The Chennai Bench of Income Tax Appellate Tribunal ( ITAT ) upheld the Assessing Officer’s ( AO ) acceptance of the assessee’s bad debt write-off claim, determining that there was no error in the AO’s assessment.
M/s.Heylands Exports Pvt. Ltd.,the appellant-assessee,challenged the Principal Commissioner of Income Tax’s ( PCIT ) decision to invoke revisional jurisdiction under section 263 of the Income Tax Act concerning the assessment of bad debts written off amounting to ₹41,77,844.
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The assessee initially filed its return of income for the assessment year ( AY ) 2018-19, declaring a loss of ₹64,99,473. Following scrutiny, the AO completed the assessment under section 143(3) read with section 144B, resulting in a revised assessed loss of ₹13,82,109 after disallowing certain expenses.
The PCIT later questioned the AO’s order, suggesting it was erroneous and prejudicial to the Revenue’s interests due to the treatment of bad debts and employees’ contributions to provident fund ( PF ) and employee state insurance ( ESI ).
Regarding the bad debts, the AO had previously issued a notice under section 142(1) seeking clarification on the assessee’s claim. The notice specifically requested detailed information about the bad debts, including party names, PANs, and amounts.
The assessee responded comprehensively, providing the requested details along with supporting documentation. Following a further inquiry from the AO, the assessee submitted additional information to substantiate its claim.
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The tribunal highlighted a relevant Supreme Court ruling, which established that after April 1, 1989, an assessee only needs to write off bad debts as irrecoverable without having to demonstrate that they are indeed uncollectible. This principle reinforced the AO’s acceptance of the bad debt claim based on the thorough investigation and supporting evidence provided by the appellant-assessee.
The two member bench comprising Aby T. Varkey ( Judicial Member ) and Manoj Kumar Aggarwal ( Accountant Member ) concluded that the AO had conducted adequate inquiries and had valid grounds for accepting the appellant-assessee’s claim for bad debts. As a result it determined that the AO’s order was not erroneous and did not prejudice the Revenue’s interests.
Consequently, the PCIT’s use of section 263 to question this aspect of the assessment was found to be unwarranted, and the tribunal ruled in favor of the assessee.
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