2016 (3) TMI 212 - AT - Income Tax

Tribunal upholds CIT(A)'s decision on bad debts claim, dismisses appeal and condones delay.

The Tribunal dismissed both the appeal and cross objections, upholding the decision of the CIT(A) to allow the claim of bad debts written off by the ... Rectification of mistake - claim of bad debts written off disallowed - assessee written off the said amount out of the total provision made during the assessment year 2004-05 and claimed the same while computing income of the assessee - CIT(A) accepted the explanation of the assessee and allowed the claim of the assessee in respect of the said amount. It was also observed that this issue cannot be examined in proceedings u/s 154. Held that:- Assessee has duly explained that during the financial year 2003-04 relevant to assessment year 2004-05, assessee-company made a provision for bad and doubtful debts of ₹ 1,32,94,600/- and debited same to the profit and loss account but the assessee did not claim said amount in the return of income at the time of computation of income and the entire provision made for bad and doubtful debts debited to profit and loss account was added to the income shown in the profit and loss account in the computation of income. The AO has not disputed this fact while passing the impugned order u/s 154. Even before us, revenue has not disputed these facts explained by the assessee. During the year under consideration, the assessee has written off a sum of ₹ 98,00,327/- out of the total provision made for bad and doubtful debts of ₹ 1,32,94,610/-. Thus, in the books of account, the assessee has reversed provision to the extent of said amount which was not recoverable and passed entries by debiting provision for bad and doubtful debts and credited to the profit and loss account. This treatment of reversing provision in the books of account cannot effect the allowability of the claim of the assessee in respect of bad debts written off during the year. The AO has disallowed the claim of the assessee on the ground that the submissions are not supported by contemporary evidence. It is pertinent to note that the entire record was available with the AO and particularly the ledger accounts of the debtors wherein entries for bad debts written off has been carried out by the assessee along with provision for bad and doubtful debts made during the financial year 2003-04 relevant to assessment year 2004-05. Therefore, as per provisions of sec.36(1)(vi), the assessee is not required to establish that debts actually gone bad once the assessee has written off the amounts in the books of account. The CIT(A) has allowed the claim of the assessee by taking note of the fact that in the books of account, assessee has made entries in respect of reversal of provision for bad and doubtful debts made in the assessment year 2004-05. Therefore, in view of the above facts and circumstances of the case, we do not find any error or illegality in the impugned order of the CIT(A). - Decided against revenue Issues:1. Rectification of order u/s 154 regarding claim of bad debts written off.2. Consideration of fresh material by CIT(A) without giving opportunity to AO.3. Violation of Rule 46A of IT Rules.4. Allowability of claim of bad debts written off by the assessee.5. Ground raised in cross objections regarding non-grant of opportunity of being heard by AO.Analysis:Issue 1: Rectification of order u/s 154 regarding claim of bad debts written offThe appeal and cross objections were directed against the order dated 2/3/2015 of the CIT(A) arising from the order passed u/s 154 of the IT Act, 1961. The AO proposed to rectify a mistake in the order related to the claim of bad debts written off by the assessee. The CIT(A) accepted the explanation of the assessee and allowed the claim in respect of the amount. The AO disallowed the claim of &8377; 98,00,327/- by passing the order u/s 154, which was challenged by the assessee.Issue 2: Consideration of fresh material by CIT(A) without giving opportunity to AOThe Departmental Representative argued that the CIT(A) considered fresh material without giving an opportunity to the AO before allowing the claim of the assessee. It was contended that the assessee failed to furnish requisite details before the AO, whereas new evidence was submitted before the CIT(A). The Departmental Representative claimed a violation of Rule 46A of the IT Rules.Issue 3: Violation of Rule 46A of IT RulesThe Departmental Representative contended that the CIT(A) violated Rule 46A of the IT Rules by considering fresh material without providing an opportunity to the AO. The argument was based on the submission that the assessee submitted new evidence before the CIT(A) which was not presented before the AO during the proceedings u/s 154.Issue 4: Allowability of claim of bad debts written off by the assesseeThe assessee explained that the amount of &8377; 98,00,327/- was part of the provisions for bad and doubtful debts made in a previous assessment year and was written off in the current year. The assessee reversed the provisions made earlier and claimed the same while computing income. The Tribunal upheld the CIT(A)'s decision to allow the claim, stating that once the assessee has written off the amounts in the books of account, no further proof is required under sec.36(1)(vi).Issue 5: Ground raised in cross objections regarding non-grant of opportunity of being heard by AOThe assessee raised a ground in cross objections regarding the non-grant of appropriate opportunity of hearing by the AO while passing the order u/s 154. However, the Tribunal found this ground to be infructuous based on the merits of the case.In conclusion, the Tribunal dismissed both the appeal and cross objections, upholding the decision of the CIT(A) to allow the claim of bad debts written off by the assessee. The delay in filing cross objections was condoned by the Tribunal.