EXCEL WIRECUT INC,BENGALURU vs. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE - 6(1)(1), BANGALURU

The brief facts of the case are that the assessee is a partnership firm and engaged in the business of manufacturing engineering products and filed their return of income on 01/10/2013. The return was selected for scrutiny under CASS and notice u/s. 143(2) was issued on 04/09/2014. Thereafter notice u/s. 142(1) was issued. The assessee appeared and furnished the details called for by the AO. The AO based on the details

As against the said order, the assessee filed an appeal before the Ld.CIT(A). The Ld.CIT(A) had accepted the claim of the assessee insofar as addition made u/s. 68 of the Act. Insofar as the disallowance of the bad debts, the Ld.CIT(A) had confirmed the said disallowance. The loss in the difference in the exchange was also accepted by the Ld.CIT(A). The disallowance of the ESI and PF payments were also confirmed by the Ld.CIT(A). The disallowance of the interest amount u/s. 40(a)(ia) was also allowed by the Ld.CIT(A). In respect of the expenses disallowed by the AO, the Ld.CIT(A) had restricted the said disallowance to 10% of the expenses instead of 25%.

As against the said order, the assessee is in appeal before this Tribunal with a delay of 687 days. In support of the said delay, an application was also filed by the assessee in which the assessee had explained the reasons for the delay. The assessee had relied on the medical records and also the medical records of the daughter of one of the partner and therefore prayed to condone the said delay and decide the appeal on merits.

We have gone through the reasons given by the assessee in the application and also perused the medical records of the one of the partner as well as his daughter and on that basis, we are satisfied that the assessee was having valid reasons for not filing the appeal in time before this Tribunal. Therefore we are condoning the said delay and proceeded to decide the appeal on merits.

The Ld.DR submitted that the assessee had not established that the bad debts are written off in the books of the assessee and therefore the disallowance made by the AO is in order. Similarly, the assessee had not furnished the proofs for incurring the expenses and therefore the disallowance is in order.

We have heard the arguments of both sides and perused the materials available on record.

It is the case of the assessee in respect of the writing off of the bad debts from M/s. BEL Ltd. and M/s. Ecotech Machinery Pvt. Ltd. Sdr, the assessee had written off their bad debts as not recoverable by making proper book entries. The said facts were also placed before the lower authorities. The authorities had not accepted the claim on the sole ground that the copies of the ledger account of all the relevant parties were not furnished.

We have perused the paper book filed by the assessee and in page numbers 02 & 03 of the said paper book, the assessee had a ledger account

Further, the above said view was fortified by the judgment of the Hon’ble Supreme Court reported in (2010) 323 ITR 397 in the case of T.R.F. Ltd. vs. CIT wherein it was held that to obtain a deduction in relation to bad debts, it is not necessary for the assessee to establish that the debt, in fact, has become irrecoverable. It is enough if the bad debt is written off as irrecoverable in the accounts of the assessee.

In the facts of the present case, we find that the assessee had written off the said debts from the two entities and also written off the bad debts amounting to Rs. 81,783/- due from others and the assessee had also proved the said fact by producing the ledger account of the bad debts. In such circumstances, we are of the view that the assessee is entitled for deduction u/s. 36(1)(vii) of the Act on the bad debts written off by them.

Insofar the second issue of disallowance of the expenses are concerned, the AO had disallowed the 25% of the expenses on the ground that the assessee had not produced the vouchers / bills for verification of expenses in respect of transportation, transport charges and vehicle maintenance. On appeal, the Ld.CIT(A) had reduced the disallowance to 10% of the expenses. Both the authorities had arbitrarily disallowed the expenses without having any comparable data. For disallowing the 25% of the expenses, the AO had no data. Similarly, the Ld.CIT(A) also does not have any data to reduce it to 10% of the expenses. In such circumstances

We therefore set aside the order of the Ld.CIT(A) insofar as the above two issues are concerned and allow the appeal filed by the assessee.

In the result, the appeal filed by the assessee is allowed.