The Delhi Bench of Income Tax Appellate Tribunal (ITAT) has allowed deduction to bad debts written off since the unpaid portion of sale amount and bad debts written off claims were the same.
the assessee, Husk Power Systems Pvt. Ltd was engaged in the business of (a) generation and distribution of power through small generators powered by burning of crop husk in the remote rural areas, manufacturing agarbatti from the residue of the burned husk in the power generation, selling the mini power plants to its partners at different locations and and receiving monthly fees as revenue from Build, Operate and Maintain (BOM) model in the BOM segment of mini generators.
AO observed that the assessee had debited an amount on account of bad debts written off in the profit and loss account and claimed the same as deduction in the return of income.The AO observed that the assessee had not furnished any details.
Accordingly, AO concluded that the assessee had not made out a case for claiming deduction under Section 36(1)(vii) read with Section 36(2) of the Income Tax Act, 1961 and accordingly disallowed the bad debts written off.
The Commissioner of Income Tax Appeals (CIT(A)) concluded that the assessee had recognised sales during the year and had claimed part of it as bad debts during the year itself. He concluded that it was highly improbable for a company to recognize its income as bad debts in the year in which such income was recognised until and unless there are strong and cogent reasons for doing so.
Anand Suman, appeared on behalf of the assessee and Raghunath, S appeared on behalf of the revenue.
The two member Bench of C.M. Garg, (Judicial Member) and M. Balaganesh, (Accountant Member) allowed the appeal holding that the assessee had claimed bad debts written off in respect of sales made during the year, that the assessee had indeed offered the sales amount initially to tax which would be in compliance to the provisions of Section 36(2) of the Income Tax Act.
Since part of the said sales amount was not received, the Bench held that the assessee had claimed the same as bad debts written off and would be allowable.
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