2021 (4) TMI 487 - AT - Income Tax

Tribunal allows appeal on bad debts write-off, emphasizes legal provisions

Vinay Kumar Mundra Versus Income Tax Officer 31 (3) (5)

The Tribunal allowed the appeal by the assessee regarding the disallowance of the claim for write-off of bad debts related to investments in National Spot ... Disallowance of assessee's claim of write off of bad debts - assessee has claimed write off of bad debts in respect of amount not recoverable from transactions at NSELX - transactions carried out by the assessee at NSEL were in the financial year 2013-14 - contention of the assessee is that the loss was not claimed in the preceding assessment year, as the assessee could recover some amount during the financial year 2013-14 and even during 2014-15. Ostensibly, no payments were received after November, 2014 from NSEL. The assessee in his accounts for the impugned Financial Year has written off irrecoverable amount of NSEL transactions as bad debts. HELD THAT:- We find that the Tribunal in the case of various similarly situated assesses has allowed write off of bad debts where the assessee has failed to recover the amount from transactions at NSEL. In the case of Megh Sakariya International P. Ltd. [2018 (9) TMI 1961 - ITAT CHENNAI] the Tribunal allowed the claim of bad debts arising from trading of commodity at NSEL in accordance with principle laid down in the case of TRF Ltd. [2010 (2) TMI 211 - SUPREME COURT] It is no more res-integra that for write off of bad debts as irrecoverable, the assessee is not under obligation to show that the debt has in fact become irrecoverable. Now, the only requirement as per the provisions of section 36(1)(vii) is that the assessee has to write off the debts as irrecoverable in the accounts. In the present case, the assessee in its books has written off the amount from NSEL as bad debt. Once the assessee has written off bad debts in its book, there is no justification in rejecting the claim of assessee. The Board has issued Circular No. 17/2016 dated 30/05/2016 regarding admissibility of claim of deduction of Bad Debts under section 36(1)(vii) r.w.s. 36(2) of the Act. The CBDT has accepted the law explained by the Hon'ble Supreme Court of India in the case of TRF Ltd. (supra) post amendment to the provisions of Sec. 36(1)(vii) and 36(2) of the Act. Assessing Officer has also observed that the loss is capital in nature and hence, can only be claimed for set off against capital gains. It is nowhere emanating from records that the transactions carried out at NSEL are on capital account. There is no denying the fact that the assessee can simultaneously maintain both portfolios. However, we fail to understand as to from where the Assessing Officer has come to conclusion that the loss suffered by assessee from sale and purchase of transaction at NSEL is on capital account. The observations made by the Assessing Officer are superfluous and unsubstantiated - Decided in favour of assessee. Issues:Disallowance of assessee's claim of write off of bad debts.Analysis:The appeal was against the order of the Commissioner of Income Tax (Appeals) for the assessment year 2015-16. The assessee claimed a write-off of bad debts related to investments in National Spot Exchange, which was rejected by the Assessing Officer. The First Appellate Authority upheld the assessment order without considering the detailed submissions provided by the assessee. The key contention was that the bad debts were irrecoverable due to a scam at NSEL, resulting in a substantial loss for the assessee.The authorized representative for the assessee argued that the claim of bad debts was made before the Assessing Officer, supported by letters from the Chartered Accountant. The Departmental Representative contended that the loss pertained to an earlier year and could not be allowed in the assessment year under consideration. The Tribunal noted that the Assessing Officer did not consider the claim despite submissions by the assessee, leading to the CIT(A) dismissing the appeal erroneously.The Tribunal referred to precedents where similar claims of bad debts were allowed, emphasizing that the write-off in the accounts sufficed, as per the law post-amendment to the relevant sections. The Tribunal found merit in the assessee's grounds, especially since the Assessing Officer's classification of the loss as capital in nature was unfounded. The decision was in line with the principles laid down by the Hon'ble Supreme Court regarding the allowance of bad debts write-off in the year of claim without the necessity of proving irrecoverability.In conclusion, the Tribunal set aside the impugned order and allowed the appeal by the assessee, emphasizing the legal provisions and precedents supporting the write-off of bad debts in the case.