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Income Tax Appellate Tribunal, MUMBAI BENCHES “A”, MUMBAI
Before: SHRI G. MANJUNATHA (AM) & SHRI RAM LAL NEGI (JM)
O R D E R
PER RAM LAL NEGI, JM
This appeal has been filed by the revenue against the order dated 23.01.2018 passed by the Commissioner of Income Tax (Appeals)-4 (for short ‘the CIT(A), Mumbai, for the assessment year 2014-15, whereby the Ld. CIT(A) has allowed the appeal filed by the assessee against the assessment order passed u/s 143 (3) of the Income Tax Act, 1961 (for short the ‘Act’).
Brief facts of the case are that the assessee company engaged in the business of Trader and Broker, filed its return of income for the assessment year under consideration declaring Nil income. The AO passed the assessment order u/s 143 (3) of the Act after making addition of Rs. 2,26,58,328/-, (bad debt claimed by the assessee) and determined the total income of the assessee at Rs. 99,03,851/-. In the first appeal, the Ld. CIT (A) deleted the addition Assessment Year: 2014-15 made by the AO. The revenue is in appeal against the said findings of the Ld. CIT (A). 3. The revenue has challenged the impugned order passed by the Ld. CIT (A) on the following grounds:- “
1. On the facts and in the circumstances of the case and in law, the Ld. CIT (A) erred in deleting the disallowance of bad debt on account of “Bad Debt- NSEL” of Rs. 2,26,58,328/- without appreciating the fact that the claims were premature as final deficiencies in amount could not be arrived at as contemplated u/s 36(2)(ii) of the Act.
2. For these and other grounds that may be urged at the time of hearing, the decision of the CIT (A) may be set aside and that of the AO be restored.”
4. Before us, the Ld. Departmental Representative (DR) relying on the assessment order passed by the AO submitted that since in the present case the claim of bad debt is premature, the Ld. CIT (A) has wrongly deleted the disallowance made by the AO. The Ld. DR further submitted that since the Ld. CIT (A) has passed the impugned order without appreciating the fact that the claim is premature and the deficiencies could not be arrived at in view of the section 36(2) (ii) of the Act, the same is liable to be set aside.
5. On the other hand, the Ld. counsel for the assessee submitted that the assessee had debited an amount of Rs. 2,26,58,238/- in the profit and loss account under the head ‘bad debts’ during the course of assessment proceedings, AO received a letter through proper channel from National Spot Exchange Limited (NSEL) informing the position to paid its creditors. The Ld. counsel further submitted that since, the appellant had fulfilled all the conditions required to claim bad debts, the assessee is entitled for the said deduction. Further, the Ld. counsel relying on the judgment of the Hon’ble Supreme Court in the case of TRF Ltd. vs. CIT, Ranchi in the case of Civil Appeal No. 5293/5294 of 2003 submitted that after 1st April 1989 it is not necessary for the assessee to establish that the debt, in fact, has become Assessment Year: 2014-15 irrecoverable. It is sufficient if the bad debt is written off as irrecoverable in the accounts of the assessee. The Ld. counsel further pointed out that since the findings of the Ld. CIT (A) are based on the law laid down by the Hon’ble Supreme Court, there is no infirmity in the order of the Ld. CIT (A) and accordingly there is no merit in the revenue’s appeal.
We have heard the rival submissions and also gone through the entire material on record including the case laws relied upon by the Ld. CIT (A). The only grievance of the revenue is that the Ld. CIT (A) has wrongly deleted the disallowance made by the AO. The Ld. CIT (A) has deleted the addition holding as under:- “ 5.3 I have carefully considered the facts of the case, oral contentions and written submission of the assessee, discussion of the AO in the assessment order and material available on record. It is a fact submitted by the assessee that trading at NSEL was halted as on July, 2013 and the assessee claimed bad debt amounting at 35% of the total amount receivable from brokers as on 31.03.2014. Further, as per the press report on the NSEL case published on 14.03.2017, the Bombay High Court has decided not to disburse the funds to the aggrieved investors. Under these situations, even after more than three years, the appellant has not been able to recover any amount out of debt, which it had written off in the assessment year under consideration. Further, it is not the case of the AO that any of the conditions of either section 36(1)(vii) or section 36(2) of the Income-tax Act were not fulfilled in the claim made by the assessee in respect of the questioned bad debt. The only observation denying the claim of the assessee is that the claim of bad debt is premature as the proceedings initiated by2ious agencies in the case of NSEL who had significant assets to meet out the liabilities have not come to an end and therefore the claim of bad debts being premature, was not allowed. The AO has also referred to the letter of NSEL written to the CBDT wherein they have indicated that there are enough assets to liquidate and recover the outstanding amounts. In respect of such Assessment Year: 2014-15 observation of the AO and mentions in the letter of NSEL, it is stated that the final outcome of the proceedings undertaken by various agencies including EOW. SEBI or the decision of Hon’ble Bombay High Court would be there at any time in future and the same may result into certain receipts by the assessee at any future date which is not determinable at this point of time. This aspect alone cannot invalidate the claim of the assessee when it is legally allowable and procedurally correct. The appellant in its submission has relied upon the decision of Hon'ble Supreme Court in the case of T.R.F, Ltd V/s CIT, Ranchi dated Feb 9, 2010 (Civil Appeal No. 5293/5294 of 2003) as also on the CBDT Circular No. 12/2016 dated May 30th, 2006 to support its claim of allowability of bad debts written off. In the decision of Supreme Court in the case of T.R.F. Ltd V/s CIT. Ranchi (supra), it has been held that it is not necessary for the assessee to establish that the debt, in fact, has become irrecoverable. The Hon’ble Court have observed that it is enough if the bad debt is written off as irrecoverable in the accounts of the assessee. The CBDT in their Circular No. 12/2016 dated 30.05.2016 with reference to the decision of Hon'ble Supreme Court in the case of T.R.F. Ltd have mentioned that claim for any debt or part thereof, in any previous year shall be admissible u/s 36(1) (vii) of the Act, if it is written off as irrecoverable in the books of accounts of the assessee for that previous year and it fulfills the conditions stipulated in sub-section 2 of Sec 36 of the Act. In view of the facts and circumstances of the case, discussion hereinabove, the action of the Assessing Officer in disallowing the claim of bad debt by the AO is not found to be justifiable and the addition of Rs. 2,26,58,328/- is accordingly deleted. This ground of appeal is accordingly allowed.”