The Chennai bench of the Income Tax Appellate Tribunal (ITAT) deleted an addition of Rs. 1 crore made under Section 69A of the Income Tax Act, 1961, as the bench reached the conclusion that bad debt recovery comes under the purview of business income.
The assessee has appealed against the order of the Commissioner of Income Tax Appeals [CIT(A)] for the assessment year 2017- 18.
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In this case, when the AO conducted an inquiry at the business premises of the assessee, Overseas Beverages, a manufacturer of Indian Made Foreign Liquor (IMFL), it was discovered that the company had deposited Rs. 11.70 crore in Specified Bank Notes (SBNs) into its bank accounts during the demonetization period.
The company claimed that Rs. 4.62 crore was received from M/s. Mahasakthi Mills Ltd., and Rs. 6.73 crore were received from three Mumbai-based entities: M/s. Oceanic Impex, M/s. Topaz International, and M/s. Eshikimpex. However, the AO found that these three entities were not traceable at their given addresses, leading to the conclusion that the Rs. 6.73 crore was unexplained money and the company had already offered Rs. 5.73 crore under the Pradhan Mantri Garib Kalyan Yojana (PMGKY), leaving a balance of Rs. 1 crore, which was added to the company’s income under Section 69A of the Income Tax Act.
The assessee’s counsel contended that the Rs. 1 crore was a recovery of bad debts from the three entities, which had been written off in the financial year 2014-15. The company contended that the sales to these entities had already been taxed in earlier years, and taxing the recovered amount again would amount to double taxation. The counsel also provided documentary evidence, including cash books and ledger extracts, to support its claim.
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The ITAT noted that the recovery of bad debts is considered business income and that the company had already offered Rs. 1 crore as business income in its books of account. Taxing the same amount again under Section 69A of the Income Tax Act would indeed result in double taxation, which is impermissible under the law. The bench deleted the addition.
The ITAT, comprising Mahavir Singh (Vice President) and Manoj Kumar Aggarwal (Accountant Member) allowed the the assessee’s appeal.
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