2020 (4) TMI 856 - AT - Income Tax

Disallowance of bad debts written off - assessee is in the business of advertising and had written off against irrecoverable debts - HELD THAT - As per section 36(2)(i) in order to claim deduction under section 36(1)(vii) of the Act, the precondition is that the debt or part thereof should have 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 is written off or of an earlier previous years - Assessee has already provided the details of the year in which the revenue pertaining to bad debts were offered to tax before the authorities below. We also note that the Central Board of Direct Taxes ('the CBDT') vide Circular No. 551 dated 23 January 1990 has provided that bad debt written off is allowed as deduction in the year in which it is written off as irrecoverable in the account. Assessee would be entitled to deduction of the impugned dad debt written off during the year under consideration. Further, we note that the issue as to whether the assessee is required to justify the writing off the debts in the books of accounts as bad in the year has now been settled and decided in the case of TRF limited v. CIT 2010 (2) TMI 211 - SUPREME COURT wherein it has been held that it is not necessary for the assessee to establish that the debt, in fact, has become irrecoverable and the accounting entry for write off is sufficient to claim the deduction for bad debts - Claim of bad debt actually written off in the books of the assessee should be allowed as deduction and, therefore, we allow the appeal of the assessee. Credit of TDS short granted - HELD THAT - We are of the considered opinion that this factual issue needs to be verified by AO and if the credit of TDS has not been given to the assessee then it should be given in accordance to law.

Summary

Issues Involved:
1. Disallowance of bad debts written off amounting to ?40,78,373/-
2. Non-allowance of credit of TDS amounting to ?2,12,475/-

Detailed Analysis:

Disallowance of Bad Debts Written Off:

Facts and Background:
The assessee filed a return of income declaring ?3,97,40,564/-. The case was scrutinized, and the total income was determined at ?18,27,37,175/-, later revised to ?4,51,62,359/-. The Principal Commissioner of Income Tax (Pr. CIT) found that the Assessing Officer (AO) had not examined the assessee's claim for provision of doubtful debts amounting to ?40,78,373/-. Consequently, the Pr. CIT set aside the assessment order for re-examination.

Reassessment Proceedings:
During reassessment, the AO observed that the assessee had claimed "provision for doubtful debts written back" amounting to ?71,25,039/-, but only ?30,46,666/- was accounted for, leaving ?40,78,373/- unexamined. The AO issued notices under Section 133(6) of the Income Tax Act to six parties, which were returned undelivered. Consequently, the AO disallowed the claim, treating the debts as bogus.

CIT(A) Decision:
The CIT(A) upheld the AO's disallowance, stating that the assessee failed to establish the genuineness of the debtors and did not provide sufficient evidence to show that the bad debts were offered as income in previous years.

Tribunal's Analysis:
The Tribunal noted that the assessee is in the advertising business and had written off ?40,47,791/- as irrecoverable debts. The Tribunal emphasized that the assessee had provided a detailed list of 41 debtors, including their addresses and the years in which the debts were recognized as income. The AO had randomly selected six debtors for verification, and the inability to serve notices to these six debtors could not justify disbelieving the existence of all 41 debtors.

Legal Provisions and Precedents:
The Tribunal referred to Section 36(1)(vii) of the Income Tax Act, which allows bad debts to be written off as irrecoverable in the accounts of the assessee. The Tribunal also cited the Supreme Court's decision in TRF Limited v. CIT (2010) 323 ITR 397 (SC), which held that it is not necessary for the assessee to establish that the debt has become irrecoverable; the write-off in the books of accounts is sufficient.

Conclusion:
The Tribunal concluded that the assessee had fulfilled the conditions under Section 36(1)(vii) and Section 36(2)(i) of the Act, as the debts were shown as income in earlier years and written off in the accounts for the year under consideration. Therefore, the Tribunal allowed the claim for bad debts.

Non-allowance of Credit of TDS:

Facts and Background:
The assessee claimed that a TDS credit of ?2,12,475/- was not granted by the AO.

Tribunal's Analysis:
The Tribunal directed the AO to verify the claim and grant the TDS credit if it was not already provided, in accordance with the law.

Conclusion:
The Tribunal disposed of this ground by directing the AO to verify and allow the TDS credit if applicable.

Final Judgment:
The appeal of the assessee was partly allowed for statistical purposes, with the Tribunal allowing the claim for bad debts and directing the AO to verify the TDS credit. The order was pronounced in the open court on 26th February 2020.