2021 (12) TMI 643 - AT - Income Tax

Disallowance on account of bad debt written off - addition made by AO as assessee has not made sufficient efforts to recover the outstanding due - CIT-A deleted the addition - HELD THAT - The aforesaid reasoning of the AO is unsustainable - assessee was a sub-contractor under M/s Naftogaz India Pvt. Ltd., who was awarded a contract by ONGC. The assessee was assigned the specific work of physical survey, positioning support for diving etc. Subsequently, ONGC cancelled the contract with M/s Naftogaz India Pvt. Ltd. As a result of which the amount due to be received by the assessee from M/s Naftogaz India Pvt. Ltd. could not be recovered - Rreasoning of the AO that the assessee has not made sufficient effort to recover the outstanding due is contrary to the materials on record, considering the fact that the assessee has issued legal notice for recovery of the dues. In any case of the matter, after the amendment to section 36(1)(vii) w.e.f. 01.04.1989, it is not necessary for the assessee to prove that the amount has become irrecoverable despite best efforts. The only requirement is, the amount must have been written off having become irrecoverable. This is the view expressed by the Hon'ble Supreme Court in case of TRF Ltd. 2010 (2) TMI 211 - SUPREME COURT - Decided against revenue.

Summary

Issues:
Deletion of disallowance of bad debt written off.

Analysis:
The dispute in the present appeal pertains to the deletion of disallowance of ?2,55,97,771/- made on account of bad debt written off. The Assessing Officer (AO) disallowed the claim of the assessee, adding it back to the income invoking the provision of section 69C of the Act, as he believed that the assessee did not make sufficient efforts to recover the outstanding dues. However, the learned Commissioner (Appeals) deleted the addition after considering the submissions of the assessee and the evidence provided. The Commissioner observed that the debt was written off in the accounts of the appellant and cited relevant case laws to support the decision. The AO's contention that the assessee did not take adequate measures to recover the debt was deemed unsustainable by the Appellate Tribunal.

The Appellate Tribunal noted that the AO did not dispute the fact that the amount was written off as bad debt, and the reasons provided by the assessee for writing off the amount were not challenged. The AO acknowledged that the assessee had issued a legal notice for recovery. The Tribunal held that the reasoning of the AO, stating that the assessee did not make sufficient efforts to recover the dues, was not supported by the evidence on record. The Tribunal highlighted that after the amendment to section 36(1)(vii) w.e.f. 01.04.1989, it is not mandatory for the assessee to prove the irrecoverability of the amount, but only to show that it has been written off as irrecoverable. Citing the precedent set by the Hon'ble Supreme Court in the case of TRF Ltd. vs. CIT [2010] 83 ITR 397, the Tribunal upheld the decision of the learned Commissioner (Appeals) and dismissed the appeal.

In conclusion, the Appellate Tribunal affirmed the decision of the learned Commissioner (Appeals) regarding the deletion of the disallowance of bad debt written off. The Tribunal emphasized that the assessee had taken necessary steps, including issuing a legal notice, and met the requirements as per the law post the amendment to section 36(1)(vii). The appeal by the revenue was dismissed, and the order was pronounced on 23rd November 2021.