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Income Tax Appellate Tribunal, MUMBAI BENCH “D”, MUMBAI
Before: SHRI C.N. PRASAD, HONBLE & SHRI RAJESH KUMAR, HONBLE
O R D E R PER C.N. PRASAD (JM) 1. This appeal is filed by the assessee against the order of the Ld. Commissioner of Income-tax (Appeals) – 21, Mumbai [hereinafter in short “Ld. CIT(A)”] dated 15.03.2018 for the A.Y. 2014-15.
The only issue in the appeal of the assessee is in respect of sustaining the disallowance made by the Assessing Officer towards bad debts written off.
2 ITA.NO.3650/MUM/2018 (A.Y: 2014-15) M/s. Remi Sales and Engineering Limited 3. Briefly stated the facts are that, assessee company which is engaged in the business of Trading in Electrical Motors, Laboratory Instruments and Equipments etc., filed its return of income on 29.11.2014 declared income of ₹.1,59,64,590/-. The assessment was completed on 29.12.2016 u/s. 143(3) of the Act determining the income of the assessee at ₹.3,82,95,500/-. In the course of the assessment proceedings Assessing Officer noticed that assessee company has claimed bad debts amounting to ₹.2,23,30,912/-. The Assessing Officer required the assessee to justify the claim for bad debts and explain why it should not be disallowed. Assessee furnished its reply vide letter dated 15.11.2016 explaining the reasons for written off. It was explained that bad debts were written off after National Spot Exchange Ltd., [NSEL] failed to make payments on due dates and it came out in public saying that its dealings with various buyers of commodities and warehouses, where the underlying commodities were being stored were dubious and the commodities in the warehouses were vanished and were much below the declared quantities. Therefore, it was explained that the management of the assessee company after considering all the facts of the case came to the conclusion that full outstanding of NSEL could not be recovered and accordingly decided to written off 25% of the outstanding amount as bad debt as on 30.09.2013. It was also explained that as the assessee
3 ITA.NO.3650/MUM/2018 (A.Y: 2014-15) M/s. Remi Sales and Engineering Limited company has shown the income from trading as Revenue income in its profit and loss account and part of the outstanding amount has been written off as bad debts in its books of accounts, it meets the requirement of section 36(2) of the Act and therefore should be allowed as deduction. However, not convinced with the submissions of the assessee, the Assessing Officer disallowed the bad debts written off observing that the claim of bad debt due to non-delivery of stock is premature at this stage as final deficiency in amount cannot be arrived at now. He also observed that the case is under investigation and seized assets are yet to be realized and hence the amount cannot be treated as bad. On appeal the Ld.CIT(A) sustained the disallowance.
Before us, the Ld. Counsel for the assessee submits that the assessee in its books of accounts has shown the transactions of the purchases and sale of the commodities as trading and accordingly reflected the same in its profit and loss account and profit made from the said transactions was offered as business income. Ld. Counsel for the assessee submits that NSEL defaulted in payments against due in August 2013 onwards against sales made and the assessee company written off his bad debts 25% of outstanding in its books of accounts as on 30.09.2013 since NSEL failed to make payments on due dates. Therefore, Ld. Counsel for the assessee submits that as the assessee
4 ITA.NO.3650/MUM/2018 (A.Y: 2014-15) M/s. Remi Sales and Engineering Limited Company has shown the income from trading as revenue income in its profit and loss account and part of the outstanding amount has been written off as bad debts in its books of accounts it meets the requirement of section 36(2) of the Act and therefore should be allowed as deduction. He strongly relied on the decision of the Hon'ble Supreme Court in the case of T.R.F Ltd. v. CIT [323 ITR 397], wherein it has been held that it is not necessary for the assessee to establish that the debt, in fact, has become irrecoverable. It has been held that it is enough if the bad debts are written off as irrecoverable in the accounts of the assessee.
Ld. DR vehemently supported the orders of the authorities below.
We have heard the rival submissions and perused the orders of the authorities below and the decision relied on. It is not in dispute that the assessee company has shown the income from trading as revenue income in its profit and loss account and part of the outstanding amount has been written off as bad debts in its books of accounts. In such circumstances, the decision of the Hon'ble Supreme Court in the case of T.R.F Ltd v. CIT (supra) squarely apply to the facts of the case. It has been held by the Hon'ble Supreme Court that it is not necessary for the assessee to establish that the debt, in fact, has become irrecoverable and it is enough if the bad debt is written off as irrecoverable in the accounts
5 ITA.NO.3650/MUM/2018 (A.Y: 2014-15) M/s. Remi Sales and Engineering Limited of the assessee. Since there is no dispute of write off of bad debts in the books of accounts of the assessee, respectfully following the decision of the Hon'ble Supreme Court we hold that the lower authorities are not justified in not allowing the claim for deduction of bad debts. Thus, we direct the Assessing Officer to delete the disallowance made towards bad debts and recompute the income of the assessee.
In the result, appeal of the assessee is allowed.
Order pronounced in the open court on the 06th September, 2019