36(2)(i) of the Act is concerned, in the present case it is assessee s submission that the amount of ₹ 5,13,088/- represents the sale of waste and scrap which was credited to the P&L A/c. in the year of sale. We find that no details of the year of sale has been furnished by the assessee either before AO or ld.CIT(A) or before us. Assessee has merely made a submission that the amount represents sale. Similarly, as far as the assessee s claim of having given advance payment for purchase of raw-material of ₹ 11,56,495/- is concerned, no details of the same have been furnished by the assessee. Further, in the present case, assessee has not furnished details in support of its contention of having fulfilled the conditions specified u/s.36 of the Act for claiming deduction. We find that Hon ble Supreme Court in the case of TRF Ltd.(2010 (2) TMI 211 - SUPREME COURT ), has observed that after the amendment of section 36(1)(vii) w.e.f. 01/04/1989 in order to obtain a deduction in relation to bad debts, it is not necessary for the assessee to establish that the debt in fact has become irrecoverable and it is enough if the bad debts written off as irrecoverable in the accounts of the assessee In the present case, we are of the view that in the interest of justice, the assessee be granted one more opportunity to place on record about the satisfaction of the required conditions for claiming deduction of write off . We therefore restore the issue to the file of AO to decide the issue afresh - Decided in favour of assessee for statistical purposes.

Summary

Issues involved: Allowability of deduction on account of 'write off' of bad debts under Section 36(2)(i) of the Income Tax Act, 1961 for Assessment Year 2008-09.

Detailed Analysis:

1. Background and Assessment: The appellant, a proprietor of a business, filed a return of income for AY 2008-09, which was selected for scrutiny. The assessment framed by the AO resulted in a higher total income determination, leading to an appeal before the CIT(A) and subsequently before the ITAT. The primary issue revolved around the disallowance of a claimed amount under 'balances written off.'

2. AO's Disallowance: The AO disallowed the claim of balance written off by the appellant due to various reasons, including lack of evidence for the write-off, inconsistencies in the ledger balances, and evidence of money received contrary to the claim. The AO's decision was based on the absence of proof that the amounts written off were debtors and the lack of efforts to recover the debts.

3. CIT(A)'s Decision: The CIT(A) upheld the AO's decision, emphasizing the appellant's failure to substantiate the sales and advances related to the written-off amounts. The CIT(A) concluded that the provisions of Section 36(2) were not satisfied, leading to the confirmation of the disallowance.

4. Appellant's Grounds: The appellant, in its appeal before the ITAT, contended that the disallowed amount included a component eligible for deduction under Section 36(1)(vii) as bad debts. The appellant argued that the sales of waste and scrap and advances for raw materials constituted the written-off amounts, citing a relevant Supreme Court decision in support of its claim.

5. ITAT's Decision: The ITAT, after considering the submissions and evidence, found that the appellant had not adequately supported its claims before the lower authorities or the ITAT. The ITAT noted the lack of details regarding the sales and advances claimed as bad debts. However, in the interest of justice, the ITAT granted the appellant another opportunity to provide necessary details and evidence to support the deduction claim under Section 36(2)(i). The matter was remanded to the AO for fresh consideration in line with the Supreme Court decision cited by the appellant.

6. Conclusion: The ITAT allowed the appellant's appeal for statistical purposes, emphasizing the need for the appellant to furnish all required details to substantiate the claim of bad debts write-off. The ITAT's decision highlighted the importance of meeting the conditions specified under the Income Tax Act for claiming such deductions, ensuring a fair and just resolution of the dispute.

This detailed analysis encapsulates the key aspects of the legal judgment, outlining the progression of the case from the AO's disallowance to the ITAT's decision to grant the appellant another opportunity to support its deduction claim effectively.