Anand Construwell Private Limited, Nashik V. Asst. Commissioner of Income Tax, Circle - 1, Nashik

ITA 333/PUN/2022

AI Insights

The case involves Anand Construwell Private Limited, a civil contractor, who claimed a deduction for bad debts amounting to Rs.3,24,25,813 in their tax return for the assessment year 2013-14. The deduction was initially disallowed by the Assessing Officer (AO) and upheld by the CIT(A), leading to the appeal at the Income Tax Appellate Tribunal. The primary legal issue was whether the assessee was entitled to deduct the amount written off as bad debts under Section 36(1)(vii) of the Income-tax Act, 1961. The Tribunal examined the compliance with Section 36(2), which requires that the debt must have been taken into account in computing the income of the previous year in which it was written off. The Tribunal concluded that the assessee had met this requirement by including the amounts in their taxable income when the security deposits were written off, thus allowing the deduction.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 137227 (ITAT-PUNE)
• Duration Of Justice: 10 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-03-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 23-03-2023
• Assessment Year: 2013-2014
• Appeal Filed On: 10-05-2022
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Bad and doubtful debts

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH “A”, PUNE BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND SHRI PARTHA SARATHI CHAUDHURY, JUDICIAL MEMBER आयकर अपील सं. /ITA No.333/PUN/2022 िनधा रण वष / Assessment Year: 2013-14 Anand Construwell Private Limited, Ramchandra Apartment, Makhmalabad Naka, Panchavati, Nashik 422 003 Maharashtra PAN : AAFCA7736H Vs. ACIT, Circle-1, Nashik Appellant Respondent आदेश / ORDER PER R.S.SYAL, VP : This appeal by the assessee is directed against the order dated 24-03-2022 passed by the CIT(A) in National Faceless Appeal Centre, Delhi u/s.250 of the Income-tax Act, 1961 (hereinafter also called ‘the Act’) in relation to the assessment year 2013-14. 2. The only issue raised herein is against not allowing deduction of bad debt amounting to Rs.3,24,25,813/-. 3. Briefly stated, the facts of the case are that the assessee is a Civil Contractor who filed its return claiming deduction of bad Assessee by: Shri P.S. Shingte Revenue by: Shri Ramnath P. Murkunde Date of hearing 24-03-2023 Date of pronouncement 24-03-2023 ITA No.333/PUN/2022 Anand Construwell Private limited 2 debts amounting to Rs.3,24,25,813/-. On being called upon to explain as to why the deduction for bad debts should not be disallowed, the assessee submitted that there were certain security deposits lying with several contractees, for whom it carried out contract work. Security deposits amounting to Rs.3.24 crore were written off in the books of account and deduction claimed accordingly. The Assessing Officer (AO) issued notice u/s.133(6) to some of the parties for verifying the correctness of the assessee’s claim. One party, namely, Aakar Construction responded to the Assessing Officer’s notice submitting that the amount due to the assessee was actually paid in subsequent years. Not satisfied with the assessee’s contention, the AO held that the amount of bad debt claimed by the assessee was not deductible. The ld. CIT(A) countenanced the assessment order on this point. 4. We have heard the rival submissions and gone through the relevant material on record. Section 36(1)(vii) provides that the amount of any bad debt or part thereof which is written off as irrecoverable in account of the assessee for the previous year shall be allowed as deduction subject to provisions of sub-section (2). This section, as it exists on the statute as on date, came into being ITA No.333/PUN/2022 Anand Construwell Private limited 3 after amendment to it effective from 01-04-1989, whereby the earlier requirement of the assessee proving the debt to have become bad as a condition precedent for allowing deduction, was dispensed with. Sub-section (2) of section 36 provides that no deduction on account of bad debts will be allowed unless such debt or part thereof was taken into account in computing the income of the assessee of the previous year in which the amount of such debt or part thereof was written off on an earlier previous year. 5. The assesses specifically stated before the AO as to the fulfilment of the requirement of section 36(2) by mentioning that: “The said security deposits were deducted by the parties from the contract receipts which are duly offered for taxation”. It, therefore, transpires that the condition of section 36(2) stood satisfied. Once that is the position, the assessee is eligible to claim deduction towards bad debts on a mere write off in the books of account. Unlike the position prior to 01-04-1989, there is no further requirement on the part of the assessee in the post amendment era to prove that the debt became bad during the year. The mere act of writing off the amount in the books and claiming deduction for the same in the Profit and loss account, entitles the assessee to such a deduction. However, if any amount is subsequently recovered from ITA No.333/PUN/2022 Anand Construwell Private limited 4 the bad debt written off earlier, such amount is required to be offered for taxation at the time of its receipt. 6. The assessee has filed a chart at page 44 of the paper book demonstrating certain amounts recovered out of such bad debts, in subsequent assessment years. Such amounts were stated to be duly offered for taxation in later years. In view of the foregoing discussion, we are satisfied that the assessee rightly claimed deduction for the bad debts and the authorities were not justified in denying it. The impugned order is, therefore, overturned. 7. In the result, the appeal is allowed. Order pronounced in the Open Court on 24 th March, 2023. Sd/- Sd/- (PARTHA SARATHI CHAUDHURY) (R.S.SYAL) JUDICIAL MEMBER VICE PRESIDENT पुणे Pune; िदनांक Dated : 24 th March, 2023 Satish ITA No.333/PUN/2022 Anand Construwell Private limited 5 आदेश की ितिलिप अ ेिषत/Copy of the Order is forwarded to: 1. अपीलाथ / The Appellant; 2. थ / The Respondent; 3. The Pr.CIT concerned 4. िवभागीय ितिनिध, आयकर अपीलीय अिधकरण, पुणे “A” / DR ‘A’, ITAT, Pune 5. गाड फाईल / Guard file आदेशानुसार/ BY ORDER, // True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune Date 1. Draft dictated on 24-03-2023 Sr.PS 2. Draft placed before author 24-03-2023 Sr.PS 3. Draft proposed & placed before the second member JM 4. Draft discussed/approved by Second Member. JM 5. Approved Draft comes to the Sr.PS/PS Sr.PS 6. Kept for pronouncement on Sr.PS 7. Date of uploading order Sr.PS 8. File sent to the Bench Clerk Sr.PS 9. Date on which file goes to the Head Clerk 10. Date on which file goes to the A.R. 11. Date of dispatch of Order. *