Adjustment Against Bad and Doubtful Debts Amounts to Actual Writing Off of Bad Debts: ITAT

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

Integra Engineering India Ltd., the assessee is a limited company engaged in the business of manufacturing and selling textile machinery, spares, and job work. The assessee has written off bad debts of ₹ 36,75,000 in the profit and loss account. The assessee has also written off the bad debts amounting to ₹ 69,33,446.00 in the computation of income by adjusting the provision for the bad debts created in the earlier year. The assessee in effect has claimed the deduction of ₹1,06,00,000.00 on account of bad debts.

The AO has made the disallowance of the deduction claimed by the assessee for ₹1.06 crores for the bad debts on the ground that the assessee has not put any effort into the recovery of such bad debts. However, the CIT(A) was not satisfied with the reasoning given by the AO for the disallowance.

The CIT(A) observed that the assessee didn’t need to put any effort into the recovery of bad debts for claiming the deduction. As such, writing off the bad debts in the books of accounts is sufficient for claiming the deduction. The CIT(A) concluded that the assessee has not written off bad debts to the tune of Rs. 69,33,446.00 in the books of accounts and therefore, he disallowed the same.

The two-member bench of T.R. Senthil Kumar (Judicial Member) and Waseem Ahmed (Accountant Member) has observed that any adjustment made by the assessee on account of the bad debts against the provisions created in the earlier year amounts to actual writing off of the bad Debts in the books of accounts. Further viewed 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 of bad debts.

While allowing the appeal, the Court set aside the order of CIT(A) and directed the AO to delete the addition made by him.To Read the full text of the Order CLICK HERE

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Integra Engineering India Ltd vs Asstt. Commissioner of Income-tax


Counsel for Appellant:   Shri Yogesh Shah

Counsel for Respondent:   Shri Sudhendu Das

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