K. Paramasivan & Sons Vs DCIT (ITAT Chennai)
Bad Debt or Business Loss? ITAT Chennai Says Both Apply When Fraud by Staff is Proved
The case concerns a partnership firm engaged in dealership of BPCL petroleum products, for AY 2012-13. Assessee had claimed bad debts of ₹23.10 lakh u/s 36(1)(vii), representing amounts relating to HDFC Credit Card transactions & Petro Card Reloads which, according to Assessee, had become irrecoverable due to fraud by certain contract employees.
AO, while completing assessment u/s 143(3), rejected the claim in full, observing that the alleged debts were not reflected as credit balances in customer accounts & thus could not be treated as genuine bad debts. Assessee had, however, submitted that these amounts were earlier offered to tax as income &, following the principle laid down in TRF Ltd. v. CIT (323 ITR 397, SC), once such amounts are written off in the books, deduction must be allowed.
On appeal, CIT(A) partly accepted the claim, allowing ₹6.25 lakh but sustaining the disallowance of ₹16.84 lakh, mainly on the ground that ledgers of the credit card company & petro card balances were not produced & it was unclear how such debts had become bad. CIT(A) reasoned that in normal course, merchants are paid by banks/credit card companies promptly & any technical issues could have been resolved, hence the claim lacked clarity.
