Excel Wirecut Inc. Vs ACIT (ITAT Bangalore)
Bangalore ITAT: Write-Off in Books Is Enough for Bad Debt Claim; Ad-Hoc Expense Disallowance Struck Down
The Bangalore ITAT granted relief to Excel Wirecut Inc. by allowing deduction for bad debts written off in the books and deleting an arbitrary disallowance of expenses. The Tribunal first condoned a substantial delay of 687 days in filing the appeal after being satisfied with the medical reasons and supporting records produced by the assessee.
On the issue of bad debts, the Tribunal noted that the assessee had written off dues relating to customers, including BEL Ltd. and Ecotech Machinery Pvt. Ltd., by making appropriate entries in its books of account. Referring to the Supreme Court’s decision in T.R.F. Ltd. v. CIT (323 ITR 397), the Tribunal reiterated that after the amendment to Section 36(1)(vii), an assessee is not required to prove that the debt has actually become irrecoverable. It is sufficient if the debt is written off as irrecoverable in the books of account. Since the assessee had produced ledger accounts evidencing such write-off, the deduction was held to be allowable.
The Tribunal also deleted the disallowance of expenses relating to transportation, transport charges and vehicle maintenance. The AO had disallowed 25% of the expenses, which was later reduced by the CIT(A) to 10%, allegedly due to lack of supporting vouchers. The ITAT observed that both authorities had adopted these percentages without any comparable data, analysis or objective basis, making the disallowance purely arbitrary.
Holding that tax authorities cannot sustain additions based on guesswork or ad-hoc percentages, the Tribunal deleted the expense disallowance and allowed the assessee’s appeal in full.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
