Case Law Details
Husk Power Systems Pvt. Ltd. Vs DCIT (ITAT Delhi)
ITAT Delhi held that assessee would be entitled for deduction on account of bad debts written off as part of the sales amount is not received.
Facts- AO observed that the assessee had debited an amount of Rs 13,87,981/- on account of bad debts written off in the profit and loss account and claimed the same as deduction in the return of income. The assessee vide order sheet entry dated 17.10.2016 was required to submit the details of bad debts written off and justification for allowability of the same. The ld. AO observed that the assessee did not furnish any details. Accordingly, the ld. AO concluded that assessee had not made out a case for claiming deduction u/s 36(1)(vii) r.w.s. 36(2) of the Act and accordingly disallowed the bad debts written off in the sum of Rs 13,87,981/-.
CIT(A) uphold the action of AO. Being aggrieved, the present appeal is filed.
Conclusion- From the perusal of the order of the ld. CIT(A), it is not in dispute that the assessee had claimed bad debts written off in respect of sales made during the year. This goes to prove that the assessee had indeed offered the sales amount initially to tax which would be in compliance to the provisions of section 36(2) of the Act. Since part of the said sales amount is not received, the assessee had claimed the same as bad debts written off.
Hence we hold that the assessee would be entitled for deduction on account of bad debts written off in the sum of Rs 13,87,981/-.
FULL TEXT OF THE ORDER OF ITAT DELHI
This appeal in ITA No.5086/Del/2019 for AY 2014-15 arises out of the order of the Commissioner of Income Tax (Appeals)-4, New Delhi, [hereinafter referred to as ‘ld. CIT(A)’, in short] in Appeal No.55/17-18/CIT(A)-4 dated 08.04.2019 against the order of assessment passed u/s 143(3) of the Income‑ tax Act, 1961 (hereinafter referred to as ‘the Act’) dated 21.11.2016 by Income-tax Officer, Circle 11(2), New Delhi, (hereinafter referred to as ‘ld. AO’).
2. The Ground No. A and C raised by the assessee are general in nature and does not require any specific adjudication.
3. The Ground Nos. B 1 and B 2 raised by the assessee were stated to be not pressed by the ld. AR at the time of hearing. The same is reckoned as a statement made from the Bar and hence dismissed as not pressed.
4. The Ground Nos. B 3 to B 5 raised by the assessee are challenging the sustenance of disallowance of bad debts written off by the assessee in the sum of Rs 13,87,981/- by the ld. CIT(A).
4.1. We have heard the rival submissions and perused the materials available on record. It is not in dispute that the assessee is engaged in the business of (a) generation and distribution of power through small generators powered by burning of crop husk in the remote rural areas; (b) manufacturing agarbatti from the residue of the burned husk in the power generation ; (c ) selling the mini power plants to its partners at different locations and (d) receiving monthly fees as revenue from Build , Operate and Maintain (BOM) model in the BOM segment of mini generators.
4.2. The ld. AO observed that the assessee had debited an amount of Rs 13,87,981/- on account of bad debts written off in the profit and loss account and claimed the same as deduction in the return of income. The assessee vide order sheet entry dated 17.10.2016 was required to submit the details of bad debts written off and justification for allowability of the same. The ld. AO observed that the assessee did not furnish any details. Accordingly, the ld. AO concluded that assessee had not made out a case for claiming deduction u/s 36(1)(vii) r.w.s. 36(2) of the Act and accordingly disallowed the bad debts written off in the sum of Rs 13,87,981/-.
