2013 (7) TMI 284 - AT - Income Tax

ITAT Mumbai rules in favor of assessee on bad debt claim compliance

Shri Haresh V. Shah Versus Income Tax Officer 21 (2) (1), Mumbai

Shri Haresh V. Shah Versus Income Tax Officer 21 (2) (1), Mumbai - TMI Issues: Disallowance of claim of bad debt and levy of interest u/s 234 B and 234 C.Issue 1: Disallowance of Claim of Bad DebtThe dispute revolved around the disallowance of a claim of bad debt by the assessee in relation to sales made to a specific party. The Assessing Officer (AO) disallowed the claim, stating that the assessee continued transactions with the party, indicating the debt was not substantiated as bad. The Commissioner of Income Tax (CIT) also upheld the disallowance, emphasizing the need for a bonafide commercial decision for bad debt write-offs. The CIT referred to legal precedents emphasizing the genuineness of write-off entries and the need for a business or commercial basis for such decisions. The CIT held that the burden was on the assessee to demonstrate a legitimate business rationale for the write-off, which the assessee failed to establish. The Tribunal, after considering the arguments, found that the conditions for the allowance of bad debt claim under section 36(1)(vii) were met. The Tribunal noted that the debt was written off as irrecoverable in the books, and the corresponding sales had been accounted for in earlier years, satisfying the legal requirements. The Tribunal concluded that the claim of bad debt could not be disallowed solely on the grounds of lack of bonafide commercial decision, especially after the clarification by the Supreme Court in the TRF Ltd. case. The Tribunal set aside the CIT's order and allowed the claim of the assessee.Issue 2: Levy of Interest u/s 234 B and 234 CThe judgment also addressed the levy of interest under sections 234 B and 234 C, stating that it was a consequential matter. The Tribunal directed the Assessing Officer to recompute the interest at the time of implementing the order. This part of the judgment was deemed as a natural consequence of the decision on the primary issue of bad debt claim disallowance.In conclusion, the Appellate Tribunal ITAT MUMBAI ruled in favor of the assessee concerning the disallowance of the bad debt claim, emphasizing the legal requirements under section 36(1)(vii) and the significance of the Supreme Court's precedent in the TRF Ltd. case. The judgment also addressed the levy of interest under sections 234 B and 234 C as a consequential matter, directing the Assessing Officer to recompute the interest accordingly.