2024 (12) TMI 632 - AT - Income Tax

Deduction u/s 36(1)(vii) r.w.s. 36(2) towards bad debts written off - HELD THAT -If a provision for doubtful debt is expressly excluded from section 36(1)(vii), then such a provision cannot claim deduction u/s 37(1). Therefore, we are of the considered view that the case law relied upon by the CIT(A) in the case of Khyati Realtors Pvt. Ltd. 2022 (8) TMI 1141 - SUPREME COURT is not applicable to the present case and further the case of the assessee is squarely covered by the decision of TRF 2010 (2) TMI 211 - SUPREME COURT We are of the considered view that the assessee is eligible for deduction for bad debts written off, upon satisfying the conditions provided u/s 36(1)(vii) r.w.s. 36(2) of the Act. CIT(A) without appreciating the relevant facts, simply sustained the additions made by the AO. Thus, we set aside the order of the CIT(A) and direct the AO to delete the additions made towards bad debts written off. Appeal filed by the assessee is allowed.

Summary

Issues:
Claim of deduction towards bad debts written off under section 36(1)(vii) r.w.s. 36(2) of the Act.

Detailed Analysis:

1. Background and Assessment by AO:
The appellant, a company engaged in manufacturing and installation, filed its return for A.Y. 2018-19, declaring losses. During scrutiny, the Assessing Officer noted a substantial amount debited as bad debts written off. The AO required details and evidence to prove the debts were irrecoverable. Despite writing off the debts in its books, the appellant failed to provide sufficient evidence to establish the irrecoverability of the debts. Consequently, the AO disallowed the claim of bad debts amounting to Rs. 2,60,80,027/-.

2. Appeal before CIT(A):
The appellant contended before the CIT(A) that it had fulfilled the conditions for claiming deduction under section 36(1)(vii) r.w.s. 36(2) of the Act. It argued that the only requirement was to write off bad debts in the books of accounts, not to prove their irrecoverability. Citing the TRF Ltd. case, the appellant asserted that the debts were genuinely written off.

3. Decision of CIT(A):
The CIT(A) upheld the AO's decision, emphasizing the appellant's failure to provide adequate evidence to support the claim of bad debts. The CIT(A) highlighted that the onus was on the appellant to substantiate the claim with documentary evidence. Relying on judicial precedents, including the Khyati Realtors Pvt. Ltd. case, the CIT(A) rejected the appellant's claim.

4. Tribunal's Decision:
The Tribunal analyzed the legal provisions under section 36(1)(vii) r.w.s. 36(2) of the Act. Referring to the TRF Ltd. case and subsequent ITAT Mumbai decision, the Tribunal clarified that the only requirement for claiming deduction was the actual write-off of bad debts in the books of accounts. It emphasized that the appellant had fulfilled this condition. The Tribunal disagreed with the CIT(A)'s interpretation and directed the AO to delete the additions made towards bad debts written off.

5. Conclusion:
The Tribunal allowed the appeal, emphasizing that the appellant met the conditions for claiming deduction under section 36(1)(vii) r.w.s. 36(2) of the Act. It clarified that once a debt is written off in the books of accounts, the irrecoverability need not be proven separately. The Tribunal set aside the CIT(A)'s order and directed the AO to delete the additions related to bad debts written off.