2016 (10) TMI 1265 - AT - Income Tax

ITAT upholds CIT(A)'s decision on bad debts, citing legal precedents

Asstt. Commissioner of Income Tax (OSD) -I, Range-4, Ahmedabad Versus Gujarat State Financial Corporation

The ITAT Ahmedabad upheld the CIT(A)'s decision, dismissing the appeal challenging the disallowance of bad debts written off and provision for bad debts ... Written off in the books of account of the assessee u/s 36(1)(vii) - HELD THAT:- In the light of Hon’ble Supreme Court in the case of TRF Limited vs. CIT [2010 (2) TMI 211 - SUPREME COURT] which holds that a mere write off of the bad debts in the books of account, as irrecoverable, is sufficient to claim deductions as bad debts. CIT(A) was, therefore, quite justified in granting relief to the assessee on this issue. As far provision of ₹ 88,38,79,657/- is concerned, undoubtedly there is nothing on record to show, or even indicate, that these amounts have actually been written off by squaring up individual accounts of the debtors, but what is not in dispute that the provision in question has been debited to the profit and loss account, and the amount of provision is reduced from the loans and advances appearing in the balance sheet. With these facts having been verified by us with respect to material on record, we find that the issue is squarely covered in favour of the assessee in the case of CIT vs. Nawanagar Co-operative Bank Limited [2014 (7) TMI 911 - GUJARAT HIGH COURT]. - Decided in favour of assessee. Issues:1. Disallowance of bad debts written off under section 36(1)(vii) of the Income Tax Act, 1961.2. Disallowance of provision for bad debts written off as an allowable expenditure.Analysis:1. The Assessing Officer challenged the correctness of the order passed by the CIT(A) regarding the disallowance of bad debts written off and provision for bad debts for the assessment year 2006-07. The AO disallowed a bad debt claim of Rs. 36,11,57,536 and a provision for bad debts of Rs. 88,38,79,657, as the conditions under Section 36(1)(vii) were not satisfied. The CIT(A) deleted these disallowances, citing that the debts were actually written off in the books of accounts, and it was not necessary to establish that the debts were irrecoverable, as per the Supreme Court's decision in TRF Ltd. vs. CIT.2. The provision for bad debts was created by the appellant, and a sum of Rs. 88,38,79,657 was written off. The AO disallowed this provision, stating that it was not an allowable expenditure. However, the CIT(A) held that the provision was justified as it was debited to the profit and loss account, and the amount was reduced from loans and advances in the balance sheet. The High Court's judgment in CIT vs. Nawanagar Co-operative Bank Limited supported the assessee's position, stating that it was not necessary to close individual accounts of each debtor to claim a deduction under section 36(1)(vii).In conclusion, the ITAT Ahmedabad upheld the CIT(A)'s decision and dismissed the appeal, as the bad debts were actually written off in the books of accounts, and the provision for bad debts was justified based on legal precedents and the High Court's judgment.