ITAT dismisses bad debts

ITAT dismisses bad debts

The Coram ruled that the assessee had fulfilled the conditions laid down under the Income Tax Act

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

The assessee, GBT India, had written off bad debts amounting to Rs.12,296,711 as irrecoverable in its books of accounts. The debts were taken into account while computing the income for two years.

The assessing officer (AO) had held that the deduction of bad debts would not be allowed to the assessee on the ground that the supporting evidence was not furnished. Also, 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, 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 accounts.

The AO noticed that the debts were related to very brand-conscious entities, which by no stretch of the imagination could be made as bad debts. He further observed that the assessee had not furnished a convincing explanation for considering those entities.

The AO then issued a notice under the Income Tax Act to the appellant company, Amex. Eliciting no response, he disallowed the claim of bad debts, which was upheld by the Disputes Resolution Panel (DRP).

There was no dispute that on the acquisition of the Corporate Travel Division, the appellant company had also acquired receivables. It was also not in dispute that the receivables amounting to Rs.2.25 crores from certain parties could not be recovered. It was a settled proposition of law that to claim bad debts, the assessee was required to just 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 could be safely presumed that the receivables were part of business profits of Amex.

The Coram of GS Pannu and Amit Shukla held that the assessee had successfully discharged its onus and fulfilled the conditions laid down under the IT Act.

The court, thus, ruled, "We 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."