Tribunal upholds disallowance of bad debts in Rs.27,88,438 claim, stresses need for evidence

The Tribunal upheld the disallowance of bad debts amounting to Rs.27,88,438 claimed by the assessee, emphasizing the necessity for the assessee to provide evidence of write-off in the accounts to support such claims during block assessments.

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Issues:
1. Disallowance of bad debts amounting to Rs.27,88,438 claimed by the assessee.

Analysis:
The appeal was filed by the assessee against the order of the ld. C.I.T. (A)- Central-II, Kolkata dated 31.01.2011, specifically challenging the disallowance of Rs.27,88,438 claimed as bad debts. The assessee, engaged in wholesale commission business of fruits, had filed a block return showing an income of Rs.15,00,000 in response to a search and seizure operation. The undisclosed income offered in the block return was based on undisclosed sales noted in seized accounts. The assessee claimed bad debts amounting to Rs.72,07,147, supported by a list of debtors. However, the Assessing Officer disallowed a portion of the claim, leading to a total addition of Rs.54,61,661. The ld. CIT(A) confirmed the disallowance of Rs.27,88,438, emphasizing the need for the appellant to produce evidence of bad debts and prove nonpayment by debtors.

Upon hearing the rival submissions, the Tribunal noted that while the seized papers contained a list of debts, there was no evidence proving that the claimed bad debts were written off in the assessee's accounts before the search. The Tribunal highlighted the requirement under section 36(1)(vii) of the IT Act that debts must be written off as irrecoverable in the assessee's accounts for the previous year to be deductible. Despite some deduction allowed by the authorities, the Tribunal held that in the absence of evidence confirming the write-off of bad debts, the assessee was not entitled to claim the deduction in the block assessment. Consequently, the Tribunal sustained the addition on account of bad debts to the extent of Rs.27,88,438, dismissing the appeal of the assessee.

In conclusion, the Tribunal upheld the disallowance of bad debts amounting to Rs.27,88,438 claimed by the assessee, emphasizing the necessity for the assessee to provide evidence of write-off in the accounts to support such claims during block assessments.

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