Claim of bad debt admissible if written off in books of account: No need to produce Debtor Confirmation, ITAT

Shrawan Goenka vs. ACIT

(Kolkata, the 6th June, 2022)

The Assessing Officer noted that the assessee had debited in his Profit & Loss A/c, a sum of Rs. 4,94,006 under the head “bad debts”. The assessee clarified that the amount debited under the head ‘bad debts’ was raised during the same previous year.  It was further clarified that in the business of dairy products many customers did not pay whenever they get rotten milk or other dairy products. However, the assessee furnished the list of four debtors but could produce confirmation from only two debtors. The Assessing Officer however noted that the assessee’s claim of expenses in respect of aforesaid two debtors was inflated and was not substantiated by adequate supporting documents. He, therefore, disallowed the amount pertaining to two debtors amounting to Rs. 2,41,607.

In appeal, the ld. CIT(A) confirmed the addition made by the Assessing Officer.

Appeal before the Tribunal: The ld. counsel has relied upon CBDT Circular no.12/2016 dated 30.05.2016, wherein, it has been directed to the Income-Tax Authorities that the claim of any bad debt shall be admissible u/s 36(1)(vii) of the Income Tax Act, if it is written off as irrecoverable in the books of account of the assessee for that previous year and it fulfils the conditions stipulated in sub-section (2) of sub-section 36(2) of the Act. The ld. DR could not rebut the above submission of the ld. AR hence, the tribunal allowed the appeal of assessee and the order passed by lower authorities was to be deleted.

The assessee contested the action of the ld. CIT(A) in confirming the ad hoc disallowance @ 5% on expenses, power and fuel and travelling. The ld. counsel for the assessee in this regard stated that the aforesaid expenses were actually incurred by the assessee and the required details and evidences including bills and vouchers were produced before the Assessing Officer.

That, moreover the expenses of power and fuel were paid to the State Electricity Board which could be confirmed from the bills issued by the Electricity Board and, so no question remains of any ad hoc disallowance. Ld DR were not able to rebut the same hence the tribunal held that addition on this account is also ordered to be deleted.