The Income Tax Appellate Tribunal (ITAT), Surat bench held that deduction on account of bad debts is allowable if bad debt is written off as irrevocable in the books of accounts. Therefore, the bench quashed the revision order.
The assessee, Hi-Shine Inks Pvt. Ltd., is a Private Limited Company and filed a revised return of income on January 23, 2019. Subsequently, the assessee’s return of income was selected for scrutiny, and the assessment was completed under section 143(3) read with section 143(3A) and 143(3B) of the Income Tax Act.
Thereafter, the PCIT issued a notice under section 263 of the Income Tax Act after verifying the records of the assessment of the assessee. The PCIT observed that the assessee-company has claimed bad debts amounting to Rs. 2,31,18,532, and these bad debts constitute a major write-off. Hence, the PCIT concluded that the Assessing Officer did not make any verification in respect of the provision for bad debts. Thus, the Assessing Officer has not even gone through the financials of the assessee company in a proper manner. Therefore, the PCIT held that the assessment order was erroneous and prejudicial to the interest of revenue.
Aggrieved by the order, the assessee filed an appeal before the Tribunal.
During the proceedings, Sujesh C. Suratwala, Counsel for the assessee, argued that during the assessment proceedings, the assessee claimed the bad debts. The assessee has also submitted the relevant details of bad debts and provision for bad debts. S. M. Keshkamat, Counsel for Revenue, supported the order of the PCIT.
The Tribunal, while considering the appeal, observed that during the assessment proceedings, the Assessing Officer issued a notice to the assessee, and in response to the notice of the AO, the assessee submitted a reply. Hence, the assessing officer examined the issue raised by the PCIT. Further, as per CBDT Circular No. 12 of 2016, dated May 30, 2016, after April 1, 1989, for allowing deduction for the amount of any bad debt or part thereof under section 36(1)(vii) of the Act, it is not necessary for the assessee to establish that the debt has actually become irrecoverable.
After reviewing the facts and records, the two-member bench of Dr. A. L. Saini (Accountant member) and Pawan Singh (Judicial Member) quashed the revision order passed under Section 263 of the Income Tax Act and held that Deduction on account of Bad Debts is allowable if the bad debt is written off as irrecoverable in the books of accounts of the assessee.
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