IPHONLINE LIMITED (NOW AS ASAPP INFO GLOBAL SERVIES PVT LTD),MUMBAI vs. DCIT, CIR-6(1)(2), MUMBAI

Coming to the first issue/ground, which relates to the disallowance of Rs.57,28,466/- in respect of Bad debts u/s. 36(1)(vii) of the Act, we observe that the Assessing Officer during the Assessment proceedings asked the Assessee to provide the breakup and details of Bad debts and therefore the Assessee provided the same, however the Assessing Officer still doubted the claim of the Assessee mainly on the reason that the Assessee had not shown any sufficient efforts having been made to collect the said debts. Further, assuming that they are Bad debts, it is for the Assessee to establish that debts have become irrecoverable or realization is not possible. The circumstances should show that the debts were not realizable for some fault, on the part of the debtors.

The Assessing Officer on the aforesaid reason held the claim of Bad and doubtful debts written off, of Rs.51,28,466/-,as not acceptable and added back said amount to the total income of the Assessee.

The Ld. Commissioner in the impugned order observed that evidently the criteria of which the Assessing Officer disallowed the writing off of Bad debts is not in harmony of the provisions of section 36(1)(vii) of the Act. However, at the same time, the Assessee has also not been able to prove that it is not hit by the restriction of the provision of section 36(2) of the Act. The Ld. Commissioner also observed that in view of the judgment by the Hon’ble Supreme Court in the case of Catholic Syrien Bank Limited Vs. CIT (2012) 343 ITR 270, the Assessee must prove all the ingredients of section 36(1)(vii) and section 36(2). Proper documentation and adherence to conditions are essential for claiming Bad debt deduction. The Assessee neither before the Assessing Officer nor before him has been able to discharge the onus cast upon it convincingly by presenting the above noted documents. The Ld. Commissioner therefore on the aforesaid reasons, ultimately affirmed the said disallowance qua bad debts written off, dismissing appeal of the Assessee. Thus, the Assessee being aggrieved has filed this appeal.

Having heard the parties and giving the thoughtful consideration to the peculiar facts and circumstances of the case it is observed that it is not in controversy that the Assessee has submitted complete details of Bad debts written off, such as date of bills, serial number, debtor’s name and the amount written off. Further, as the bills were related to the period from 1999-2008 and the income has been shown in the relevant Financial Years (in short F.Y.), which amounts to compliance of the conditions, as prescribed in section 36(2)(i) of the Act.

The Assessee before us, has also filed the details of the Bad Debts written off (Page No.16-23) and Ledger Account for debtor’s write of (Page No.25-26). Further, it is also a fact that the Hon’ble Apex Court in the TRF Limited vs. Commissioner of Income Tax, Ranchi Civil Appeal No.5293 of 2003, decided on 09.02.2010 has clearly laid down that after 01.04.1989, 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, as irrecoverable, in the accounts of the Assessee.

Further, it is a fact that CBDT by taking cognizance of the aforesaid judgment of the Hon’ble Apex Court, issued a Circular No.12/2016, dated 30.05.2016 and clarified that in view of the judgment by the Hon’ble Supreme Court in the case of TRF Limited, claim for any debt or part thereof in any previous year, shall be admissible u/s 36(1)(vii) of the Act, if it is written off, as irrecoverable in the books of account of the Assessee for that previous year and if it fulfills the conditions stipulated in sub section (2) of section 36of the Act, then no appeals may henceforth be filed on this ground and appeals already filed, if any, on this issue before various Courts/Tribunals may be withdrawn/not pressed upon.

From the CBDT circular, has become clear that the Revenue has accepted the judgment of the Hon’ble Apex Court in the case of TRF Limited and therefore the Revenue Authorities are not entitled to deviate from the dictum laid down by the Hon’ble Apex Court. Thus, the reason stated by the Assessing Officer in the Assessment Year for not allowing the claim of the Bad and doubtful debts on the reason that the Assessee has not shown to have made sufficient efforts to collect the said debts and the circumstances should show that the debts were not realizable for some fault on the part of the debtors, is untenable.

