2017 (4) TMI 724 - AT - Income Tax

Allowability of the bad debt claim - whether CIT(A) erred in allowing relief to the assessee after admitting the additional evidence under rule 46A ? - Held that - In the present case, the claim of the assessee is that that assessee has executed an agreement to purchase the land on 12/06/2008 by giving advance amount of Rs. One crore and ultimately the sale deed could not be executed and therefore the assessee has claimed the loss of earnest money as bad debt.We do not find any infirmity in the order of the Ld. CIT appeal with respect to admission of the additional evidences in the form of agreement which assessee could not submit before the Ld. assessing officer. - Decided against revenue. Apparently assessee is neither a moneylender no engaged in the banking business therefore unless such debt has been taken into account in computing the income of the assessee of the previous year in which the amount of such debt or part thereof his return of all of an earlier previous year the claim of the assessee prima facie is not sustainable. Further, more if it is a business loss it shall be allowed to the assessee in terms of provisions of section 28 of the income tax act. Such losses are liable if it arises during the course of business and it has been incurred in the year in which it is claimed. On perusal of the order of the Ld. CIT appeal, we could not find that the claim of the assessee is examined on these aspects. Therefore we set aside ground No. 1 and 2 of the appeal of the revenue back to the file of the Ld. CIT (A) to decide the issue of afresh after affording opportunity of hearing to the assessee and if need arises to the Ld. assessing officer also. In the result ground No. 1 of the appeal of the revenue is allowed with above direction.

Summary

Issues Involved:
Allowability of bad debt claim of Rs. One crore.

Detailed Analysis:

Issue 1: Allowability of Bad Debt Claim
The assessee, a real estate and construction company, filed its return of income showing income of Rs. 3,549,4475 for the Assessment Year 2010-11. During assessment proceedings, it was noted that the company claimed bad debt of Rs. One crore, which was the advance amount for a land purchase agreement that could not be executed, resulting in the forfeiture of the earnest money. The assessing officer disallowed the claim as the agreement was not submitted. The CIT (A) allowed the claim, leading to the revenue's appeal. The main contention was whether the advance forfeiture constitutes a bad debt under Section 36(1)(vii) of the Income Tax Act. The revenue argued that it was a business loss, not a bad debt, and the CIT (A) erred in allowing the claim without considering the distinct conditions for a bad debt. The Tribunal noted that the agreement supporting the transaction was crucial evidence, admitted under Rule 46A, and upheld the CIT (A)'s decision to delete the addition based on the evidence provided.

Analysis of the Judgment:
The Tribunal found no infirmity in admitting the additional evidence of the agreement, which the assessee could not submit before the assessing officer. Regarding the bad debt claim, the Tribunal observed that the assessee's claim did not meet the conditions of Section 36(1)(vii) as it was not taken into account in computing previous year income and was not related to money-lending or banking activities. The Tribunal directed the issue back to the CIT (A) for fresh consideration, emphasizing the need to examine the claim in light of the provisions of Section 28 of the Income Tax Act regarding business losses. The Tribunal partially allowed the revenue's appeal for statistical purposes, setting aside the CIT (A)'s decision on the bad debt claim for further review.

In conclusion, the Tribunal's judgment focused on the allowability of the bad debt claim, highlighting the importance of meeting statutory provisions and considering the nature of the transaction in determining the deductibility of such claims under the Income Tax Act. The decision underscored the significance of providing relevant evidence and ensuring proper examination of claims to uphold the integrity of tax assessments.