ATOP PRODUCTS PRIVATE LIMITED,DELHI vs. AU, ITD, MINISTRY OF FINANCE,GOVERNMENT OF INDIA, DELHI

The only effective issue to be decided in this appeal is as to whether the ld NFAC was justified in confirming the disallowance of ₹ 27,86,561/- on account of bad debts written of in the facts and circumstances of the instant case.

We have heard the rival submissions and perused the materials available on record. The assessee is a private limited company engaged in the business of manufacturing and sale of auto components to Auto Majors like Mahindra and Mahindra, Ashok Leyland and Hero Motocorp. The return of income was filed u/s 139(1) of the Act on 30.10.2023, declaring total income of ₹11,96,60,159/-, which was revised on 29.12.2023, declaring revised income of ₹11,65,27,020/-. The revised return was duly processed u/s 143(1) of the Act on 29.12.2023. The ld AO observed that the assessee had claimed deduction on account of bad debts written off in the sum of ₹27,86,561/- in the profit and loss account and in the return. Vide notice u/s 142(1) of the Act, the ld AO asked the assessee to provide the details of bad debts, name and address, amount, etc, and in which year, the income of such transaction was offered to tax with supporting evidences. The ld AO noted that the said details were not furnished. Accordingly, he issued a show cause notice dated 05.03.2025 show causing the assessee as to why the bad debts of ₹27,86,561/- should not be disallowed in the assessment. In response to the show cause notice, the assessee uploaded the details on 10.03.2025. The reply of the assessee is reproduced at page 7 of the assessment order, which is as under:-

The ld AO proceeded to disallow the claim of bad debts written off on the ground that the assessee was not able to prove that the bad debts have become irrecoverable. This action of the ld AO was upheld by the ld CIT(A).

We find that after the amendment effective from 01.04.1989, the assessee need not to establish that the debts had become bad. After 01.04.1989, the assessee should only have to prove that the bad debts has been actually written off as irrecoverable in the books of account and the income in respect of which had been duly offered to tax either in earlier years or during the year under consideration. Once these two conditions are satisfied, post 01.04.1989, the assessee would be entitled for deduction on account of bad debts written off. These two conditions have been duly satisfied by the assessee in the instant case, which is not even disputed by the ld AO. Even the CBDT had issued a Circular No. 12/2016 dated 30.05.2016, accepting the view of the Hon'ble Supreme Court in the case of TRF Limited reported in 190 taxman 391. For the sake of convenience, the said Circular is reproduced below:-