4.3. Before the ld. CIT(A), the assessee submitted the complete details of bad debts written off and also stated that the bad debts were considered as receipt in the year in which power was sold to the concerned customers. The sales figures of these consumers were already booked as income and also shown in the audited books. The assessee had recognized sales on basis of power supplied to various villagers, but the realization of sale proceeds is not complete and there is a lot of bad debts and the actual realization is less than those booked as income in the books of accounts. Accordingly, to the extent of monies not received, the assessee had shown the same as irrecoverable and written off the same in its books of accounts by reflecting as bad debts written off. The ld. CIT(A) acknowledged the submission of details filed by the assessee in the form of copy of ledger of monthly collection receivable for the month of March and monthly summary of collection receivable. From the perusal of the same, the ld. CIT(A) concluded that the assessee had recognised sales during the year and had claimed part of it as bad debts during the year itself. He concluded that it is highly improbable for a company to recognize its income as bad debts in the year in which such income is recognised until and unless there are storng and cogent reasons for doing so. Accordingly, he upheld the action of the ld. AO. Aggrieved, the assessee is in appeal before us.
4.4. We find that the assessee had claimed the bad debts written off as under:-
4.4.1. We find that the assessee had duly offered the sale in its power generation business to the aforesaid parties as income in its books and only to the extent of monies not recovered, the assessee had chosen to write off the same in its books of accounts treating it as irrecoverable by duly crediting to the account of concerned parties. Hence the assessee had duly complied with the provisions of section 36(1)(vii) r.w.s. 36(2) of the Act and accordingly would be entitled for deduction in the sum of Rs 13,51,601/- thereon.
4.4.2. We find that the assessee had also furnished the sale invoice dated 30.6.2013 amounting to Rs 9,12,900/- (comprising of sale bill of Rs 8,95,000/- and CST of Rs 17,900/-) in respect of sales made to KMR Energy Pvt Ltd in page 3 of the paper book. Subsequently, the assessee had duly reversed this sale in its books of accounts treating it as ‘sales return’. We find that the fact of sales return is not disputed by the revenue before us. Since the sales return voucher was prepared by the assessee on 31.3.2014, the CST component thereon of Rs 17,900/- was already paid by the assessee to the Government. Hence the said CST portion became irrecoverable from the customer, which had to be written off by the assessee as bad debts. Hence this sum of Rs 17,900/- becomes squarely allowable as deduction towards bad debts written off.
4.4.3. With regard to the claim of bad debts in the sum of Rs 1,100/-, we find that the assessee had duly offered to tax by booking sales of rice husk carbon as charcoal and to the extent of amount not realized, the assessee had written off the same in its books of accounts treating it as irrecoverable by duly crediting to the concerned parties account. Hence this sum of Rs 1,100/- becomes squarely allowable as deduction towards bad debts written off.
4.4.4. With regard to BOM segment fees for the year, the assessee had duly recognised the said fees as its income and to the extent of amounts not realized, it had chosen to write off the same in the sum of Rs 11,214/- by duly crediting the concerned parties account in its books of accounts. Hence this sum of Rs 11,214/- would be eligible for deduction as bad debts written off.
4.4.5. With regard to BOM segment fees receivable in the sum of Rs 6,166/-, the same pertains to earlier year and as per the mercantile system of accounting followed by the assessee regularly , the assessee had already booked its income in this regard in earlier year and offered to tax. This would be in compliance to the provisions of section 36(2) of the Act. Since this sum remained irrecoverable, the assessee chose to write off the same in its books of accounts by duly crediting to the parties account. Hence the said sum of Rs 6,166/- would be squarely allowable as deduction u/s 36(1)(vii) of the Act.
4.5. From the perusal of the order of the ld. CIT(A), it is not in dispute that the assessee had claimed bad debts written off in respect of sales made during the year. This goes to prove that the assessee had indeed offered the sales amount initially to tax which would be in compliance to the provisions of section 36(2) of the Act. Since part of the said sales amount is not received, the assessee had claimed the same as bad debts written off.
4.6. Hence we hold that the assessee would be entitled for deduction on account of bad debts written off in the sum of Rs 13,87,981/-. Accordingly, the Grounds B 3 to B 5 are allowed.
5. The Ground No. 6 raised by the assessee is challenging the levy of interest u/s 234 B, 234 C and 234 D of the Act, which are consequential in nature and does not require any specific adjudication .
6. In the result, the appeal of the ssessee is partly allowed.
Order pronounced in the open court on 09.05.2023
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