INCOME TAX ACT, 1961

Section 36(1)(vii)

Business deduction under section 36(1)(vii) - Bad debts - Amount shown as bad debt was actually offered for taxation -

During the course of assessment proceedings, the AO noticed that the assessee has debited a sum of Rs. 64,12,499 under the head “bad debts” and accordingly called upon the assessee to file necessary evidences including justification for claim of bad debts. In response, the assessee submitted that it has filed revised return rectifying the mistake in offering income on percentage completion method on advances received from customers and also accounting advances received from customers as income on the basis of confirmations from the debtors which resulted in reduction of income to the extent of Rs. 64,12,499 and the same has been debited to bad debts accounts for which necessary evidences including ledger extract of the parties have been furnished. The AO was not convinced with the explanation of the assessee and according to him, the assessee claims to have debited bad debts accounts, the amount of reversal of income already offered for earlier years, but failed to furnish supporting evidences to prove that the amount is in fat bad debt and accordingly opined that amount debited to bad debt accounts cannot be allowed as deduction. Held: As regards the claim of bad debts, the claim of the assessee was that although the amount has been debited to bad debt account but in fact the amount represented reversal of income already recognised in books of accounts in earlier financial years on percentage completion method on advances received from customers even though the income was not accrued to the assessee from the projects. For this purpose, the assessee has filed necessary evidences to demonstrate the amount received from the debtors and amounts shown in books of accounts of the assessee are matched. Further, it is a settled position of law that mere entries in the books of accounts are not conclusive enough to make an assessment without verifying the veracity/authenticity of the same. In this case, the claim of the assessee was that amount debited under the head 'bad debt' account was in fact reversal of income recognised in books of accounts on advances received from customers in earlier financial years on the basis of confirmation from the debtors. The assessee claimed that it was a reversal of income recognised in earlier financial years, whereas the AO claimed that the amount represented bad debts written off. If, the claim of the assessee is correct, then it needs to be allowed as deduction, because income to that extent was already offered to tax for earlier years. But, this fact is not clear from the order of the AO as well as the CIT(A). Therefore, the issue needs to be re-examined by the AO in the light of various averments made by the assessee.

REFERRED :

FAVOUR : Matter remanded

A.Y. : 2014-15

SUBSCRIBE FOR FULL CONTENT

OR Try Reload the Page