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Income Tax Appellate Tribunal, DELHI BENCH: ‘G’: NEW DELHI
Before: SHRI G.D. AGRAWAL, & SHRI CHANDRA MOHAN GARG
Date of Hearing : 15.02.2016 Date of Pronouncement : 18.03.2016 ORDER PER C.M. GARG, JM:
This appeal filed by the Revenue is directed against the order of the CIT(A)-XI, New Delhi, dated 21/08/2013 passed in first appeal No. 92/12-13 for A.Y 2010-11.
It is relevant to mention that this appeal was wrongly mentioned in the cause title of eight appeals which were heard on 15.12.2015 and disposed off on 19.02.2016 by passing a consolidated order and present appeal was not disposed off. Hence on 3.3.2016, when this error was noticed by us, we passed a corrigendum order and directed that the name of this appeal be deleted in the cause title of the order dated 19.2.2016 [supra] and this appeal of the Revenue would be decided by passing a separate order. Copies of the said order and corrigendum order have been kept in the file of this appeal for ready reference.
The sole ground raised by the Revenue is with regard to the addition of Rs. 2,80,82,006/- made by the AO and deleted by the ld. CIT(A) on account of bad debts.
Briefly stated, the facts giving rise to this appeal are that the assessee is engaged in the business of providing I.T. security and consulting services to its clients. The case of A.Y 2010-11 was selected for scrutiny and the assessment was completed u/s 143(3) of the Income-tax Act, 1961 ['the Act' for short] on 6.3.2013 by making impugned disallowance of amount of bad debts as claimed by the assessee in the return of income. The assessee carried the issue before the ld. CIT(A) who allowed the appeal of the assessee by deleting the addition. Now the aggrieved Revenue is before this Tribunal by raising the sole ground as raised hereinabove.
We have heard the arguments of both the sides and carefully perused the relevant material placed on record before us. The ld. DR strongly supported the action of the AO and contended that huge amount as bad debts cannot be allowed when the assessee had written off the same without taking any action of recovery. The ld. DR vehemently contended that the assessee had not made any efforts to recover the huge amounts. Therefore, the same cannot be allowed as bad debts.
Per contra, the ld. AR placing reliance on the decision of the Hon'ble Supreme Court in the case of TRF Limited Vs. CIT reported at [2010] 230 CTR [SC] 14 and decision of the Hon'ble Jurisdictional High Court of Delhi in the case of CIT Vs. Modi Telecommunication Ltd [2010] 195 Taxmann 284 [Del] submitted that after 1.4.1989, it is not necessary for the assessee to establish the debts, in fact, has become irrecoverable. It is enough if the bad debts are written off as irrecoverable in the accounts of the assessee.
On careful consideration of the above and from the assessment order, it is clear that the AO made the disallowance by observing that the assessee did not make any efforts to recover the bad debts hence the same is not allowable. From the vigilant reading of the impugned order, it is vivid that the ld. CIT(A) granted relief to the assessee with the following observations and conclusion:
“9.3 It was argued that the appellant had submitted complete details of such bad debts in his submission dated 27.02.2013 before the AO, wherein the appellant had also given reasons as to why the debts had become bad. The appellant has also distinguished the case laws relied upon by the AO in the assessment order.
9.4 In the appellate proceedings, it was explained by the appellant that these were genuine business debts appearing in the books of the company against incomes booked in earlier years and these were written off in the books from the year under consideration. The appellant has made reference of the judgment of Hon'ble Supreme Court in the case of TRS Ltd. vs. CIT (supra) as well as jurisdictional Hon'ble High Court of Delhi and Hon'ble ITAT Delhi in the case of CIT vs DCM Ltd (supra) and Triveni Engineering and Industries Ltd. vs. DCIT (supra) respectively. In the summary of these judgments, the Hon'ble Courts have held that: > No prudent businessman will write off a debt which he has a hope of recovering > When a businessman writes off a debt as bad it must be presumed that it was bad and irrecoverable, unless contrary was shown > Writing off a bad debt is a prime evidence and sufficient requirement of law and if its written off in books it must be allowed
9.5 It appears to me that the sole reason that the AO did not accept the claim of bad debts made by the appellant was that the magnitude of such bad debts was very high and it was beyond the imagination of the AO that the appellant company would forego such a huge amount from its debtors. However, such an observation of the AO should have inspired and led the AO to establish the contrary. It is observed that the AO completely failed to discharge his onus in proving contrary to the claim of bad debts shown by the appellant. Although there was no such legal requirement under the existing legal provisions, however, my predecessor had again given opportunity to the AO to work upon his apprehension that the debts of such a high magnitude would not have been written off by the appellant company so easily. The fact that the AO has not worked upon again on the suggestion of my predecessor and the legal position is very clear that when a businessman writes off a debt as bad, it must be presumed that it was bad and irrecoverable unless contrary is shown by the department. In view of the factual position being as above, the action of the AO in disallowing the write off of bad debits/ solely on the ground of its being very substantial amount cannot be held justified. Accordingly, the addition on account of disallowance of bad debts made by the AO is directed to be deleted.”
Section 36(1)(vii) was amended w.e.f. 1.4.1989 and as per the amended provision of clause (vii) of section 36(1) of the Act, subject to the provisions of sub-section (2) of section 36, the amount of any bad debts or part thereof which is written off as bad debts as irrecoverable in the accounts of the assessee, the provisions shall be allowed. Hence, the basis of disallowance adopted by the AO is perverse and misconceived and against the letters and spirit of relevant provisions of section 36(1)(vii) of the Act which is not sustainable and the same was rightly dismissed by the ld. CIT(A).
In view of the factual position of the case and in the light of the proposition laid down by the Hon'ble Supreme Court in the case of TRF Limited [supra], the claim of the assessee pertaining to bad debts, the ld. CIT(A) was correct in granting relief to the assessee as the assessee had written off the claimed amount in bad debts in its books of account during the previous year and there was no requirement to establish this fact that the debts have become bad debts in the previous year after 1.4.1989 there was no requirement to show and efforts of recovery and to establish that the debts have become debts despite of sincere and all possible efforts of the assessee. Thus, we are unable to see any infirmity in the impugned first appellate order and we uphold the same. Accordingly, the sole ground raised by the revenue being devoid of merit is dismissed.