No Information available with respect to Subsequent Recovery of Bad Debts: ITAT sustains Disallowances of Bad Debt written off for Rupees Twenty Lakhs

The Income Tax Appellate Tribunal (ITAT), Ahmedabad Bench sustained disallowances of bad debt written off for Rupees Twenty Lakhs as there was No information available with respect to subsequent recovery of bad debts.

The assessee, Uma Industries is a partnership firm engaged in the business of cotton ginning and pressing and the other business related thereto. The assessee for the year under consideration i.e. A.Y. 2013-14 has declared gross profit of Rs. 1,20,01,696/- and claimed that business will discontinue with effect from 1st April 2013. The assessee in profit loss account written off bad debt for Rs. 1,47,18,274/- only. On question by the AO with regard to nature of debtor and details such as ledger copies, address, PAN and proof showing effort made for recoverythe assessee in response simply relied on the judgment of Hon’ble Supreme Court in case of TRF Ltd vs. CIT.

The AO found that the assessee has not provided the nature of transaction with debtor which in necessary for allowances or disallowances of claim of bad debts. As such the write off of those bad debts are only allowable which are arising out of the ordinary course of business. Aggrieved, assessee preferred an appeal to the CIT-A, who has partly allowed the appeal of the assessee by sustaining the disallowances of bad debt.

The Bench consisting of Suchitra Kamble, Judicial Member and Waseem Ahmed, Accountant Member held that “If the assessee was to avail the benefit of the provisions of law by using the colourable device, the same cannot be allowed to the assessee. In the given facts of the case, admittedly the assessee has closed down the business and there was no information available on record what treatment has been given by the assessee with respect to the subsequent recovery of the baddebts, if any. In the absence of any contrary information available on record, we do not find any defect in the order of the CIT-A.”

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