Actual write – off of bad debts in the books is sufficient for claiming the deduction – There is no need for evidence to substantiate claims of bad debts.
Hyderabad ITAT in the case of Nuevosol Energy Private Limited (ITA No 958/Hyd/2024) has held that Actual write-off of bad debts in the books is sufficient for claiming the deduction. It has held that there is no need for evidence to substantiate claims of bad debts.
In this case, Nuevosol Energy Pvt Ltd filed its return of income for the assessment year 2018-19, declaring a total loss. The case was selected for scrutiny, and during the assessment, the Assessing Officer (AO) disallowed a claim of bad debts amounting to Rs. 2,65,80,027.
Let us have a Short Overview of the Case:
Assessee’s Claim:
The company claimed a deduction for bad debts written off in its books of accounts.
The AO disallowed the claim, stating that the company failed to provide sufficient evidence to prove the debts were indeed bad and irrecoverable.
Arguments by the Assessee:
The assessee argued that as per the Supreme Court’s decision in TRF Ltd. vs. CIT, the only requirement for claiming bad debts is to write them off in the books of accounts.
The assessee contended that it had fulfilled this requirement and was not obligated to prove the debts were irrecoverable.
CIT(A)’s Decision:
The Commissioner of Income Tax (Appeals) upheld the AO’s decision, stating that the assessee failed to provide adequate evidence to support the claim of bad debts.
The CIT(A) relied on the Supreme Court’s decision in PCIT vs. Khyati Realtors Pvt. Ltd., which emphasized the need for evidence to substantiate claims of bad debts.
ITAT Ruling:
The Tribunal noted that the assessee had written off the bad debts in its books of accounts, fulfilling the requirement under section 36(1)(vii) read with section 36(2) of the Act.
The Tribunal referred to the Supreme Court’s decision in TRF Ltd. vs. CIT, which clarified that the actual write-off of bad debts in the books is sufficient for claiming the deduction. The Tribunal clarified that the decision of Khyati Realtors Pvt Ltd is not applicable in the current case, because that decision was on alternate claim of bad debts under section 37(1) of the Act.
The Tribunal set aside the CIT(A)’s order and directed the AO to delete the additions made towards the disallowance of bad debts.
The copy of the order is as under:
