Loading judgment…
Facts
The revenue appealed against the order of the CIT(A) which had deleted additions made by the AO. The additions pertained to disallowance of bad debts, excess contract receipts, and commission expenses.
Held
The Tribunal upheld the CIT(A)'s order, dismissing all grounds of appeal. It was held that bad debts were correctly written off as per amended Section 36(1)(vii) of the Income Tax Act, contract receipts differences were reconciled, and commission expenses were genuine and duly supported by evidence.
Key Issues
Whether the CIT(A) was justified in deleting the disallowances made by the AO on account of bad debts, excess contract receipts, and commission payments.
Sections Cited
250, 143(3), 144B, 194C, 36(1)(vii), 36(2)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “G” BENCH MUMBAI
O R D E R PER ANIKESH BANERJEE [J.M]: Instant appeal of the revenue was preferred against the order of the National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as "Ld. CIT(A)"] order passed u/s. 250 of the Income Tax Act, 1961 [hereinafter referred to as "Act"] order passed for the Assessment Year 2021-22 date of order 25.09.2025. The impugned order emanated from the order of the Assessment Unit Income Tax Department [hereinafter referred to as "Ld. AO"], order passed u/s. 143(3) r.w.s. 144B of the Act date of order 26.12.2022.
AY 2021-22 Sheetal Jewellery House LLP 2. The revenue has taken the following grounds: “
Grounds of appeal : 1. "Whether, on the facts and in the circumstances of the case and in law, the Learned CIT(A) was justified in deleting the disallowance of Rs. 3,61,20,866 on account of bad debts claimed by the assessee without proper verification of the NCLT orders, resolution plans, or other documentary evidence to establish the actual irrecoverability of the debt, particularly when the claims relate to applications under the Insolvency and Bankruptcy Code, 2016?
2. "Whether, on the facts and in the circumstances of the case and in law, the Learned CIT(A) erred in deleting the addition of Rs. 12,03,004 towards alleged excess contract receipts under section 194C, relying solely on the assessee's reconciliation without independent verification from the parties, confirmations, or documentary proof for adjustments, thereby ignoring facts established during the assessment proceedings?
3. "Whether, on the facts and in the circumstances of the case and in law, the Learned CIT(A) was justified in deleting the disallowance of Rs. 2,98,000 on account of commission expenses purportedly paid to Mrs. Rekha Kothari, without any independent verification of the genuineness of the payment, business purpose, or corroborative evidence beyond bank statements and confirmations, in violation of principles of verification and assessment under the Income Tax Act?
4. "Whether, on the facts and in the circumstances of the case and in law, the Learned CIT(A) erred in law by relying on mere accounting entries, reconciliations, and confirmations in deleting substantial additions without proper documentary proof and independent verification, which amounts to erroneous exercise of appellate powers under the Income Tax Act?» 5. "The appellant craves, leave to amend or alter any grounds or add a new ground which may be necessary."
We have heard the rival submissions and perused the documents available on record. The assessee has filed a paper book containing pages 1 to 177, which has been taken on record. The adjudication of the grounds is as follows:
AY 2021-22 Sheetal Jewellery House LLP Ground No. 1: 4. The learned Departmental Representative (Ld. DR) argued and relied upon the order of the Ld. AO. The learned Authorised Representative (Ld. AR) contended that the assessee had sold goods to M/s SRS Jewells during Assessment Year 2018–19, and the corresponding amount was duly credited in the books of account. In the impugned assessment year, the assessee treated the said debtor as a bad debt. It was further submitted that the assessee had filed a petition before the National Company Law Tribunal (NCLT) for the realisation of the said debt. However, the Ld. AO rejected the claim of the assessee on the ground that no order from the NCLT had been produced. Aggrieved by the said action, the assessee preferred an appeal before the Ld. CIT(A). The Ld. CIT(A), after considering the submissions of the assessee and examining the relevant documents on record, allowed the claim by relying upon the decision of the Hon’ble Supreme Court in the case of T.R.F. Ltd. vs. CIT reported in [2010] 190 Taxman 391 (SC), and consequently deleted the addition. The relevant observations of the Ld. CIT(A) are reproduced below: “Ground No.1: “6.3 Ground no.2 is related to the addition of Rs. 3,61,20,866/-. The appellant has submitted that while making disallowance of bad debt of Rs. 3,61,20,866/- the AO has failed to appreciate the fact that the conditions prescribed as per amended section 36(l)(vii) of Income Tax Act, 1961 was duly complied with and bad debts claim was duly routed by debited the same in the Audited Profit & Loss Account by writing off the debts and corresponding income was offered to taxation in earlier years. The appellant has claimed that after the after the amendment of section 36(l)(vii) of the Income-Tax Act, 1961, with effect from 1.4.1989, in order to obtain a deduction in relation to bad debts, it is not necessary for the assessee to establish that the debt, in fact, has become irrecoverable. It is enough if the bad debt is written off in the accounts of the assessee to claim u/s 36(1)(vii). The appellant further claimed that it had filed suit before NCLT for Rs 3,61,20,866/- and out come of which is not important as the said amount is already written off as bad debts in the Profit & Loss Account.
