2023 (11) TMI 286 - HC - Income Tax

Undisclosed income offered for tax during survey - Addition on account of bad debts and unaccounted expenditure towards renovation and repairs and also the unverifiable amount of deduction from customers - HELD THAT - Tribunal has rightly considered the alternative claim of the assessee to grant depreciation and remanded the matter back to the Assessing Officer to verify such claim which the assessee has already disclosed the unaccounted expenditure towards renovation and repairs by capitalizing the same during the year under consideration. Addition confirmed by the CIT(A) under the head of Miscellaneous Receivables or Suppressed Sales, the Tribunal remanded the matter back to the Assessing Officer as the CIT(A) did not adjudicate the said ground and therefore to verify the claim of the assessee that average profit rate is to be adopted on such Suppressed Sales. The Tribunal also noted that the Departmental Representative was also on agreement for a remand to the Assessing Officer for correct verification. Such findings arrived at by the Tribunal by remanding the matter back to the Assessing Officer, we are of the opinion that no question of law much less substantial question of law arises. Addition of bad debts u/s 36(1) (viii) - As in view of concurrent findings arrived at by the Tribunal with regard to the undisputed facts that the assessee has debited the amount of bad debts in the books of account and considering the provisions of Section 36(1)(vii) r.w.s.32 of the Act which makes it clear that even a part of the income accounted for in the current year also can be claimed as bad debts, we are of the opinion that no question of law much less substantial question of law arises.

Summary

Issues Involved:
The issues involved in this legal judgment include the treatment of bad debts and unverifiable deductions, the remand of renovation and repair expenditure for verification, and the deletion of addition of bad debts under Section 36(1)(vii) of the Income Tax Act.

Treatment of Bad Debts and Unverifiable Deductions:
The Revenue appealed the deletion of an addition of Rs. 5,92,43,933 on account of bad debts and unverifiable deductions. The Tribunal considered the submissions and detailed the respondent's explanation regarding bad debts claimed under Section 36(1)(vii) of the Act. The Tribunal upheld the deletion of the addition, stating that the appellant's explanation was legally and factually correct. It emphasized that the appellant was not required to establish that the debts had actually become bad before writing them off in the books of accounts. The Tribunal concluded that no question of law, much less a substantial question of law, arose in this regard.

Remand of Renovation and Repair Expenditure:
Regarding the renovation and repair expenditure of Rs. 2,50,00,000 admitted by the assessee during a survey, the Tribunal remanded the matter back to the Assessing Officer for verification. The Tribunal noted the burden upon the assessee to provide sufficient explanation for the source of the amount. While the Assessing Officer's opinion could not be disturbed due to lack of records or transactions showing correlation, the Tribunal accepted the alternative claim of depreciation on the assets capitalized for renovation and repair expenses. The Tribunal directed the Assessing Officer to verify the expenses claimed and allow appropriate depreciation in accordance with the law.

Deletion of Addition of Bad Debts:
The Tribunal dismissed the appeals and upheld the deletion of the addition of bad debts under Section 36(1)(vii) of the Act. It noted that the assessee had provided full details of bad debts on account of lower payments made by clients, which were claimed as deductions. The Tribunal reiterated that the provisions of Section 36(1)(vii) allowed even a part of the income accounted for in the current year to be claimed as bad debts. Considering the debiting of bad debts in the books of account and the legal provisions, the Tribunal found no merit in the Revenue's grounds and rejected them.

Conclusion:
The Tribunal's decisions in this legal judgment revolve around the treatment of bad debts, unverifiable deductions, and renovation and repair expenditure. The Tribunal upheld the deletion of the addition of bad debts and directed the verification of renovation and repair expenses. It emphasized the legal provisions regarding bad debts and depreciation claims, ultimately dismissing the appeals and concluding that no substantial question of law arose in the matters discussed.