TMI Blog2016 (5) TMI 706X X X X Extracts X X X X X X X X Extracts X X X X ..... uld not be realized by the assessee in full and only sum of ₹ 1 lakh after negotiations was paid by the said concern that too in assessment year 2008-09. At the close of the year, the assessee had written off of ₹ 68,750/- i.e. amount in question by treating it as irrecoverable and such act of write off of irrecoverable amount cannot be faulted with and the claim of assessee against writing off of such amount is to be allowed as deduction under section 36(1)(vii) of the Act. See Nichrom India Limited case [2016 (3) TMI 317 - ITAT PUNE ] - Decided in favour of assessee Disallowance made under section 14A - Held that:- The assessee has filed on record the copy of Balance Sheet as on 31.03.2007, in which the said investment is reflected at ₹ 2,80,000/- and even as on 31.03.2006, the investment was ₹ 2,80,000/-. Admittedly, the aforesaid investment has not been made in instant assessment year and is brought forward from the preceding year. In the earlier years, no disallowance under section 14A of the Act was made in the hands of assessee. The assessee admittedly, has not received any income on the said investment which is exempt from tax. The year under appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nufacturing, hiring and trading activities. During the year under consideration, the assessee had written off debts in respect of two parties i.e. M/s. S.S. Deisel of ₹ 14,997/- and M/s. Goodwill Engineering Services of ₹ 68,750/-. The assessee had claimed the deduction under section 36(1)(vii) of the Act after writing off of said debts. The Assessing Officer asked the assessee to explain as to how these debts had become bad during the year. In respect of M/s. S.S. Deisel, the contention of assessee that the party had refused to make the payment because chemical solution supplied to it was found to be inferior quality, was not accepted by the Assessing Officer. The second contention of the assessee that the payment for machinery sold to M/s. Goodwill Engineering Services was not received from the said party was not accepted, since the assessee was maintaining the business transactions with the said concern. The Assessing Officer was of the view that where the assessee has failed to justify that the debts had become bad, mere writing off of debts in the books was not enough to claim the deduction under section 36(1)(vii) of the Act, hence, addition was made to the extent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce, the total amount was not paid by the said concern. The cost of machinery was ₹ 1,68,750/-, out of which ₹ 1 lakh was received by the assessee in the next year i.e. assessment year 2008-09 and the balance sum of ₹ 68,750/- was written off as bad debts by the assessee while closing the books ending 31st March, 2007. The assessee has placed copy of the ledger account of the said party in its books at page 6 of the Paper Book. The Assessing Officer had denied the claim on the ground that the debt had not become bad and also that the assessee was otherwise dealing with the said concern. The learned Departmental Representative for the Revenue during the course of hearing pointed out that write off was premature as sum of ₹ 1 lakh was received by the assessee in the next year. The assessee had written part of the specific bill which was due from M/s. Goodwill Engineering Services. The assessee was otherwise engaged in the business of manufacturing, hiring and trading activities and had only sold one machinery to M/s. Goodwill Engineering Services on 30.11.2005 i.e. during the preceding year. However, the payment against the said machinery could not be realized ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eeded on the proposition that the assessee was required to establish that the debts had become bad; or, in other words, that the debts were irrecoverable and only then the writte-off of such bad debts would qualify for deduction u/s. 36(1)(vii) of the Act. In our considered opinion, the controversy on this point has been answered by the Hon ble Supreme Court in the case of T.R.F. Ltd. (supra). The Hon ble Supreme Court compared the provisions of section 36(1)(vii) of the Act which existed prior to 01.04.1989 with that which are on statute post 01.04.1989. Assessment years before the Hon ble Supreme Court were 1990-91 and 1993-94, i.e. both post 01.04.1989. As per the Hon ble Supreme Court, prior to 01.04.1989, every assessee had to establish, as matter of fact, that the debt advanced by the assessee had, in fact, become irrecoverable. Further, explaining the provisions of section 36(1)(vii) of the Act as amended w.e.f. 01.04.1989, the Hon ble Supreme Court observed that under the amended provisions it is not necessary for the assessee to establish that the debt, in fact, has become irrecoverable. It is enough that the bad debt is written-off as irrecoverable in the accounts o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om different debtors which has been written-off as bad debts amounting to ₹ 40,89,838/-, the relevant details are at pages 4 to 9 of the Paper Book. Against each and every entry assessee has explained the reasons for treating the same as a bad debt . A perusal of the same reveals that amounts writtenoff are outstanding for recovery for periods ranging from 2 to 10 years. In-fact, an overwhelming majority of the entries are of small amounts and are outstanding for 4 years and above. No doubt, with some of the parties in question, assessee has undertaken dealings in the instant year also. So, however, the amounts that have been written-off, as detailed in the Paper Book, are specific bills or part of specific bills raised by the assessee, which have not been collected from such parties. Therefore, merely because assessee had dealing with that particular concern or that the concerns are otherwise financially viable does not distract from the fact that the amounts in question, which are individually of small values, were specific bills of the assessee or part thereof, which were outstanding for a long period of time and therefore considering the aforesaid aspect, on facts, the j ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 07, in which the said investment is reflected at ₹ 2,80,000/- and even as on 31.03.2006, the investment was ₹ 2,80,000/-. Admittedly, the aforesaid investment has not been made in instant assessment year and is brought forward from the preceding year. In the earlier years, no disallowance under section 14A of the Act was made in the hands of assessee. The assessee admittedly, has not received any income on the said investment which is exempt from tax. The year under appeal before us is assessment year 2007- 08 and the provisions of Rule 8D of the Income Tax Rules, 1962 were not on Statute in the said assessment year. In view thereof, we find no merit in the aforesaid disallowance made under section 14A of the Act. Accordingly, we delete the addition of ₹ 1,67,295/-. The ground of appeal No.2 raised by the assessee is thus, allowed. 13. The ground of appeal No.3 raised by the assessee is not pressed and hence, the same is dismissed as not pressed. The grounds of appeal raised by the assessee are thus, partly allowed. 14. In the result, the appeal of the assessee is partly allowed. Order pronounced on this 7th day of April, 2016. - - TaxTMI - TMITax - ..... X X X X Extracts X X X X X X X X Extracts X X X X
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