In a recent case, the Mumbai bench of the Income Tax Appellate Tribunal ( ITAT ), in an appeal filed by the assessee against the order of the Commissioner of Income Tax ( Appeals ) [ CIT (A) ] under Section 143 (3) of the Income Tax Act, allowed the appeal raised by the assessee for the Assessment Year( AY ) 2014-15 permitting deduction of ₹6.17 Crores as bad debts.
The assessee, Hybrid Financial Services Ltd, filed their return of income reporting a loss of ₹1.6 Crores, which was revised later by the assessee declaring income as NIL and claimed loss as per the original return. During the assessment, the assessee made fresh claims for “Bad Debt Written Off” amounting to ₹6.17 Crores, which was not in the original return of income to be filed.
The assessee contended that it was formerly Mafatlal Finance Company (MFCL) and now Hybrid Financial Services Limited since 2009, and it claimed that they are a public limited company primarily engaged in leasing and hire-purchase financing.
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The company started its business in 1993 and made profits till 1999. Amidst the assessment proceedings, the assessee referred to Note 19 in the audited Profit and Loss account, which showed bad debts written off amount as ₹7.6 Crores adjusted against prior provisions. Through a revised letter dated 10th August 2016, the assessee made a revised claim of ₹6.1 Crores for bad debts written off, excluding the ₹1Crores as that amount was found to be recoverable.
The assessing officer (AO) rejected this claim, relying upon the Supreme Court judgement in Goetz ( India ) Ltd v. CIT, which made it mandatory to file a revised return under Section 139 (5) for such claims. The AO held that claims made during assessment proceedings without a revised return cannot be entertained.
On appeal to the CIT ( A ), the commissioner upheld the AO’s decision to disallow the claim on procedural grounds. Aggrieved by this decision, the assessee pursued an appeal before the ITAT and, on hearing both sides, observed that the assessee had already accounted for the corresponding income in earlier years, including an offer of ₹6 Crore from hire purchase agreements to tax. The tribunal further stated that the assessee had provided detailed ledgers, transactions, repossession records, and write-offs. The tribunal held that the claim was not an afterthought. Still, it arose due to the practical irrecoverability of dues, which was proved by the assessee by providing details of customer insolvencies and liquidations, therefore having no malafide intent.
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The tribunal also observed that the Goetz ( India ) Ltd decision applies to AOs, but it does not restrict appellate authorities from considering legitimate claims raised during proceedings. In asserting this, the tribunal relied on the case of TRF Ltd and the CBDT circular No. 12/2016, which clarified that written-off bad debts fulfilling Section 36 (1) (vii) conditions are deductible.
The two-member bench of the ITAT consisting of Narender Kumar Choudhry (Judicial Member) and Girish Agrawal (Accountant Member), allowed the assessee’s claims and asserted that appellate authorities have the power to admit additional claims if they were not made in the original return. The procedural delay cited by AO was set aside.
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