Any Adjustment Against Bad And Doubtful Debts Amounts To Actual Writing Off The Bad Debts: ITAT Deletes Addition

The Ahmedabad bench of the Income Tax Appellate Tribunal (ITAT) has deleted the addition and held that any adjustment for bad and doubtful debts amounts to actual writing off the bad debts.

The bench of T.R. Senthil Kumar (Judicial Member) and Waseem Ahmed (Accountant Member) has observed that the assessee cannot be denied the benefit for the bad debts merely on the reasoning that such bad debts were not claimed in the profit and loss account but adjusted against the provision for bad debts.

The appellant/assessee is in the business of manufacturing and selling textile machinery, spares, and job work. The assessee in the year under consideration has written off bad debts of Rs. 36,75,000 in the profit and loss account.

The assessee, likewise, has also written off the bad debts amounting to Rs. 69,33,446 in the computation of income by adjusting the provision for the bad debts created in the earlier year. Thus, the assessee has in effect claimed a deduction of Rs. 1,06,00,000 on account of bad debts. However, the AO disallowed the same on the reasoning that the assessee has not placed on record the efforts made by it for the recovery of the alleged bad debts. The AO disallowed it and added it to the total income of the assessee.

The assessee contended that the adjustment of bad debts against the provision represents writing off the bad debts. Therefore, the CIT (A), on the wrong assumption of facts has concluded that the bad debts were not actually written off.

The tribunal held that any adjustment made by the assessee on account of the bad debts against the provisions created in the earlier year amounts to the actual writing off of the bad debts in the books of accounts.

Case Title: Integra Engineering India Ltd Versus Asstt. Commissioner of Income-tax

Case No.: ITA No. 1316/Ahd/2016

Date: 12/05/2023

Counsel For Appellant: Yogesh Shah

Counsel For Respondent: Sudhendu Das

Click Here To Read The Order