2019 (7) TMI 1769 - AT - Income Tax

Disallowance of bad debt on account of Bad Debt- NSEL - whether claims were premature as final deficiencies in amount could not be arrived at as contemplated u/s 36(2)(ii) of the Act? - CIT (A) deleted the disallowance made by the AO - HELD THAT - CIT (A) has based his findings on the judgment of the Hon ble Supreme Court in the case of TRF Ltd. 2010 (2) TMI 211 - SUPREME COURT has held that it is enough if the bad debt is written off as irrecoverable in the accounts of the assessee. The Ld. CIT (A) has further referred the Circular No. 12/2016 dated 30.05.2016 in which it has been mentioned that in view of the judgment of TRF Ltd. vs. CIT claim for debt or part thereof in any previous year shall be admissible u/s 36(1)(vii) of the Act if it is written off as irrecoverable in the books of account of the assessee for that previous year and it fulfills the conditions of stipulated in sub-section 2 of section 36(2) CIT (A) has specifically mentioned that it is not the case of revenue that any of the conditions either u/s 36(1)(vii) or section 36(2) of the Act are not fulfilled by the assessee. Admittedly the assessee has written off the bad debts in its books of account. In the light of the aforesaid facts we do not find any legal or factual infirmity in the order passed by the Ld. CIT (A) to interfere with the same. Hence we dismiss the sole ground of appeal of the revenue and uphold the findings of the Ld. CIT (A). Accordingly we direct the AO to delete the addition. - Decided in favour of assessee.

Summary

Issues:
Appeal against CIT(A)'s order allowing bad debt claim under Income Tax Act, 1961 for assessment year 2014-15.

Analysis:
1. Background: The assessee, engaged in trading and brokerage, filed a return declaring Nil income for the assessment year. The AO made an addition of Rs. 2,26,58,328 as bad debt claimed by the assessee, resulting in a total income of Rs. 99,03,851. The CIT(A) deleted this addition, leading to the revenue's appeal.

2. Revenue's Grounds: The revenue challenged the CIT(A)'s order, arguing that the bad debt claim was premature under section 36(2)(ii) of the Act, as final deficiencies were not determined. The revenue sought to set aside the CIT(A)'s decision and restore the AO's order.

3. Arguments: The Departmental Representative contended that the claim was premature, and the CIT(A) erred in deleting the disallowance. The assessee's counsel asserted that all conditions for claiming bad debts were met, citing the TRF Ltd. vs. CIT judgment, stating that writing off bad debts suffices, as per Supreme Court rulings.

4. Judicial Analysis: The CIT(A) based the decision on the TRF Ltd. case, where the Supreme Court held that writing off bad debts is sufficient. Referring to Circular No. 12/2016, the CIT(A) emphasized that fulfilling conditions under section 36(2) is crucial. Notably, the revenue did not dispute the fulfillment of these conditions by the assessee.

5. Conclusion: The Tribunal upheld the CIT(A)'s decision, noting no legal or factual flaws. As the assessee had written off bad debts in their accounts and met statutory requirements, the revenue's appeal was dismissed. The AO was directed to delete the addition, affirming the CIT(A)'s order.

In summary, the Tribunal dismissed the revenue's appeal, affirming the CIT(A)'s decision to allow the bad debt claim based on legal precedents and statutory compliance.