Tribunal allows bad debts claim, directs TDS credit verification. Decision on 26th Feb 2020.

The Tribunal allowed the assessee's claim for bad debts written off, stating that the debts were shown as income in previous years and written off in the accounts for the year under consideration, fulfilling the conditions under relevant sections of the Income Tax Act. The Tribunal directed the Assessing Officer to verify and grant the TDS credit of Rs. 2,12,475/- if not already provided. The appeal was partly allowed for statistical purposes, with the Tribunal's decision announced on 26th February 2020.

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Issues Involved:
1. Disallowance of bad debts written off amounting to Rs. 40,78,373/-
2. Non-allowance of credit of TDS amounting to Rs. 2,12,475/-

Detailed Analysis:

Disallowance of Bad Debts Written Off:

Facts and Background:
The assessee filed a return of income declaring Rs. 3,97,40,564/-. The case was scrutinized, and the total income was determined at Rs. 18,27,37,175/-, later revised to Rs. 4,51,62,359/-. The Principal Commissioner of Income Tax (Pr. CIT) found that the Assessing Officer (AO) had not examined the assessee's claim for provision of doubtful debts amounting to Rs. 40,78,373/-. Consequently, the Pr. CIT set aside the assessment order for re-examination.

Reassessment Proceedings:
During reassessment, the AO observed that the assessee had claimed "provision for doubtful debts written back" amounting to Rs. 71,25,039/-, but only Rs. 30,46,666/- was accounted for, leaving Rs. 40,78,373/- unexamined. The AO issued notices under Section 133(6) of the Income Tax Act to six parties, which were returned undelivered. Consequently, the AO disallowed the claim, treating the debts as bogus.

CIT(A) Decision:
The CIT(A) upheld the AO's disallowance, stating that the assessee failed to establish the genuineness of the debtors and did not provide sufficient evidence to show that the bad debts were offered as income in previous years.

Tribunal's Analysis:
The Tribunal noted that the assessee is in the advertising business and had written off Rs. 40,47,791/- as irrecoverable debts. The Tribunal emphasized that the assessee had provided a detailed list of 41 debtors, including their addresses and the years in which the debts were recognized as income. The AO had randomly selected six debtors for verification, and the inability to serve notices to these six debtors could not justify disbelieving the existence of all 41 debtors.

Legal Provisions and Precedents:
The Tribunal referred to Section 36(1)(vii) of the Income Tax Act, which allows bad debts to be written off as irrecoverable in the accounts of the assessee. The Tribunal also cited the Supreme Court's decision in TRF Limited v. CIT (2010) 323 ITR 397 (SC), which held that it is not necessary for the assessee to establish that the debt has become irrecoverable; the write-off in the books of accounts is sufficient.

Conclusion:
The Tribunal concluded that the assessee had fulfilled the conditions under Section 36(1)(vii) and Section 36(2)(i) of the Act, as the debts were shown as income in earlier years and written off in the accounts for the year under consideration. Therefore, the Tribunal allowed the claim for bad debts.

Non-allowance of Credit of TDS:

Facts and Background:
The assessee claimed that a TDS credit of Rs. 2,12,475/- was not granted by the AO.

Tribunal's Analysis:
The Tribunal directed the AO to verify the claim and grant the TDS credit if it was not already provided, in accordance with the law.

Conclusion:
The Tribunal disposed of this ground by directing the AO to verify and allow the TDS credit if applicable.

Final Judgment:
The appeal of the assessee was partly allowed for statistical purposes, with the Tribunal allowing the claim for bad debts and directing the AO to verify the TDS credit. The order was pronounced in the open court on 26th February 2020.

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