6.3.1 The issues raised have been perused. In this respect the copy assessment order and written submission filed by the appellant have been verified. Perusal of the assessment order reveals that during the year the appellant had claimed the total bad debt of Rs. 3,61,27,693/- out of which Rs. 3,61,20,866/- was related to SRS Jewels (A unit of SRS Ltd.). The appellant furnished its reply before AO stating that it had filed application with NCLT under IBC 2016 in relation to party SRS Jewels Ltd, Gurgoan. However the AO did not accept the reply of the appellant on the ground that no copy of NCLT order, any mail correspondence etc. substantiating the nature of bad debt arising out of NCLT order has been furnished by the appellant.
6.3.2 During the appellate proceedings the appellant has re-iterated the same facts with respect to the claim of bad debts. The appellant has provided the details of breakup of bad debts of SRS Jewells in its P&L account u/s 36(1)(vii) as under:
It is seen that in the case of SRS Ltd. the appellant has filed an application as operational creditors on 18.10.2018 before NCLT under Insolvency Bankruptcy Code, 2016, however in AY 2021-22 the appellant has wrote off the amount as bad debts of Rs.3,61,20,866/- in books of accounts. With respect to the claim of bad debts, the amended provisions of section 36(1)(vii) are reproduced hereunder: “Section 36(1)(vii) Subject to the provisions of sub-section (2), the amount of any bad debt or part thereof which is written off as irrecoverable in the accounts of the assessee for the previous year. Provided that in the case of an assessee to which clause (viia) applies, the amount of the deduction relating to any such debt or part thereof shall be AY 2021-22 Sheetal Jewellery House LLP limited to the amount by which such debt or part thereof exceeds the credit balance in the provision for bad and doubtful debts account made under that clause. [Explanation 1]—For the purposes of this clause, any bad debt or part thereof written off as irrecoverable in the accounts of the assessee shall not include any provision for bad and doubtful debts made in the accounts of the assesse" On perusal of the amended provisions of section 36(1)(vii), it is observed that Bad Debts of a business are allowable as deduction u/s 36(1)(vii) r.w.s. 36(2) which inter alia provides that such debt should have been taken into account in computing the income of previous year. Further, there is no prerequisite to prove that the debt has become bad and unrecoverable. 6.3.3 It is pertinent to mention here that CBDT vide Circular No. 12/2016 dated 30th May 2016 in para 3 has observed that the legislative intention of the amendment to section 36(1)(vii) was to eliminate litigation on the issue of allowability of bad debts by removing the condition of establishing recoverability of the debt by the taxpayer, however, despite the amendment, disputes on the issue of allowability continue, mostly for the reason that the debt has not been established to be irrecoverable. The CBDT also mentioned the case of TRF Limited and stated that this issue was addressed and put to rest by the Supreme Court (SC) in the case of TRF Limited 323 ITR 397 wherein it was held that post the amendment, it was not necessary for the taxpayer to establish that the debt had become irrecoverable, and mere write-off of the debt in the books of accounts would suffice for the purpose of claiming deduction of bad debts.”
In our considered view, it is observed that the assessee has debited an amount of Rs. 3,61,20,866/- towards bad and doubtful debts in the Profit and Loss Account, pertaining to sales made during AY 2018–19. The assessee had also filed an application before the NCLT as an operational creditor on 18.10.2018 under the provisions of the Insolvency and Bankruptcy Code, 2016 for recovery of the said dues. During the impugned assessment year, the assessee wrote off the said amount as bad debt. An identical issue has been considered by the Hon’ble Supreme Court in the case of T.R.F. Ltd. (supra) and by the Hon’ble Bombay High Court in the case of PCIT vs. Tata Chemicals Ltd. AY 2021-22 Sheetal Jewellery House LLP reported in 162 taxmann.com 11 (Bom.), wherein it has been held that once the bad debt is written off in the books of account, the same is allowable as deduction. In view of the above judicial precedents and the facts available on record, we do not find any reason to interfere with the order of the Ld. CIT(A). Accordingly, Ground No. 1 of the Revenue is dismissed.
