ITAT allows write off of Bad Debts as assessee has successfully discharged its Onus of Proof [Read Order]

The Delhi Bench of Income Tax Appellate Tribunal (ITAT) has allowed the  write off of bad debts as the assessee has successfully discharged its onus of proof.

The assessee, GBT India Pvt. Ltd. had written off bad debts amounting to Rs.12,296,711 as irrecoverable in its books of account during the previous year. Such bad debts were taken into account in computing the income of the previous year and earlier previous year. The AO had held that deduction of such bad debts would not be allowed to the assessee, inter-alia on the ground that supporting evidence in relation to bad debts were not furnished and the quantum of bad debts was unreasonable considering that it was the second year of operations.

In the acquisition of the corporate travel division, the assessee had also acquired receivables of Rs. 37.04 crores besides other assets and liabilities. Out of these receivables, the assessee was unable to recover Rs. 2.25 crores from certain parties. The same was written off as bad debts in the profit and loss account.

During the course of scrutiny assessment proceedings, the Assessing Officer noticed that the bad debts are related to very brand conscious entities, which by no stretch of imagination can be made as bad debts. The Assessing Officer further observed that the assessee has not furnished a convincing explanation for considering these entities as bad debts. The Assessing Officer issued notice u/s 133(6) of the Act to Amex and on receiving no reply, disallowed the claim of bad debts which was upheld by the DRP.

There is no dispute that on the acquisition of Corporate Travel Division, the appellant company also acquired receivables. It is also not in dispute that out of the receivables, the receivables amounting to Rs. 2.25 crores from certain parties could not be recovered. It is a settled proposition of law that to claim bad debt, all that is required for the assessee is to actually write off the debts in his books of account. The receivables written off by the appellant company were erstwhile receivables to Amex duly reflected in their balance sheet and, therefore, it can be safely presumed that the receivables were part of business profits of the Amex.

The coram of G.S.Pannu and Amit Shukla has held that the assessee has successfully discharged its onus and has fulfilled the conditions laid down u/s 36 of the Act. “We, therefore, do not find any reason why the write off of bad debts should not be allowed. We, accordingly, direct the Assessing Officer to allow the claim of bad debts,” the court added.

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