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2015 (6) TMI 934 - ITAT AHMEDABAD

2015 (6) TMI 934 - ITAT AHMEDABAD - TMI - Disallowance of bad debts - CIT(A) deleted the disallowance - Held that:- On the one hand, the AO is taxing the income shown by the assessee by way of liabilities no longer required written off of ₹ 36,91,095/-, but, on the other hand, the AO was not allowing deduction for bad debts of ₹ 34,64,718/- claimed by the assessee. Further, the DR has not controverted the findings of the CIT(A) that bad debt of ₹ 34,64,718/- claimed by the asse .....

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s written off debts of ₹ 34,64,718/- as bad in its books of accounts. It has not been disputed that the debt which has been written off by the assessee arose out of sales made on credit in earlier years and the same was shown as receivable by the assessee in last several years. The same balance was brought forwarded from earlier several years and no recovery therein was made in last few years. The write off of the debts in the books of accounts by the assessee is prima facie evidence of it .....

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of the Commissioner of Income-Tax (Appeals)-XI, Ahmedabad dated 24.1.2006. 2. This appeal was dismissed by the Tribunal due to low tax effect vide order dated 3.7.2009 in ITA No.802/Ahd/2006 for the Asstt.Year 2002-03. The Revenue carried the matter before the Hon ble Gujarat High Court. The Hon ble High Court vide its order dated 30.9.2013 passed in Tax Appeal No.208 of 2010 quashed and set aside the order of the Tribunal, and remanded the matter back to its file to decide the same on merits a .....

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and postal address and also PAN of each party. The assessee vide its letter dated 25.8.2004 submitted that it was not in touch with the debtors as they were very old. The assessee submitted that the company has closed its business since October, 1996 i.e. prior to almost nine years. The relation and mutual faith between the company and its debtors and creditors deteriorated each day. The company has written off liabilities no longer required to be paid to the creditors amounting to ₹ 36,90 .....

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view was warranted, and the degree of evidence being the same in the case of both the debtors and creditors. 5. The AO observed that Income Tax Act does not provide any scheme for adjustment of income generated by way of writing off of very old liabilities against the debts of an assessee. There was no explanation to section 36(1)(vii) of the Act. The contention raised by the assessee was not acceptable, and was also not in accordance with law. The AO observed that vide its notice dated 10.2.20 .....

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e Tribunal had also followed the decision and held that writing off is to be of a bad debt and not of any debt which is not bad, and therefore, he disallowed deduction of ₹ 34,64,718/-. 6. On appeal, the CIT(A) allowed the claim of the assessee. The CIT(A) observed that the assessee-company had written off the liabilities to extent of ₹ 36,91,095/- and has claimed bad debts of ₹ 34,64,718/-. Thus, the assessee has offered income on account of writing off of the creditors, on wh .....

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the debt has really become bad. He placed reliance on the decision of the Hon ble Gujarat High Court in the case of CI Vs. Ahmedabad Electricity Co. Ltd. 262 ITR 97 (Guj). 7. Before us, the DR supported the order of the AO, whereas AR of the assessee supported the order of the CIT(A) and submitted that the issue was now covered in favour of the assessee by the decision of the Hon ble Supreme Court in the case of T.R.F. Ltd. Vs. CIT, 323 ITR 397 (SC) wherein it was held that after the amendment .....

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assessee. 8. We have heard rival submissions and perused the orders of the lower authorities and material available on record. The undisputed facts of the case are that the assessee has disclosed write off of liabilities no longer required of ₹ 36,91,095/- and offered the same as income. Simultaneously, the assessee claimed write off of bad debts of ₹ 34,64,718/- and claimed the same as deduction from the income. The AO though taxed the liability no longer required written off as in .....

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y way of writing off of the liabilities of earlier years of ₹ 36,91,095/-, and thereby the assessee has shown net income, and therefore, no disallowance was warranted. He further observed that the Hon ble Gujarat High Court in the case of Ahmedabad Electricity Company (supra) has held that it was not necessary for the assessee to establish that the debt had in fact become bad. 10. Being aggrieved, the Revenue is in appeal before us. 11. The DR has simply relied on the order of the AO. He c .....

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