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Income Tax Appellate Tribunal, “SMC”“A”BENCH, BENGALURU
O R D E R Per: B.R. Baskaran, A.M. The assessee has filed this appeal challenging the order dated 30.01.2019, passed by the learned CIT(A)-1, Bengaluru and it relates to AY 2015-16.
Though the assessee has raised many grounds, the learned A.R. confined his arguments with regard to disallowance of Rs.14,94,287/- made out of the bad debts claimed by the assessee.
The facts relating to the above said issue are that the assessee is engaged in the business of manufacture and sale of liquid containers. During the course of assessment proceedings, the AO noticed that the assessee has claimed deduction of bad debts of Rs.44,04,870/-. The AO examined the breakup details and noticed that the following items are also claimed as bad debts:
M/s. Bulk Liquid Solutions P. Ltd. (a) Credit balance of Compac Industries – reinstated Rs.13,00,000 (b) FBT refund written off Rs. 1,81,620 (c) I.T. Refund Rs. 12,635 Total Rs.14,94,287 The AO took the view that the above said amounts cannot be claimed as bad debts. Accordingly, he disallowed the above said claims. The learned CIT(A) also confirmed the same.
The learned A.R. submitted that the assessee was having credit balance of Rs.19.08 lakhs in the name of M/s. Compac Industries and the same was written off and offered as income in the AY 2011-12. Subsequently there was negotiations between the assessee and M/s. Compac Industries and it was agreed that the assessee would pay a sum of Rs.13,00,000/- to the above said creditor in settlement. Since the balance outstanding in his name was written off in the earlier year, which was also offered as income, the reinstated amount of Rs.13.00 lakhshas been claimed as deduction in the year of reinstatement. He submitted that the above said amount of Rs.13,00,000/- should be allowed as expenditure, since it is only reversal of amount already offered as income. With regard to the write off of FBT refund and income tax refund, the assessee preferred to write it off since the refunds were not forthcoming.
The learned D.R., however, submitted that the learned CIT(A) asked the assessee to furnish the confirmation letter from M/s. Compac Industries and the assessee has failed to furnish the same.
The learned A.R. submitted that the assessee has furnished the relevant ledger accounts showing the amount written off in AY 2011-12 and also the reinstatement of amount of Rs.13,00,000/- during the year under consideration. Since the amount written off by the assessee has been assessed to tax, there is no reason to disbelieve the claim of reinstatement of credit balances.
I heard the rival contentions on this issue and perused the record. The assessee has furnished ledger account copy of M/s. Compac
M/s. Bulk Liquid Solutions P. Ltd. Industries relating to AY 2011-12 at pages 42 to 44 of the paper book and it is noticed that the assessee has written off the outstanding credit balance of 19.08 lakhs and offered the same as income. It is the submission of the assessee that there was negotiations between the assessee and the above said party and finally it was decided that the assessee would pay Rs.13,00,000/- to M/s Compac Industries. TheLd A.R submitted that the negotiation was completed by 28.02.2015 and accordingly the assessee has reinstated the above said amount in the name of M/s. Compac Industries and debited the said amount to bad debt account. In the strict sense it is not bad debt. It is a case of write back of the credit balance written off earlier. Since the earlier write off of credit balance has been offered as income in AY 2011-12 the amount so reinstated after negotiations, in my view, should be considered as normal business expenditure allowable under Section 28 of the Income Tax Act, 1961 (hereafter "the Act").Accordingly I set aside the order passed by the learned CIT(A) on this issue and direct the AO to allow the claim of Rs.13,00,000/- referred to above.
With regard to the write off of FBT refund and I.T. refund, I am of the view that the same cannot be allowed as deduction since the FBT payment and Income tax payment are required to be disallowed under Section 40 of the Act. Accordingly I confirm the disallowance of write of FBT refund and I.T. refund.
In the result, the appeal filed by the assessee is partly allowed.
Dictated and pronounced in the open Court on 30th May, 2022.