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TMI Blog2017 (1) TMI 998X X X X Extracts X X X X X X X X Extracts X X X X ..... n the other hand, has resorted to enhancement on the ground that requisite details have not been filed. The stand of the AO for disallowance and that of CIT(A) are on a mutually contradictory footing. We note that there is no quarrel to the fact that the assessee has written off the debt as irrecoverable in its financial account. It is well settled that the Department cannot insist on demonstrative and infallible proof that a debt has turned bad. There is no requirement in law for the assessee to establish that the impugned debt in fact has become bad in the view of the decision in the case of TRF Ltd. vs. CIT (2010 (2) TMI 211 - SUPREME COURT ). As per the scheme of the Act, the aforesaid claim of the assessee is admissible for deduction either in the form of bad debt or alternatively in the form of business loss and thus cannot be denied in wholesome without any sound basis. Both the authorities have failed to pinpoint any justifiable cause for drawing adverse inference. Thus, the action of the CIT(A) cannot be validated and requires to be reversed. As a result, appeal of the Assessee is allowed. - I.T.A. No.1689/Ahd/2013, I.T.A. No.1810/Ahd/2013 - - - Dated:- 8-12-2016 - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owing enhancing the disallowance relying on judgments of High Court and Tribunal, holding that it is mandatory upon the tax payer to file all the details in support of its claim of bad debts. c) The Commissioner of Income tax (Appeals)XVI, Ahmedabad erred in disallowing and enhancing the claim of bad debt without considering submission in its proper perspective that debt is created and income is accounted and what is written off is said debt as bad debt. d) The action of Commissioner of Income Tax (Appeals) to disallow and enhance the disallowance of bad debt is unjustified and bad in law. II) The Commissioner of Income Tax (Appeals) erred in confirming charge of interest u/s.234-B ₹ 342063/- u/s.234-C ₹ 33654/- holding that they are automatic. 7. Briefly stated, the assessee is stated to be an advertising agent and release advertisements on behalf of clients as per their order in newspapers, magazines, radio and outdoor holdings. The assessee is also catering multi-media services including services of bulk SMS, Website developing, Web promotion and event management. During the year, the assessee has written off bad debt amounting to ₹ 25,80 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d debts amounting to ₹ 25,80,457/-. (Reference also to Schedule K of your P L Account for year ending 31-03-2009). After considering the explanations tendered by you, the A.O. disallowed an amount of ₹ 2,58,0457- being 10% of the total claims made by you. 2. Reference to your pending appeal before undersigned, you have contested the above disallowance made by the A.O. on justification tendered through your written submissions hitherto filed in this office. Thus, you have classified your total claim of bad debts aggregating to ₹ 26,07,595/-as under:- Sr No Particulars of bad debt Amount Rs. Justification for claim 1 Short payment 3,85,158/- The case where short payment is received by clients and balance amount not paid inspite of persuasions ₹ 3,85,158/- 2. Bills twice time raised 27,351/- Bills twice raised ₹ 27,351/- 3. BNew bill raised against old bill 1,64,861/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bad debts made by you of ₹ 26,07,595/-, amounts of ₹ 3,85,758/-, ₹ 27,351/- , ₹ 7,64,867/-, and ₹ 5,36,720/- cumulatively aggregating to ₹ 11,14,090/- pertain to short payments received, bills twice time raised, new bills raised against old bitl and advertisement cancelled respectively. Section 36(1) (vii) of IT Act provides that bad debts can be allowed subject to satisfaction of conditions laid therein. Honourable apex court in the case of TRF Ltd has also held that bad debts can only be allowed subject to satisfaction of conditions laid down under Section 36(1) (vii) of IT Act. Details hither to filed by you indicate that the above amounts of monies with respect to nature of transactions indicated therein do not qualify as bad debts under Section 36(1) (vii) of IT Act and hence cannot be allowed as a deduction under the said section. 