2020 (8) TMI 668 - AT - Income Tax

Revised income being business loss - disallowance made on account of bad debts claimed by the appellant - HELD THAT - A.O. had considered revised return filed by the assessee at the time of assessment proceedings which is evident from the fact that the additions made towards disallowance of bad debts is as per the revised return filed by the assessee. While computing income determined for the purpose of taxation and tax payable, he had considered income returned as per original return of income filed by the assessee. The arguments of assessee that the issue needs to go back to the A.O. holds good. As regards the claim of bad debts, the claim of the assessee is that although the amount has been debited to bad debt account but in fact the amount represents reversal of income already recognised in books of accounts in earlier financial years on percentage completion method on advances received from customers even though the income was not accrued to the assessee from the projects - The assessee has filed necessary evidences to demonstrate the amount received from the debtors and amounts shown in books of accounts of the assessee are matched. It is a settled position of law that mere entries in the books of accounts are not conclusive enough to make an assessment without verifying the veracity/authenticity of the same. Claim of the assessee is that amount debited under the head bad debt account is in fact reversal of income recognised in books of accounts on advances received from customers in earlier financial years on the basis of confirmation from the debtors. The assessee claims that it is a reversal of income recognised in earlier financial years, whereas the A.O. claims that the amount represents bad debts written off. If, the claim of the assessee is correct, then it needs to be allowed as deduction, because income to that extent was already offered to tax for earlier years. But, this fact is not clear from the order of the AO as well as the CIT(A). Therefore, the issue needs to be re-examined by the A.O. in the light of various averments made by the assessee. Hence, we set aside the issue to the file of the A.O. and direct him to reframe the assessment de-novo in accordance with law after considering necessary evidences filed by the assessee in support of its arguments. Appeal filed by the assessee is allowed for statistical purposes.

Summary

Issues:
1. Disallowance of bad debts claimed by the appellant.
2. Computation of total assessed income based on revised return.
3. Charging of interest under sections 234 A, 234 B & 234 D of the Income Tax Act.

Issue 1: Disallowance of bad debts claimed by the appellant:
The appellant, a partnership firm in the business of civil construction, filed a return for the assessment year 2014-15 initially declaring income and later revising it to report a loss. The assessing officer (A.O.) disallowed a sum debited as bad debts, stating the appellant failed to provide sufficient evidence to prove the amount was genuinely bad debt. The CIT(A) upheld this disallowance, suspecting the write-off was a temporary measure to reduce taxable income. The appellant argued that the debited amount was a reversal of income recognized on advances from customers, not bad debt. The Tribunal found discrepancies in the assessment and directed the A.O. to re-examine the issue considering the evidence provided by the appellant.

Issue 2: Computation of total assessed income based on revised return:
While the A.O. considered the revised return for making additions, the computation of income for tax liability was based on the original return. The appellant contended that the tax liability should align with the revised return figures. The Tribunal agreed that the A.O. should reconsider the computation in line with the revised return to ensure accuracy.

Issue 3: Charging of interest under sections 234 A, 234 B & 234 D of the Income Tax Act:
The appellant sought waiver of interest charges under these sections, arguing that the levy was unjustified due to unclear methods of calculation and lack of discernibility in the assessment. The Tribunal did not delve deep into this issue but allowed the appeal for statistical purposes.

In conclusion, the Tribunal set aside the disallowance of bad debts and directed a reassessment, emphasized the need for accurate computation based on the revised return, and provided limited relief on the interest charges without detailed analysis.