2014 (11) TMI 1221 - AT - Income Tax

Bad debts claimed/advances written off - A.O. disallowed on the reason that evidence was not provided to show why the advances/ bad debts had been written off - CIT-A deleted the addition - HELD THAT - It is not a case where assessee has not furnished the details before A.O. However A.O. disallowed on the reason that assessee has not justified why the amounts are written off. Ld. CIT(A) examined the details and found that most of them are advances in the course of business paid over to more than 200 people and since the amounts are written off in the books of accounts they are eligible for deduction. Both on facts as well as on law order of CIT(A) is to be upheld. There is no merit in Revenue grounds.

Summary

Issues:
- Allowance of bad debts claimed/advances written off amounting to Rs. 30,29,932 disallowed by Assessing Officer.
- Disallowance reason based on lack of evidence provided for writing off advances/bad debts.
- Assessee's submission of details before Assessing Officer and Ld. CIT(A).
- Consideration of facts and law by Ld. CIT(A) leading to relief granted.
- Comparison with judgments in similar cases to support the decision.

Analysis:
The judgment by the Appellate Tribunal ITAT Hyderabad involved a Revenue appeal against the order of Ld. CIT(A)-III regarding the allowance of bad debts claimed and advances written off amounting to Rs. 30,29,932. The Assessing Officer disallowed these amounts under section 143(3) due to lack of evidence provided by the assessee to justify the write-offs. However, the assessee, a construction company, had submitted details to both the Assessing Officer and the Ld. CIT(A). The Ld. CIT(A) considered the facts and evidence presented. It was noted that the advances were paid to various individuals in the course of business, including laborers and drivers, and had been carried forward in the books for several years. The Ld. CIT(A) found that the assessee was not required to provide documentary evidence from these individuals after such a long time, especially since the entries were duly reflected in the books of account.

Regarding the bad debts, the appellant had provided comprehensive details of the running account and evidence showing that the debt had become non-recoverable due to the insolvency of the debtor. The Ld. CIT(A) referenced legal precedents to support the decision, including the judgment in the case of TRF Limited vs. CIT, where it was established that the assessee does not need to prove beyond doubt that the debt had become bad. The Ld. CIT(A) also cited judgments from the jurisdictional High Court to reinforce the allowance of bad debts written off. The Revenue's appeal focused on the advances written off, arguing that they were not petty amounts, especially in the case of a single party where the amount ranged up to Rs. 6 lakhs.

During the hearing, both the learned D.R. and Ld. Counsel were heard. The Tribunal observed that the assessee had indeed furnished details before the Assessing Officer. The Ld. CIT(A) had carefully examined the nature of the advances and found them to be eligible for deduction since they were written off in the books of accounts. Ultimately, the Tribunal upheld the order of the Ld. CIT(A), emphasizing that there was no merit in the Revenue's grounds for appeal. Consequently, the appeal of the Revenue was dismissed, affirming the decision in favor of the assessee.