3 Accordingly you are requested to explain why the amount of ₹ 11,14,090/- be not added to your income for the year under consideration and your income be enhanced. Your reply on the above matter should reach this office positively by 30.03.2013 failing which it be safely presumed that you have no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowed provided conditions of section 36(1)(vii) / 36(2) are satisfied. In the instant case, the amounts claimed as bad debts do not wholly fall in the category of bad debts defined u/s. 36(1)(vii) / 36(2). It is pertinent to point out that Hon'ble Kerala High Court, on the issue of admissibility of claim of bad debts u/s. 36(1)(vii), in the case of Sampanna Kuries Pvt Ltd vs DCIT 206 Taxman 57 Ker 2012 have observed as under :- .....The appellant is engaged in kurry business and the assessment involved is for the year 1995-96. The assessee returned a net income of ₹ 1,00,550/- after claiming deduction of ₹ 3,69,5507- towards bad debt written off. Though the Assessing Officer allowed the claim, the Commissioner of Income Tax perused the records and noticed that the bad debt did not represent debts which had become irrecoverable or written off as bad debt in the accounts for the previous year relevant for the assessment yean He, therefore, declared the assessment as prejudicial to the interest of the Revenue and directed revision of the same. It is against this order of the Commissioner assessee filed appeal before the Tribunal., The Tribunal through a detailed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the amounts claimed as bad debt are still shown in the accounts of the debtors and so much so, the appellant-assessee has not written off bad debt entitling him to claim deduction. 4. Assessee 's counsel contended before us that/writing off of bad debt in the Profit and Loss Account is not a mandatory requirement for claiming deduction of bad debt. We are unable to accept this proposition because Profit and Loss Account is the final computation of profit made by the assessee based on which assessment has to be made. Unless bad debt is written off by debiting the Profit and Loss Account which necessarily means that the debtors' account should be credited or so much of the amount debited in the Profit and Loss Account should be written off from amount due from the debtors, the writing off as contemplated under Section 36(1)(vii) is not satisfied. Even though counsel for the appellant-assessee contended that when bad debt is recovered, there is provision for assessment of the same under Section 41, we do not think such a safety provision will entitle the assessee to claim bad debt as a deduction without satisfying the conditions contained in Section 36(l)(vii) of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the assessee and requisite information was not furnished. The only plea made by the assessee is that the debt has been written off in the books of account and no further proof is required. U/s. 143(2) of the Act the Assessing Officer is empowered to require the assessee to produce the evidence in support of the return, as such where the assessee has claimed as bad debt or part thereof .written off as irrecoverable in the accounts of the assessee under the provisions of section 36(1)(vii) of the Act, then on the strength of the amendment made on April 1, 1989, it cannot be said that an inquiry is not permissible under the provision of the Income- tax Act to see and satisfy that there is some semblance of the genuineness in the entry, which had been made, the same is not at all totally fake entry as the assessee would be entitled for deduction only if it is bad debt, or part thereof. The Hon'ble apex Court in the case of Travancore Tea Estates Co. Ltd. v. CIT [1999] 233 ITR 203 has taken the view, that as to whether a debt has become bad or at what point of time if became bad, are pure questions of fact. Though standard of proof of proving the same as bad debt, is not requi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of bad debts is enhanced to ₹ 11,14,090/-. The ground of appeal raised by the appellant is therefore dismissed and the income of the appellant accordingly is enhanced. 8. Aggrieved by the order of the CIT(A), the assessee is in appeal before the Tribunal. 9. The Ld.AR for the assessee reiterated the submissions made before the CIT(A) and submitted that having regard to the nature of business of the assessee, failure to recover some amount receivable from the customers and other incidental claim towards short payment and cancellation of advertisement etc. is a normal incident. The Ld.AR for the assessee submitted that the bad debt claim had been rejected by the CIT(A) in contravention of the long line of judicial precedents quoted before him without any sound basis. The Ld.AR simultaneously submitted that the relevant details of the bad debts have been submitted by way of paper-book before the Tribunal which were also submitted before the lower authorities. In the circumstances, the action of the CIT(A) in making enhancement instead of granting relief pleaded before him is opposed to the facts as well as law. He accordingly pleaded for suitable relief. 10. The Ld.D ..... X X X X Extracts X X X X X X X X Extracts X X X X
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