2017 (4) TMI 956 - AT - Income Tax

Claim of bad debts - D.R submitted that there is no evidence produced by the assessee to the fact that bad debts written off in earlier years were offered for taxation in the computation of income of those years - Held that - We find force in the argument of ld.D.R When originally assessee passed the entry as above, the assessee cannot claim deduction as it is only of provisions for bad and doubtful debts. When the assessee has actually written off debts by crediting the individual account by reversing the provisions, the assessee can claim bad debts, though it was not routed through P&L A/c in assessment year under consideration as that was already over, in earlier A.Y, when the bad debts written off through provisions of bad and doubtful and offered to taxation in earlier year adding the same to income. Hence, with this observation, we remit the issue to the file of AO to examine whether the assessee has offered for taxation the provisions made in earlier year to taxation by adding the same to the income of assessee in computation of income for the relevant to assessment year. Hence, this ground raised by Revenue is allowed for statistical purposes.

Issues:
1. Allowance of bad debts in the computation of income without routing through P&L account.
2. Failure to provide evidence of bad debts being offered for taxation in earlier years.
3. Interpretation of CBDT Circular 12/2016 regarding conditions for bad debt write-offs.

Analysis:
1. The appeal concerned the allowance of bad debts by the assessee in the computation of income without routing them through the Profit & Loss (P&L) account. The Revenue contended that the bad debts were not routed through the P&L account, leading to the disallowance of the claim by the Assessing Officer. The Commissioner of Income-tax (Appeals) allowed the claim, citing the CBDT Circular 12/2016. The Tribunal considered the consistent method followed by the assessee in accounting for bad debts and referred to a Mumbai Tribunal case to support the claim. The Tribunal held that there was no double deduction claimed and accepted the claim of the assessee, emphasizing the absence of double taxation concerns.

2. The Revenue argued that the assessee failed to furnish evidence that bad debts written off in earlier years were offered for taxation. The Tribunal acknowledged this argument, noting that while provisions for bad debts were made in earlier years, the actual write-off occurred in the assessment year under consideration. The Tribunal remitted the issue to the Assessing Officer to verify if the provisions made in earlier years were added to the income for taxation, indicating a requirement for such evidence to support the claim of bad debts.

3. The Tribunal also addressed the interpretation of CBDT Circular 12/2016, emphasizing the conditions under Section 36 for bad debt write-offs. The Tribunal referred to the Supreme Court's decision and the Circular's requirements, highlighting the need for satisfying the conditions under subsection (2) of Section 36. The Tribunal's analysis focused on ensuring that the bad debts written off were taken into account in computing the income of previous or earlier years, as per the legal provisions and circular guidelines.

In conclusion, the Tribunal allowed the appeal of the Revenue for statistical purposes, remitting the issue of evidence regarding the taxation of provisions made in earlier years back to the Assessing Officer for verification. The judgment provided a detailed analysis of the legal aspects surrounding the allowance of bad debts in the computation of income, emphasizing the need for adherence to accounting principles and tax regulations in such matters.

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