2021 (2) TMI 359 - AT - Income Tax

Unrealized disputed rent - Addition being disputed income not realized - Addition as bed debts - assessee company leased out its premises to International Institute of Planning and Management and the assessee received license fees - it is the contention of the assessee that they have still not recovered during the FY 2012-13 relevant to the assessment year 2013-14 the amount of 64, 80, 000/- and therefore the assessee has treated the amount as bad debts - HELD THAT - As in M/S ESSAR TELEHOLDINGS LTD. 2015 (5) TMI 810 - BOMBAY HIGH COURT while analyzing Section 36(1)(vii) of the Act has held that it does not require the assessee to establish that the debt written off was bad and all that is required is it being written off as such. Meaning thereby no evidence or other things needs to be sought by the Department from the assessee when he is treating such amount as bad debts. The only consideration is that such amount has been treated as bad debts in the books of accounts of the assessee. This is only the requirement to the provision. The Ld. DR also could not place any evidence before us to demonstrate that the amount of 64, 80, 000/- was already recovered by the assessee. No addition should be sustained in the hands of the assessee on this issue of treatment of amount as bad debts. Therefore we direct the Assessing Officer to delete the addition from the hands of the assessee. Appeal of the assessee is allowed

Summary

Issues:
Appeal against addition of disputed income not realized under Section 145(2) of the Income Tax Act, 1961 for the assessment year 2013-14.

Analysis:
The appeal pertained to the addition made by the Assessing Officer of ?64,80,000 as disputed income not realized under Section 145(2) of the Income Tax Act, 1961. The Assessing Officer observed a variance in rent receipts declared by the assessee concerning the rental income from a commercial building leased to an institute. The assessee contended that the balance amount was disputed and treated it as bad debts in their books. The Assessing Officer, unconvinced by the explanation, added the amount to the assessee's income. In the appellate proceedings, the CIT(Appeals) upheld the Assessing Officer's decision, prompting the assessee to appeal further.

During the hearing, the assessee relied on a High Court decision regarding bad debts to support their case. The Tribunal referred to legal precedents emphasizing that the Assessing Officer cannot demand irrefutable proof of bad debts and that the assessee's treatment of the amount in their books is sufficient. The Tribunal noted that the assessee had not recovered the disputed amount and that the matter was sub-judice. Following the High Court's interpretation of Section 36(1)(vii) of the Act, the Tribunal directed the Assessing Officer to delete the addition of ?64,80,000 as bad debts from the assessee's income.

In conclusion, the Tribunal allowed the appeal, emphasizing that the disputed amount not realized by the assessee was correctly treated as bad debts in accordance with the legal provisions. The Tribunal's decision was based on the assessee's treatment of the amount in their books and the absence of evidence showing recovery, aligning with the High Court's interpretation of the relevant tax provisions.