2017 (8) TMI 665 - HC - Income Tax

Appeal dismissed: Bad debts written off upheld. Stock provision not taxable. Importance of documentation in tax liability

The Court dismissed the appeal by the Revenue, upholding the decision that bad debts claimed were indeed written off based on documents provided by the ... Disallowing claim of bad debts - Held that:- Assessee, appearing on advance notice, has produced before the Court copies of the “Schedules annexed to and forming part of the balance sheet as on 31st March, 1998” which show that the bad debts have been written off in the books of accounts. Consequently, the Court declines to frame any question on this issue. The said documents are taken on record. Suppression of gross profits - Held that:- During the physical reconciliation, the Assessee found that the physical availability of the stock was lower than the amount noted in the accounts. The CIT (A) noted that the provision of stock was part of cost of sale which was already added back by the Assessee in the computation of income. If the differential amount was added back, the GP rate worked out to 18.11% which was more than the GP rate estimated by the AO, i.e. 16.66%. Since a sum of ₹ 1,25,05,318/- was already offered to tax by the by the Assessee, the CIT (A) was of the view that no further addition was called for. No substantial question of law arises Issues:1. Disallowance of bad debts claim.2. Suppression of gross profit.Analysis:Issue 1: Disallowance of bad debts claimThe Respondent initially declared a total loss for the Assessment Year (AY) 2008-09, which was revised later. The Assessing Officer (AO) assessed the income after disallowing the claim of bad debts and adding an amount for suppression of gross profit. The Commissioner of Income Tax (Appeals) [CIT (A)] sought a remand report from the AO regarding the bad debts claim. The AO stated that bad debts could only be allowed if they were actually written off in the books of accounts. The Revenue contended that the CIT (A) and the Income Tax Appellate Tribunal (ITAT) did not examine whether the bad debts were written off. However, the Assessee produced documents showing the bad debts were indeed written off. Consequently, the Court declined to frame any question on this issue.Issue 2: Suppression of gross profitRegarding the suppression of gross profit, the CIT (A) observed that the gross profit in the relevant AY was lower due to a provision of stock written off. Upon physical reconciliation, it was found that the physical availability of stock was lower than noted in the accounts. The CIT (A) noted that the provision of stock was already part of the cost of sale, which was added back in the income computation. Considering the differential amount already offered to tax by the Assessee, the CIT (A) concluded that no further addition was necessary. The Court, after reviewing the orders of the CIT (A) and the ITAT, found that the decision on this issue depended on facts, and no substantial question of law arose.In conclusion, the appeal by the Revenue was dismissed with no order as to costs. The judgment highlighted the importance of examining the facts and documentation regarding bad debts and suppression of gross profit in determining the tax liability for the relevant Assessment Year.