2020 (4) TMI 856 - AT - Income Tax

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 ... Allowability of bad debts written off under section 36(1)(vii) - requirement of prior inclusion of the debt in assessee's income under section 36(2)(i) - accounting write off as sufficient evidence of irrecoverability (TRF Ltd. principle) - genuineness of creditors and evidentiary burden to disprove existence of debtorsAllowability of bad debts written off under section 36(1)(vii) - accounting write off as sufficient evidence of irrecoverability (TRF Ltd. principle) - genuineness of creditors and evidentiary burden to disprove existence of debtors - Assessee's claim of deduction for bad debts written off during the year was allowable. - HELD THAT: - The Tribunal found that the assessee had shown the amounts as income in earlier years and had written off the debts in the accounts for the year under appeal, thereby satisfying the conditions for deduction under section 36(1)(vii) read with section 36(2)(i). The Court relied on the settled principle in TRF Ltd that after the 1989 amendment an accounting write off is sufficient and it is not necessary for the assessee to establish as a factual matter that the debt became irrecoverable in the year of write off. The AO's attempt to disbelieve the debts because notices under section 133(6) sent to six randomly selected debtors could not be served was held to be insufficient to impugn the existence of all forty one debtors, particularly where the assessee had offered the amounts as income in earlier years and produced the debtor list and addresses. The Tribunal therefore allowed the write off as a deductible bad debt.Claim for bad debts written off during the year is allowed as a deduction.Credit of tax deducted at source - verification by Assessing Officer - Credit of TDS claimed by the assessee was not decided on merits and was directed to be verified by the AO. - HELD THAT: - The Tribunal observed that the question whether the assessee had been given credit of TDS required factual verification. It directed the AO to examine records and grant the TDS credit to the assessee in accordance with law if it was found not to have been allowed.TDS credit issue is remanded to the Assessing Officer for factual verification and appropriate action.Final Conclusion: Appeal partly allowed: deduction for bad debts written off allowed; the question of short credit of TDS is remanded to the Assessing Officer for verification and rectification if required. 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.