TaxTMI 
TaxTMI 
2017 (1) TMI 998
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.... assessee that appeal filed by the Revenue is hit by CBDT Circular No.21 of 2015 dated 10/12/2015. As per aforesaid Circular, all pending appeals filed by Revenue are liable to be dismissed as a measure for reducing litigation where the tax effect does not exceed the prescribed monetary limit which is Rs. 10 lakhs. In the instant case, the tax effect on the disputed issue raised by the Revenue is less Rs. 10 lakhs and therefore appeal of the Revenue is required to be dismissed in limine. 4. The Ld.DR for the Revenue fairly admitted the applicability of the CBDT Circular No.21 of 2015. Accordingly, appeal of the Revenue is dismissed as not maintainable. However, it will be open to the Revenue to seek restoration of its appeal on showing inapplicability of the aforesaid CBDT Circular in any manner. 5. In the result, the appeal of the Revenue is dismissed. 6. Now, we take up the Assessee's appeal in ITA No.1689/Ahd/2013. The Assessee has raised the following grounds of appeal:- I) Disallowance & enhancement of Bad debt claim a) The Commissioner of Income Tax (Appeals)XVI, Ahmedabad erred in not only confirming disallowance of bad debt Rs. 2,58,046/- made by ....
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....tead of Rs. 2,58,046/- estimated by AO. He accordingly issued show-cause notice for enhancement of disallowance of bad debt to Rs. 11,14,090/- and thereafter in its appellate order rejected the bad debt claim at enhanced figure of Rs. 11,14,090/-. The relevant extract of the order of the CIT(A) in this regard is reproduced hereunder:- "4.2 I have carefully considered the facts of the case and the submissions made by the appellant. The controversy at hand is as to whether the amount of Rs. 2,58,046/- added by the A O on account of bad debts is a legally correct action or not. While analysing the submissions made by the appellant, it was noted that the A O had actually erred in making the correct amount of addition on account of inadmissible bad debts. It was noted that owing to the facts of the case, the amount of bad debts which was liable to be added was higher than the one added by the A O. It was seen that the amounts claimed by the appellant as bad debts u/s. 36(i)(vii) were not strictly falling within the realm of said section. Consequently, a notice of enhancement dated 27-6-2012 was issued to the appellant which is reproduced hereunder:- ' ".... Please ....
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.... the claim of bad debt amounting to Rs. 25,80,457/- is accordingly restricted and such excess disallowed amount added back to your total income for the year under consideration. Since, the disallowance of excess claim, amounts to enhancement of income, this show cause notice is issued to you. Your explanation to this show cause notice should be received in my office latest by 16-07-2012 i.e. the next date of scheduled hearing....." In response to the reply of the appellant dated 7-7-2012, another show cause for enhancement was issued on 20-3-2013 which is reproduced hereunder :- "......Please refer to appeal No.CIT(A)-XVI/Jt.R.11/431/11-12 in your case for the A.Y.2009-10. and notice of enhancement of income dated 27/06/2012. In response you have filed reply dated 7/7/2012 through tapal on 16/07/2012. Contesting your proposed enhancement of income It has been , inter alia, indicated therein that the show cause notice does not mentions the amount of enhancement as well as debts in respect of which enhancement is required to be now made. 2 As per details hitherto filed by you against total claim of bad debts made by you of Rs. 26,07,595/-, amounts ....
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....bills are explained as amounts where the original bills were lost and duplicate bill were issued. Similarly, short payments are explained as amounts received in respect of bills where the full billed amounts were not paid by the party. Again, advertisement cancelled are explained as transactions where the parties who had earlier ordered for release of certain advertisement, indulge in last minute cancellation. The central point which is noteworthy in all these transactions is that they are not in the nature of bad debts defined u/s. 36(1)(vii) rws 36(2). The amounts claimed by the appellant are more in the nature of discount, trade losses etc. but do not qualify as bad debts. Section 36(1)(vii) rws 36(2) primarily addressed to a situation where an amount of sales booked in a particular year remained outstanding and the party or the debtor failed to pay the same on account of his insolvency or otherwise. Amounts of monies representing cancelled orders, twice bills / or new bills raised etc do not fall in this category. Hon'ble Apex Court in the case of TRF Ltd have also held that the claim of bad debt has to be allowed provided conditions of section 36(1)(vii) / 36(2) are satisf....
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....)(vii) provides for write off of bad debt that has become irrecoverable. In our view, the qualifying terms of debt, both bad and doubtful have got definite meaning and content, the scope of which is not considered in the above decisions. The High Courts of Delhi and Patna seem to have been influenced by the deletion of the words "established to have become bad debt in the previous year" from the Section. In our view, even after deletion of these words, the Section makes it clear that the debt to be written off should be irrecoverable. We do not know how a debt that is recoverable, particularly debts of chitty companies which are covered by adequate security, can be written off when debt could be easily recovered by resort to legal process. In any case we do not think there is any need to consider whether we agree with the view expressed by the two High Courts in the above two decisions in this case because on facts the Tribunal has found that the appellant has not written off the bad debts by debiting the Profit and Loss Account. On the other hand the finding of the lower authorities including the Commissioner is that the amounts claimed as bad debt are still shown in the accounts ....
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....receiving/accruing the deduction under the scheme as provided for under the Income-tax Act, entries which have been made as to whether the same are genuine entries or imaginary and fanciful entries, qua the same the Assessing Officer is fully empowered to make enquiry, however, wisdom of the assessee cannot be in such manner questioned and no demonstrative or infallible proof of bad debt having become bad is required, and commercial expediency is to be seen from the point of view of the assessee, depending on the nature of transaction, capacity of debtor, etc., but qua entry, semblance of genuineness has to be there and the same should not be mere paper work. All the citations put before us by the assessee's counsel wherein genuineness of the entries was never doubted therein, wherein in case any specific doubt has been expressed by the lower authorities regarding genuineness thereby required to furnish by the assessee i.e., (a) complete name and address of the persons, (b) ledger accounts of these persons and (c) efforts made to realised the dues. It is a fact that queries by the Assessing Officer were not properly addressed by the assessee and requisite information was not fu....
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....sessee only furnished list of debts and the details called for by the authorities have not been furnished. The claim of the bad debts has been disallowed by considering the material on record by finding as a fact that the debt has not been proved as bad debt. Even otherwise as held by the jurisdictional High Court in the case of Sirpur Paper Mills (supra) only the debt which constitutes trade debt could be claimed as bad debt if it is irrecoverable. In the present case it is observed by the flower authorities that the debts which were written off were not trade debts as seen from para 13.2 of the CIT(A) order. Accordingly, we confirm the order of the CIT(A) on this issue...." 4.6 An upshot of above cited decision is that it is mandatory upon the tax payer to file all the details in support of its claim of bad debts and that the same cannot be allowed as a matter of routine. It is accordingly held that the appellants claim of bad debt to the extent of Rs. 11,14,690/- remains in admissible within the meaning of section 36(1)(viii) rws 36(2) of the Act. Consequently, the amount of Rs. 2,58,046/- added by the AO on account of bad debts is enhanced to Rs. 11,14,090/-. The groun....