M. Sons Gems N Jewellery Pvt. Ltd Vs ACIT (ITAT Delhi)
ITAT Delhi held that disallowance of bad debts claimed as deduction under section 36(1)(vii) is not justifiable if offered as income in any year. Accordingly, AO directed to verify that amount for which bad debts have claimed u/s 36(1)(vii) were indeed offered as income for the said years.
Facts- the assessee company has been engaged in the business of trading of gems and jewellery including its exports. During the year under consideration, the assessee had claimed an amount of Rs.5,75,38,704/- as bad debts under section 36(1)(vii) of the Act. AO argued that the assessee has not been able to adduce sufficient evidences in support of its claim of making recovery and therefore proceeded to make the impugned addition of Rs.5,75,37,804/-. CIT(A) upheld the same. Being aggrieved, the present appeal is filed.
Conclusion- Held that the assessee has filed a paper book indicating the impugned amounts in respect of which bad debts have been claimed towards disclosed as receipts in AY 2006-07 and 2007-08 and thus offered as income for the respective years. We have noted that the ld. AO has made addition on the premise that efforts for recovery were not made by the assessee. In the decision of Hon’ble Apex Court in the case of TRF, it is held that bad debts are to be allowed once offered as income in any year. Accordingly, in respectful compliance to the decision of the Hon’ble Supreme Court in the case of TRF Ltd. (supra), we are of the considered view that the assessee is entitled for its claim of deduction u/s 36(1)(vii). We therefore set-aside the order of the lower authorities and direct the ld. AO to conduct a limited verification into the Returns of Income of the assessee AY 200607 and 2007-08 and ascertain as to whether the impugned amounts qua which bad debts have claimed u/s 36(1)(vii) were indeed offered as income for the said years. In the event of assessee having been offered the same, then to delete the addition of Rs.5,75,37,804/-. The ground of appeal no.5 raised by the assessee is therefore allowed for statistical purposes.
