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Income Tax Appellate Tribunal, MUMBAI BENCH “H”, MUMBAI
Before: SHRI C.N. PRASAD, HONBLE & SHRI RAJESH KUMAR, HONBLE
(Appellant) (Respondent) Assessee by : Shri Dhaval Shah Revenue by : Shri M.C. Omi Ningshen Date of Hearing : 28.02.2018 Date of Pronouncement : 23.04.2018 O R D E R PER C.N. PRASAD (JM) 1. This appeal is filed by the Revenue against the order of the Ld. Commissioner of Income Tax (Appeals)-2, Mumbai dated 17.03.2016 for the Assessment year 2012-13.
The only issue in the appeal of the Revenue is in respect of deletion of disallowance made by the Assessing Officer towards bad debts u/s.36(1)(vii) of the Act.
2 ITA.No. 4432/MUM/2016 (A.Y:2012-13) M/s. FGP Limited 3. Briefly stated the facts are that, in the course of completion of assessment the Assessing Officer noticed that an amount of ₹.1,69,34,774/- was written off by the assessee in its computation of income. The assessee was required to file details of the said amount written off. Assessing Officer observed that Assessee filed letter submitting list of 16 debtors and no further explanation was given by the assessee on write off. The Assessing Officer made an observation that “as the total income of the assessee is recomputed; there will be no effect for this year but it remains to be verified”. With this observation the Assessing Officer computed the income of the assessee and we find that there was no disallowance/addition made by the Assessing Officer towards bad debts while computing the income at ₹.38,77,820/- in the Assessment Order passed u/s.143(3) of the Act on 16.02.2015.
The assessee preferred appeal before the Ld. CIT(A) and the Ld.CIT(A) allowed the claim observing that once assessee written off the bad debts in the books of accounts there is no need to prove that the debts are irrecoverable or not and in case if assessee recovered from the debtors the same is supposed to be offered as income in the year in which such amount is received. With these observations Ld.CIT(A) directed the Assessing Officer to allow the bad debts of ₹.1,69,34,774/- as deduction. Before Ld. CIT(A) the assessee placed reliance on the decision of the 3 ITA.No. 4432/MUM/2016 (A.Y:2012-13) M/s. FGP Limited Hon’ble Supreme Court in the case of T.R.F Ltd v. CIT [323 ITR 397], wherein it has been held that assessee is not required to establish that the debt as bad as long as assessee has debited the same in its books of accounts the same should be allowed as deduction.
Before us, Ld. DR strongly placed reliance on the order of the Assessing Officer. On the other hand, Ld. Counsel for the assessee strongly supported the order of the Ld.CIT(A) and also relied on the decision of the Hon’ble Supreme Court in the case of T.R.F Ltd v. CIT (supra).
We have heard the rival submissions and perused the orders of the Authorities below. In the case of T.R.F Ltd v. CIT (supra) the Hon’ble Supreme Court held that after the amendment of Section 36(1)(vii) w.e.f. 01.04.2009 in order to obtain deduction in relation to bad debts, it is not necessary for the assessee to establish that the debt in fact had become irrecoverable. It was also held that it is enough if the bad debt is written off as irrecoverable in the accounts of the assessee. On a perusal of the orders of the authorities below, it is not clear as to whether the assessee had in fact written off the bad debts in the books of accounts. On a perusal of the Assessment Order we also find that Assessing Officer did not make any addition/disallowance of this amount while computing the income of the assessee. When there is no addition/disallowance made in the 4 ITA.No. 4432/MUM/2016 (A.Y:2012-13) M/s. FGP Limited Assessment Order on account of write off of bad debts there should not be any grievance to the assessee. However, in case the Assessing Officer passed any order modifying the assessment order and disallowed the bad debts, the same is to be allowed as deduction if such debt is written off in the Books of Accounts. Therefore, the Assessing Officer may examine the aspect of written off of the bad debts by assessee in the books of accounts and once it is established that the debts have been written off in the books of accounts, there is no necessity for the assessee to establish that the debt has become bad and irrecoverable in view of the decision of the Hon’ble Supreme Court in the case of T.R.F Ltd v. CIT (supra) and the claim of the assessee should be allowed. Therefore, for the limited purpose of verification, as to whether there is real write off of debt in the books of accounts, we restore this issue to the file of the Assessing officer who shall verify and allow the claim of the assesse in the light of the decision of the Hon’ble supreme Court in the case of T.R.F Ltd v. CIT (supra).