Disallowance of bad debts in case of running account with the party is justified

Citation of the Case:- Amar Enterprise vs. ITO (ITAT Ahmedabad), Income tax (Appeal) no. 2520 of 2011, Date of Judgment: 05/06/2015
Brief of the Case
ITAT Ahmedabad held In the case of Amar Enterprise vs. ITO that in the present case, the AO has demonstrated that the assessee has continued business transactions with the concerned party. It is also not disputed that the assessee has received payments from the concerned party. Hence, disallowance of bad debts is justified.
Facts of the Case
The case of the assessee was picked up for scrutiny assessment and the assessment u/s 143(3) was framed vide order dated 04/12/2009, thereby the Assessing Officer made disallowance of bad debt of Rs.1,14,366/- and also made addition of Rs.91,282/- on account of difference in account of Arihant Enterprises. Further, the AO made addition of Rs.5,000/- u/s.40A(3).
Contention of the Assessee
The ld. counsel for the assessee submitted that the authorities below were not justified in disallowing the bad debts and addition thereon. He submitted that the CIT (A) ought to have deleted the disallowance. The ld counsel for the assessee relied on the judgment of Hon’ble Apex Court rendered in the case of TRF Limited vs. CIT reported at (2010) 323 ITR 397 (SC).
Contention of the Revenue
The ld counsel of the revenue supported the order of the AO and submitted that the AO has given a clear finding that the assessee in written submission stated that the firm has claimed bad debt as Bil Metal Industries Ltd. has not paid due amount during preceding years as a result of which the assessee has written off the due amount. He submitted that the AO observed that on verification of ledger account of Bil Metal Industries for the Financial Year 2006-07 relevant to AY 2007-08 from the books of account of the assessee it was found that there was opening balance of Rs.1,63,819/-, during the year as against the due balance of Rs.1,63,819/-, Rs.63,788/- was paid by Bil Metal on 22/04/2006. During the year goods worth Rs.1,02,592/- was sold by the assessee and further payment of Rs.40,000/- was received by the assessee on 24/03/2007. He submitted that the AO observed that the assessee continued its business transactions with Bil Metal Industries Ltd.
He further submitted that the AR on behalf of the assessee agreed to the proposed addition of bad debt of Rs.1,14,336/-. He furthrer submitted that under the facts of the present case, the judgement of Hon’ble Apex Court rendered in the case of TRF Limited vs. CIT reported at (2010) 323 ITR 397 (SC) is not applicable.
Held by CIT (A)
The CIT (A) rejected the appeal of the assessee. It was held that it is very clear that the appellant was continuing business with Bil Metal Ind. Ltd. during the previous year under consideration and it was regularly making sales to that party. It has also received payment of Rs.40000/- on 24.03.2007. Problem, if any, was in relation to bills amounting to Rs.114366/-, in respect of which the appellant has not submitted any documentary evidence of dispute. It is also very clear from the submission of the appellant that amount of Rs.1,14,366/- is not recoverable because of some kind of dispute between the appellant and Bil Metal Ind. Ltd and not because the financial position of Bil Metal Ind. Ltd has become so bad that the recovery of the amount is doubtful. It has been held in the case of Devi Film Pvt Ltd V CIT (Mad) 75 ITR 301 that action of the assessee waving a portion of amount due from the debtor does not amount to bad debt rather it is a trading loss. A similar inference can be drawn from the finding of honorable Calcutta High Court in case of CIT V Coates of India Ltd (1998) 232 ITR 324 (Cal). Therefore, claim of the appellant for allowing deduction of amount of Rs.114366/- as a bad debt is not sustainable.
Held by ITAT
The ld counsel for the assessee has placed reliance on the judgment of the Hon’ble Apex Court in the case of TRF Limited vs. CIT reported at (2010) 323 ITR 397 (SC) in support of his contention that the claim of the assessee with regard to bad debt is allowable. We do not see any force in the contention of the ld counsel for the assessee as in the present case the AO has demonstrated that the assessee has continued business transactions with the concerned party. It is also not disputed that the assessee has received payments from the concerned party. Moreover, assessee through its Authorized Representative agreed to the disallowance of bad debt and addition of the same. The judgment of Hon’ble Apex Court in the case of TRF Limited relied upon by the ld counsel for the assessee will not help to the assessee.