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TMI Blog2020 (10) TMI 514X X X X Extracts X X X X X X X X Extracts X X X X ..... able in the accounts of the assessee. - Decided in favour of assessee. - ITA No.3239/Bang/2018 - - - Dated:- 9-10-2020 - Shri N V Vasudevan, Vice President And Shri B R Baskaran, Accountant Member For the Appellant : Shri V. Srinivasan, Advocate For the Revenue : Smt. R. Premi, Jt. CIT(DR)(ITAT), Bengaluru. ORDER PER N.V. VASUDEVAN, VICE PRESIDENT This appeal by the assessee is directed against the order of CIT(Appeals)-7, Bengaluru dated 20.09.2018 in relation to assessment year 2014-15. 2. The only issue that arises for consideration in this appeal by the assessee is as to, whether the revenue authorities were justified in rejecting the claim of assessee for deduction of a sum of ₹ 88,59,511 on account of bad debts written off. 3. The assessee is an individual carrying on business of project management and consultancy services under the name and style Elhanan Management Services . For the AY 2014-15, the assessee filed return of income declaring total income of ₹ 4,07,450. 4. In the course of assessment proceedings the AO noticed that in arriving at the income from profession, the assessee claimed deduction of ₹ 88,59,51 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ondence with the entities in whose cases, the bad debts are written off, were produced by the assessee. In the absence of this, the bad debts written off by the assessee company is considered as nongenuine. Debt in the ordinary course of business denotes not only an obligation of the debtor to pay but also the right of the creditor to receive and enforce payment. In the case of the assessee, it has not furnished any proof for effective steps having been taken to recover the debt to the extent of ₹ 88,59,511/-. It is also observed from the ledger accounts that the debts are too earl: to be written. off. The very act of writing off such huge amount without any efforts to collect the debts, only shows assessee's pretext to evade tax. Hence. considering the amount to be written off ie., ₹ 88,59,511/- to be very huge in the absence of any effective steps taken for recovering the same and fur the reason that they are considered to be too early to be written off, said writing off is not allowed and ₹ 88,59,511/- is added back to the income of the assessee u/s.36(1)(vii) of the Income Tax Act, 1961. 6. Before the CIT(Appeals), the assessee submitted that after ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... write off of debt as bad debts was only an effort to reduce the assessee s tax liability. The CIT(A) accordingly confirmed the order of AO. 8. Aggrieved by the order of CIT(Appeals), the assessee has preferred the present appeal before the Tribunal. 9. We have heard the rival submissions. The ld. counsel for the assessee reiterated the submissions as were made before the revenue authorities. The ld. DR relied on the order of CIT(Appeals). 10. We have given a careful consideration to the rival submissions. The first aspect which we notice is that the AO has not disputed the fact that the there was an actual write off of debts as bad debts and the sums written off as bad debts were in fact shown as income of the assessee in the earlier assessment years. The only reason given by the AO was that the assessee did not establish that the debts in question have in fact become bad. The CIT(Appeals) also adopted the same reasoning. The CIT(A), however, has attempted to find some discrepancies in the balances, but those discussions in the order of CIT(A) are very vague and does not show any conclusion or effect on those observations on the claim of assessee for deduction on account o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in which a bad debt can be allowed and also to rationalise the provisions, the Amending Act, 1987 has amended clause (vii) of subsection (1) and clause (i) of sub-section (2) of the section to provide that the claim for the bad debt will be allowed in the year in which such a bad debt has been written off as irrecoverable in the accounts of the assessee. 13. It is thus clear that the deduction on account of bad debt as allowed u/s 36(l)(vii) read with section 36(2), after amendment by the Direct Tax Laws (Amendment) Act 1987, envisage merely wiring off the debt as irrecoverable in the accounts of the assessee as a condition for such an allowance. Before the amendment by the DTL (Amendment) Act 1987, of course, there was a condition to establish that the debt has become bad. 14. The Hon'ble Supreme Court in the case of T.R.F. Limited vs C.I.T reported in 323 ITR 397(SC) has clearly observed that after 01.04.1989, it is not necessary for the assessee to establish that the debt, in fact, has become irrecoverable. It is enough if the bad debt is written off as irrecoverable in the accounts of the assessee. 15. The ld. DR placed reliance on the decision of Bangalore Be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0.2005. Therefore, it is very clear that when the return of income was filed by the assessee, no debt was recoverable from the buyers of the property. We find a lot of force in the argument of the learned Commissioner of Income-tax regarding the non-committal of the assessee company in pursuing the legal remedies available before it for the recovery of the amount. Therefore, in these circumstances, we do not find that the debt has become bad debt. It was only a case of delayed payment. Therefore, we find that the judgement of the Hon'ble Supreme Court in the case of T R F Ltd., does not apply to the facts of the present case. In short, we find that the Commissioner of Income-tax(A) has rightly confirmed the disallowance of ₹ 3,66,71,850/-. 17. It is thus clear that the facts of the case in the case of Embassy classic (supra) are distinguishable from the facts of the Assessee s case because in the case cited, the assessee had written off bad debts in the books of account. However, the amount was recovered by the assessee before filing of the return itself. Thus, at the time of filing of return of income, no debt was due. The Tribunal observed that the assessee cannot co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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