1983 (10) TMI 72 - AT - Income Tax

ITAT grants relief in bad debt claim for cloth wholesaler, recognizing practical challenges

The Appellate Tribunal ITAT Ahmedabad allowed the appeal in a case involving the disallowance of a bad debt claim by the CIT(A). The appellant, a cloth ... - Issues:Claim of bad debt disallowed by CIT(A) on grounds of lack of evidence and timing of bad debt occurrence.Analysis:The appeal before the Appellate Tribunal ITAT Ahmedabad-C involved the disallowance of a bad debt claim amounting to Rs. 3289 by the CIT(A). The appellant, a cloth wholesaler, had sold goods to a debtor, Samrathlal Chemaji of Tadpatri, but failed to recover the dues, leading to the write-off of the debt. The CIT(A) rejected the claim citing lack of evidence to prove the debt had gone bad and that it occurred in the relevant assessment year.During the hearing, the appellant's counsel presented a compilation of accounts showing transactions with the debtor from S.Y. 2026 to S.Y. 2030. It was argued that the debt dated back to S.Y. 2027, with the last payment received in S.Y. 2038, after which no further recovery was made. An inquiry with a known party confirmed the debtor's unavailability, leading to the write-off in S.Y. 2036. The appellant contended that the debt had indeed gone bad in the previous year, supported by evidence.The Tribunal, after reviewing the submissions and evidence, found merit in the appellant's arguments. It acknowledged the challenges faced by wholesale cloth traders in recovering debts from distant clients, especially for small amounts. Considering the practical difficulties in pursuing legal action or locating distant debtors, the Tribunal deemed the bad debt claim justified. It emphasized the need for a pragmatic approach in such cases, ensuring relief for the taxpayer without unduly burdening them with uncollectible debts.Consequently, the Tribunal allowed the appeal, directing the ITO to modify the assessment for the firm and partners accordingly. The appellant was granted relief for the bad debt amounting to Rs. 3289, emphasizing the importance of considering the practical challenges faced by businesses in recovering debts, especially in wholesale trading scenarios.