Ground No.2 6. The Ld. DR argued and relied upon the impugned assessment order. The Ld. AR contended that the addition was made due to difference in contract recipt declare by the assessee in the books of accounts and reflected in Form No. 26AS. The difference amount of Rs. 12,03,004/- is added back with total income. The Ld. AR respectfully relied on the relevant paragraphs of the impugned appellate order which is reproduced as below:- “Ground No.2: “6.4. Ground no. 3 of appeal is related to the addition of Rs. 12,03,004/-. The appellant has submitted that AO has erred in adding excess contract receipts/fees u/s 194C of Rs. 12,03,004/- due to difference between Income as per P&L and as reflected in Form 26AS without considering the reconciliation as there is no excess contract receipts of fees u/s 194C of Rs. 12,03,004/-. The appellant has tried to justify its stand stating that the difference of contract receipts/fees u/s 194C between books and Form 26AS is due to following reasons: (i) Recording of Income by appellant is Net of GST whereas some of the parties deducted TDS on Gross basis instead of Net amount, (ii) Credit notes issued by appellant but party deducted TDS including GST on gross sales, (iii) Income already offered to tax on which parties did not deduct the TDS (iv) Extra Entry in 26AS, but no such sale transactions by the appellant with the said parties nor any such receipts in the banks/Audited Financials. 6.4.1. During the appellate proceedings the appellant has filed the written submission along with relevant documentary evidences. In this respect the assessment order u/s 143(3) of the Act dated 26.12.2022, written submission and documentary evidences filed by the appellant have been verified. It is observed that during the year the AY 2021-22 Sheetal Jewellery House LLP appellant has disclosed contractual receipts/Labour Charge receipts of Rs.7,74,77,037/- in the Return of Income, however in the Form 26AS the contractual receipts reflected at Rs.7,86,80,0841/- hence difference of Rs. 12,03,004/- was remained unoffered for the purpose of taxation. In the assessment order it has been mentioned by AO that this difference was not substantiated by the appellant and accordingly the difference of Rs. 1203004/- was added to the total income of the appellant. Xxxxxxxxxxxxxxxxxxx 6.4.5 The facts of the case of TUV India (P.) Ltd are found to be similar with the appellant’s case. It is pertinent to mention that the no defect has been pointed out by the AO in the books of account of the appellant. Further, the appellant has been able to reconcile the issue of difference of Rs. 12,03,004/- with documentary evidences. In view of the above discussion, no addition to the income is warranted owing to difference between form 26AS and income reflected in books of account of the appellant. Accordingly the addition made on account of excess contract receipts of Rs. 1203004/- is hereby deleted. Ground no.3 of appeal is allowed.”
The Ld. AR respectfully relied on the order of the Coordinate Bench of ITAT-Mumbai, G-Bench in case of Goldmohur Design and Apparel Park Ltd vs DCIT in date of pronouncement 08/01/2026. The relevant paragraph is reproduced as below:- 9. We have carefully considered the rival submissions and perused the material available on record. As regards to Interest Income mismatch 14,39,701/-, we note that the addition has been sustained solely on the ground that the assessee failed to substantiate, by way of documentary evidence, that the interest income reflected in Form 26AS had already been offered to tax in earlier assessment years. At the same time, it is evident that the assessee has furnished reconciliation statements and credit notes explaining the nature and timing difference. In our considered view, the issue is essentially one of factual verification. If the assessee's contention that the income has already suffered tax in an earlier year is correct, taxation of the same amount again would result in double taxation, which is impermissible in law. Therefore, in the interest of justice, we deem it appropriate to restore this issue to the file of the Ld. AO with a direction to verify whether the impugned interest income has been offered to tax in the preceding assessment year, and if so, to delete the addition in accordance with law.
