The Delhi Bench of Income Tax Appellate Tribunal (ITAT) has directed Commissioner of Income Tax Appeals (CIT(A)) re-adjudication holding that the debts claimed would be allowable only if nexus with carrying on of business or trade was established.
Anil Bhalla on behalf of the assessee, Centum Learning Ltd submitted that the CIT(A) had erred both on facts and in law in upholding the action of the Assessing Officer in disallowing advances written off amount by not considering the submissions on merits filed during the appellate proceedings.
He further submitted that the amount of notice pay recovery relating to the amount of notice pay recovery relating to FY 2010-11 reflected in the details had been credited to Profit & Loss account of FY 2010-11. The total amount credited during FY 2010-11 which was offered to tax.
This credit had been reduced from the salary and it was clear that since the amounts due from left employees of the assessee company on account of notice had period not served by them was accounted and the non-recoverability of the same was bad debt which was fully allowable under Section 36(1) (vii) read with Section 36(2) of the Income Tax Act.
Om Prakash on behalf of the revenue contended that the CIT(A) upheld the disallowance was rightly observed that there was no reasonable cause not to provide the basic details of bed debt and was right and justified in upholding the stand of the Assessing Officer and in making disallowance of claim of bad debts.
The two-member Bench of Chandra Mohan Garg, (Judicial Member) and Pradip Kumar Kedia, (Accountant Member) noted that the assessee despite opportunities given by the authorities below did not file details regarding its claim of bad debts on account of non-recovery of amounts due from left employees on account of notice period not served by them.
The Bench held that for claiming bad debts the debt should be related to the business of assessee. The debts claim should have direct nexus with the carrying on of business or trade of assessee and it should be incidental to it.
The Bench held that factual position the claim of assessee seems to be allowable but the revenue authority should be allowed to verify and examine the details of claim of assessee restored to the file of ld. CIT(A) to adjudicate the same after allowing due opportunity of hearing to the assessee.
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