The Income Tax Appellate Tribunal (ITAT), while allowing the benefit of deduction to the assessee on account of bad debts has held that the deduction is allowable if the sum written off as bad debts were already included as income of the assessee in the earlier previous years.
Facts of the case:
The assessee, M/s Xalted Information Systems Pvt. Ltd is a company engaged in telecommunication software development and trading in telecommunication hardware required mainly to run their software that is being supplied to the prospective consumers. For the Assessment Year 2014-15, the assessee filed return of income claiming deduction under Section 80IC of the Income Tax Act, 1961.
Interpretation of law:
The Assessing Officer (AO) did not allow the claim of assessee as he computed the gross total income at a negative figure and denied the benefit of deduction under Section 80IC. The assessee company contended that commissioner Commissioner (A) failed to appreciate the fact that the appellant had claimed deduction under section 80-IC of the Act only out of profits and gains derived by the business of the undertaking that was set up in the State of Himachal Pradesh wherein a detailed working of such deductions claimed were submitted by the appellant.
The ITAT headed by the Vice President, N. V. Vasudevan, and an Accountant Member, A.K.Garodia allowed the benefit of deduction to the assessee on account of bad debts and held that the claim of the assessee for deduction ought to have been allowed by the revenue authorities.
“It is clear from the order of AO that AO never doubted that the sum written off as bad debts were already included as income of the assessee in the earlier previous years. There is no condition laid down in section 36(1)(vii) that the sum which is written off as bad debts should have suffered tax and if that income is claimed as exempt or deduction is claimed, then deduction on account of bad debts written off should not be allowed,” the ITAT observed.
“We are therefore of the view that none of the reasons assigned by the revenue authorities to deny the benefit of deduction on account of bad debts written off are sustainable. The claim is directed to be allowed,” the tribunal said.