We have heard the rival submissions and perused the material available on record. The addition in the present case was made by the Ld. AO on account AY 2021-22 Sheetal Jewellery House LLP of a difference between the contract receipts declared by the assessee in the books of account and the receipts reflected in Form No. 26AS, amounting to Rs. 12,03,004/-. From the record, it is observed that the assessee had furnished a detailed reconciliation before the Ld. CIT(A), explaining the difference on account of factors such as deduction of TDS by certain parties on the gross amount including GST, issuance of credit notes, income already offered to tax though TDS was not deducted by the parties, and certain entries appearing in Form 26AS without corresponding transactions in the books of account. The Ld. CIT(A), after examining the written submissions and the supporting documentary evidences, found that the difference had been properly reconciled and that no defect had been pointed out by the Ld. AO in the books of account of the assessee. Accordingly, the Ld. CIT(A) deleted the addition of Rs. 12,03,004/-. We further note that the Coordinate Bench of the Tribunal in the case of Goldmohur Design and Apparel Park Ltd. (supra) has also held that differences between income reflected in Form 26AS and the books of account require proper reconciliation and verification, and that addition cannot be sustained merely on the basis of such mismatch where the assessee is able to explain the difference with supporting evidence. In the present case, since the Ld. CIT(A) has duly examined the reconciliation and supporting documents and the revenue has not brought any material on record to controvert the findings of the Ld. CIT(A), we do not find any reason to interfere with the order of the Ld. CIT(A). Accordingly, Ground No. 2 of the revenue is dismissed.
AY 2021-22 Sheetal Jewellery House LLP Ground No.3: 9. The Ld. DR argued and relied on the order of the Ld. AO. The Ld. AR contended that the Ld. AO rejected the commission paid by the assessee to Mrs. Rekha Kothari amount to Rs.2,98,000/-. The Ld. AR in support of his argument has submitted the following documents before the Bench:- i. IT acknowledgement of Mrs. Rekha Kothari, APB page 173 ii. Bank statement reflection of payment, APB page 174 iii. TDS certificate issued to party, APB page-175 to 176 iv. The confirmation of the party, APB page-177 The Ld. AR respectfully relied on the order of the Ld. CIT(A). The relevant paragraph is reproduced as below:- “Ground No.3: 6.5.1 The issue raised by the appellant has been perused. Perusal of assessment order reveals that during the year the appellant has claimed the expenses of Rs. 7,00,000/- paid to Rupal Kothari, however on confirmation received from Rupal Kothari the amount paid is found at Rs. 4,02,000/-. Therefore, the difference of commission expense of Rs. 2,98,000/- was added to the total income of the appellant. However the appellant has claimed that it erroneously shown commission paid of Rs. 7,00,000/- instead of Rs. 4,02,000/- and balance of Rs. 2,98,000/- was pertaining to commission paid to Mrs. Rekha Kothari for the purpose of business activity, which is wrongly merged with Mrs. Rupal Kothari. During the assessment proceeding appellant has submitted the following documents of Mrs. Rekha Kothari and Rupal Kothari to prove identity and genuineness of the commission expenses incurred during year Refer PB Pg. No. 304-307: (i) IT Acknowledgement of Rekha Kothari and Rupal Kothari (ii) Copy of Bank statement of Rekha Kothari depicting income of Rs.2,86,825/- (Net of TDS @ 3.75% due to COVID 19) (iii) Copy of TDS certificate.”
AY 2021-22 Sheetal Jewellery House LLP 10. We have heard the rival submissions and perused the material available on record. The Ld. AO had disallowed the commission expenditure of Rs. 2,98,000/- on the ground that there was a difference between the commission paid to Mrs. Rupal Kothari as reflected in the books of account and the amount confirmed by the said party. However, it is observed that the assessee has explained that the total commission of Rs. 7,00,000/- was inadvertently reflected against Mrs. Rupal Kothari, whereas an amount of Rs. 2,98,000/- actually pertained to commission paid to Mrs. Rekha Kothari for business purposes. In support of this contention, the assessee has furnished documentary evidences including the IT acknowledgement of Mrs. Rekha Kothari, bank statement reflecting the payment, TDS certificate issued to the party, and confirmation from the party. The Ld. CIT(A), after examining the submissions and supporting documents, found that the identity of the recipient, genuineness of the transaction, and payment through banking channels stood duly established. The revenue has not brought any contrary material on record to rebut these findings. In view of the above facts and the evidences placed on record, we do not find any reason to interfere with the well-reasoned order of the Ld. CIT(A). Accordingly, Ground No. 3 of the revenue is dismissed.
Ground Nos. 4 and 5 raised by the revenue are general in nature and, therefore, stand dismissed.