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The AO, on a perusal of the return of income filed by the assessee,
observed that it would not be possible for the assessee to establish that the
outstanding debts had become bad and doubtful and hence disallowed the deduction of bad and doubtful debts to
a certain extent. However, the Tribunal allowed the deduction for the same.
The High Court dismissing the departmental appeal observed that the fact that
the assessee could establish before
the AO that a debt had become bad was a matter of appreciation. The High
Court held that the relevant books of accounts were placed before the AO and
hence the Tribunal was correct in allowing the deduction of bad and doubtful
debts written off on the basis of materials placed on record. Refer, CIT .v.
Wipro Ltd, 222 Taxman 181.
In the case of CIT .v. Accord Communication Ltd, 220 Taxman 120, it
was held that No requirement to prove
by documents / evidences that sufficient efforts to recover the debts were
made.
In the Canara Bank, 363 ITR 156, it was held that Bad debts disallowed
by Assessing Officer. Revision order passed without considering the bad debts
issue. Consequential order passed by the Assessing Officer. Assessee filed
appeal before the CIT(A) raising the issue of bad debts. Disallowance set
aside by the CIT(A) and confirmed by the Tribunal. Matter remanded to CIT(A).
In the case of Angel Commodities Broking (P.) Ltd. .v. Dy.CIT, 146 ITD
754, it was held that Write off of debt owed by client was allowed.
The Tribunal held that the assessee is entitled to deduction in
respect of the amount becoming unrecoverable from its clients. However the
deduction has to be restricted to the amount determined after reducing the
sum recoverable from sale proceeds of shares with assessee. The Tribunal set
aside the matter and restored back to file of the Assessing Officer to decide
afresh after allowing a reasonable opportunity of being heard to the
assessee. Refer, ACIT .v. Rishiti Stock & Shares (P) Ltd, 159 TTJ 300.
Usance interest (6.79 per cent) and interest on the buyers line of
credit availed from bank (6.9 per cent) was agreed to be paid at
international Libor which was much lower than the rate of interest of 13.50
per cent charged for CC limit availed from bank in Indian rupee. AO’s
objection regarding higher level of stock of imported items was
satisfactorily met by the assesee. Relevant international transactions of
assessee company with its foreign holding company were accepted by TPO in his
transfer pricing analysis. AO was not justified in disallowing expenditure
towards usance interest and BLC interest. Refer, ITO .v. Ricoh India Ltd., 98
DTR 435.
Advances were written off in profit and loss account. The required
details like name of parties, purpose for which advance was granted, were not
furnished. Amounts were mostly in the nature of liquidated damages and not
bad debts. Details of liquidated damages were not furnished by assessee and
no finding was given by AO. Hence, matter was remanded. Refer, GE India Industrial
P. Ltd. .v. DCIT, 27 ITR 543.
The deduction claimed by the assessee on account of bad and doubtful
debts was disallowed by the AO on the ground that creation of mere provision
was not enough. Assessee’s contention that specific amounts were identified
as bad and doubtful debts and relevant entries made in the books of account
was held sufficient to show that the bad debts were written off as required
by the provisions of s. 36(1)(vii) subject to verification. Refer, Addl. CIT
.v. Nicholas Piramal India Ltd, 27 ITR 182.
Tribunal held that when assessee had admitted that claim of purchases
from a distributor were all bogus, advance for such purchases could be
written off as bad debt. Refer, Dy. CIT .v. Vistas Wind Technology India (P.)
Ltd, 60 SOT 10.
Once assessee records debt as a bad debt in his books of account, that
would prima facie establish that it was a bad debt unless Assessing Officer
for good reasons holds otherwise. Refer, CIT .v. Sushila Mallick (Smt.), 218
Taxman 118.
When the Tribunal allowed the claim of bad debt on the ground that
there was no hope of recovery, it was held that it did not commit any error
in doing so, and no question of law arose. Refer, CIT .v. Gujarat Narmada
Valley Fertilizers Co. Ltd, 218 Taxman 122.
The assessee gave advance to labours and suppliers of material during
the course of its business. Subsequently, the said amount became
non-recoverable and was written off in books of account. Held, in view of the
amended provisions of section 36(1)(vii), assessee was entitled to claim
deduction in respect of amount in question written off unilaterally in its
books of account. Refer, TRG Industries (P.) Ltd. v. DCIT, 59 SOT 64.
Assessee filed his Return of Income u/s 139(1) wherein no claim for
bad debts was raised. Subsequently, a search was conducted in assessee’s
premises in course of which certain documents were seized. In response to
notice issued u/s 153A, assesee filed a revised return disclosing interest
from income from debtors. Assessee also made a claim for bad debts in said
return. On appeal in Tribunal, Tribunal held that it could not be concluded
that assessee had written off bad debt as irrecoverable in accounts
maintained for previous year in ordinary course of business. Further
essential feature for claiming deduction on account of bad debt was that such
bad debt is to written off as irrecoverable in accounts in ordinary course of
business .Since condition of section 36(1)(vi) had not been satisfied in
instant case, assessee’s claim was rejected by authorities. Refer, Gendmal
Kothari v. DCIT, 139 ITD 397.
For allowability of deduction on account of bad debt, it was not
necessary for assessee to close individual account of each debtor in its
books and it would suffice if amount had been reduced from
debtors balance shown on asset side of balance-sheet at close of year.
Refer, KEC International Ltd. v. DCIT, 58 SOT 18.
In the case of CIT v. U.P. Rajkiya Nirman Nigam Ltd., 217 Taxman 367,
it was held that Bad debts could be written off even after closure of the
accounting period.
Since the assessee had written off the amount in its books of account
since it was not recoverable. The addition made by the AO on the ground that
assessee failed to justify its claim, was to be deleted. Refer, Indian Research
Manifestation Labs P. Ltd. v. ACIT, 24 ITR 30.
The assessee having written off bad debts in books of account, it was
not necessary any further to establish that bad debt had in fact become bad.
Windmills, treated as stock in trade, were seized by bank under the order of
the High Court. Finding title of machines in doubt, the assessee was held to
be justified in deciding to write off investment in the same. Refer, CIT v.
Sambhav Media Ltd, 216 Taxman 115.
For an assessee to claim deduction in relation to bad debts it is now
no longer necessary for assessee to establish that debt had become
irrecoverable; and it is sufficient if assessee forms such an opinion and
writes off debt as irrecoverable in its accounts. Refer, CIT v. Samara India
(P.) Ltd, 216 Taxman 93.
Assesee with a view to maintain customer relationship and not to loose
valuable customers assessee-advertising company accepted short payments
against bills raised and short payments were written off by assessee as bad
debts .The Tribunal held that write off of the amount was a reversal of
income which was booked in excess and was borne out of a commercial
consideration and therefore could not be termed as arbitrary or irrational,
therefore, assessee’s claim of bad debts was to be allowed. Refer, Hindustan
Thompson Associates (P.) Ltd. v. ACIT, 53 SOT 389(Mum.)(Trib.).
The assessee was not recognised as a moneylender under any law or as a
financial institution, it cannot be said that assessee is carrying on money
lending activity as part of its business. Therefore, amount advance by the
assessee becoming irrecoverable cannot be allowed as bad debt under section
36 (1) (vii) of the Act. Refer, CIT v. Epsilon Advisers (P) Ltd, 80 DTR 366
(Karn.)(High Court)
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