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2016 (2) TMI 628 - ITAT AHMEDABAD

2016 (2) TMI 628 - ITAT AHMEDABAD - TMI - Disallowance u/s 36(1) - denial of claim of bad debts - Held that:- We are of the view that assessee has complied with the requirement of the provisions of Section 36(1)(vii) of the Act and therefore the amount is allowable as deduction as bad debts and therefore we direct the A.O. to allow the same. - Decided in favour of assessee - ITA No. 1067/AHD/2011 - Dated:- 19-2-2016 - Shri Anil Chaturvedi, Accountant Member And Shri Kul Bharat, Judicial Member F .....

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ase was selected for scrutiny and thereafter the assessment was framed under section 143(3) vide order dated 31.12.2008 and the total income was determined at Rs. Nil but after disallowing the claim of bad debts and prior period expenses and after setting off of unabsorbed depreciation. Aggrieved by the order of A.O., Assessee carried the matter before ld. CIT(A) who vide order dated 14.12.2010 dismissed the appeal of the Assessee. Aggrieved by the aforesaid order of ld. CIT(A), Assessee is now .....

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; 34,27,583. He ought to have allowed deduction as claim was in compliance with all the conditions stipulated by the relevant provisions of section 36. 3.1In law and in the facts and circumstances of the appellant's case, the learned CIT(A) has grossly erred in upholding disallowance of Prior Period Expenditure for ₹ 2,35,195. 3.2Without prejudice to above, ld. CIT(A) ought to have directed A.O to allow expenditure in the relevant assessment year to which it pertains. 4. Before us, at .....

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ed to justify its claim and efforts made by it to recover the debts. In response to the query of A.O., assessee inter alia submitted that considering the costs involved, it had decided not to pursue legal action. The submissions of assessee were not found acceptable to A.O. He also noticed that Assessee had made provision for bad debts of the aforesaid amount. He was of the view that a mere provision for bad debts is not sufficient for making the claim and that unless the amount is written off a .....

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ssessee carried the matter before ld. CIT(A) who upheld the order of A.O by holding as under:- 3.3 I have considered the facts of the case, assessment order and appellant's submission. Assessing officer made disallowance on two counts namely- 1-appellant has not written off bad debt in the accounts of the debtors and 2-appellant has not established the debt as bad. As regards bad debts not written off in the accounts, appellant submitted that it has debited bad debts in profit and loss accou .....

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o the requirement of section 36 (1) (vii) of IT act. However these decisions have not considered the amendment brought to this section by explanation inserted by Finance Act 2001. Since explanation clarified that bad debts written off as irrecoverable in the accounts .of assesses shall not include any provision for bad and doubtful debts made in the accounts of the assesses; it is mandatory to write off debtors accounts for claiming deduction of bad debts. If the debtor's accounts are not wr .....

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In view of this, though appellant's P&L account reflects debit for bad debts, the same is not coming from amounts written off in the accounts of debtors. The credit of such separate reserve account for bad debts is not the bad debts written off and therefore appellant did not fulfill the vital condition required for claim of bad debts. In view of this the disallowance of bad debt made by the assessing officer is confirmed. As regards assessing officer's other argument that bad debt .....

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order of ld. CIT(A), Assessee is now in appeal before us. 7. Before us, ld A.R reiterated the submissions made before A.O and ld. CIT(A) and further submitted that out of the total bad debts ₹ 34,27,583/- ₹ 22,12,000/- constitutes the amount due from Deluxe Road Lines Pvt. Ltd. on account of the goods that were burnt in fire in riots on 31.10.2002 and the amount was not recoverable and was therefore written off. With respect to the balance amounts, he submitted that it represents the .....

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reduced from the total debtors and therefore it amounts to writing off from the amounts due from the parties and for this proposition, he relied on the decision of Hon ble Apex Court in the case of Vijaya Bank vs. CIT reported in 2010 323 ITR 166. He further submitted that after 01.04.1989, it is not necessary for the Assessee to establish that the debt has in fact become irrecoverable and it is enough if the bad debt is written off as irrecoverable in the accounts of the Assessee. He therefore .....

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of bad debts be allowed. Ld. D.R. on the other hand supported the order of A.O and ld. CIT(A) and further submitted that the Assessee has to demonstrate that the debt has become bad for claiming the deduction. He thus supported the order of A.O and ld. CIT(A). 8. We have heard the rival submissions and perused the material available on record. The issue in the present case, is with respect to write off of bad debts. On perusing the Schedule 12 of the Profit and Loss account which is placed at p .....

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