ACIT Vs Goenka Trading (ITAT Mumbai)
The Income Tax Appellate Tribunal (ITAT) Mumbai, in a consolidated order addressing appeals for Assessment Years 2015-16, 2016-17, and 2017-18, ruled in favor of Goenka Trading, allowing the company to write off bad debts without providing explicit proof of their irrecoverability. The case centered on a significant bad debt claim of Rs. 13 crore, stemming from trading losses incurred due to the National Spot Exchange Limited (NSEL) crisis. The Assessing Officer (AO) had disallowed the claim, citing the lack of evidence of recovery efforts and the nature of NSEL’s operations, which were subject to an Economic Offences Wing (EOW) investigation. The AO argued that the transactions were deemed illegal and therefore the bad debt could not be claimed. The revenue department further argued that the assessee did not follow the accounting standards AS-5.
However, the ITAT upheld the Commissioner of Income Tax (Appeals) [CIT(A)] decision, which had allowed the write-off. The tribunal based its ruling on the precedent set by the Supreme Court in T.R.F. Ltd. vs. CIT, which established that for a bad debt to be allowed, it is sufficient for it to be written off as irrecoverable in the books of accounts, without the need to prove its actual irrecoverability. The ITAT also referenced CBDT Circular No. 12/2016, which aligns with the Supreme Court’s decision, reinforcing that the focus should be on the write-off in the books of accounts. The ITAT emphasized that the assessee entered into the contracts before the EOW investigation and NSEL suspension, and that the inability to recover the amount after the settlement necessitated the write-off. The ITAT rejected the revenue’s reliance on cases related to speculative transactions, clarifying that this case pertained to legitimate bad debts.