We further observe that the Hon’ble Coordinate Bench of the Tribunal in the case of Tutor Investment and Finance Private Limited vs. Deputy Commissioner of Income Tax, Central, Mumbai (ITA Nos.287 to 291/MUM/2025) decided on 24.03.2025 has also dealt with an identical issue ‘qua’ disallowance made for not allowing the Bad debts as written off, by observing and holding as under: - “7. Above two appeals having common issues involved are being taken up together. The assessee is a company engaged in the business of finance and hire purchase, leasing, business of lending loans and advance. Facts of the case are that the assessee advanced Rs.2,38,04,538/- to one Sri Ashok Chatterjee (Prop. Ashok Sudha Chatterjee). On account of non- recovery of the amount, it was written off in the books of account for both the years. The AO disallowed the claim while the Ld.CIT(A) upheld the action of the AO with an observation that the assessee failed to produce relevant evidences in support of recovery efforts made. He also disallowed the alternative claim of treating the said write off as a business loss u/s. 37 of the Act. 8. ............

We have carefully considered all the relevant facts of the case, rival submissions and materials placed on record alongwith case laws relied upon by the assessee. Section 36(2)(i) of the Act, 1961 provides as under: (i) [no such deduction shall be allowed unless such debt or part thereof has been taken into account in computing the income of the assessee of the previous year in which the amount of such debt or part thereof is written off or of an earlier previous year, or represents money lent in the ordinary course of the business of banking or money-lending which is carried on by the assessee;] [Substituted by Act 4 of 1988, Section 11, for Clause (i) (w.e.f. 1.4.1989).] 9.1 Seen in the light of the admitted position that the assessee being engaged in the business of advancing loans and advances had given these loans in the ordinary course of its business and it was regularly reflecting the interest income thereon in the books of accounts. These facts are not disputed by the revenue in any manner. When the said loan became irrecoverable as enunciated in foregoing paras, as a prudent business measure, the entire amount inclusive of principal and interest was written off in the books of account and claimed as deduction u/s 36(1)(vii) r.w. section 36(2)(i) of the Act satisfying the conditions laid down. It is a settled law now that the bad debt is not required to be proved as irrecoverable as was the position in the pre-amendment period before 01.04.1989. if the assessee advances money in the course of its business and if the advance become bad, it should be allowed as a bad debt in terms of s.36(1)(vii) r.w. 36(2)(i) of the Act. We have to look into the issue from the point of view of the assessee, whether assessee has advanced money and it became bad debt and same was written off in the books of accounts as bad debt. In the present case, assessee has advanced money in the ordinary course of carrying on business of the assessee and income earned from such business was offered to tax from year to year. Due to circumstances beyond the control of assessee, assessee was not able to recover the interest income on the impugned advance made to the borrower. As per the decision of Supreme Court in the case of TRF LTD. V. Ld. CIT(A), 323 ITR 397, it is enough if the irrecoverable debt has been written off in the books of accounts of assessee which is advanced in the ordinary course of business of assessee. The Courts have also been taking this view consistently. 9.2. The Hon’ble High Court of Bombay in Ld. CIT vs. Smt. Padma S. Bora in (2015) 54 Taxmann.com 319has held as reproduced here under: “5. Having perused this paragraph carefully, we find that the Tribunal may have committed a mistake in erroneous reproduction of the Commissioner’s findings, but that does not mean that the Appeal would raise any substituted question of law. The allowability of bad debts was a claim considered in depth by the Commissioner and eventually granted in favour of the Assessee. The Assessee is engaged in the business of money lending. Merely because the Assessee does not have license to conduct this business, does not mean that the claim of bad debts should be denied. The Commissioner has in relation to this claim of bad debts should be denied. The Commissioner has in relation to this claim held in his order at paragraph 4.2 that the Tribunal’s order in the case of B.N. Khandelwal v. ITO [2007] 16 SOT 343 (Mum.), would assist the Assessee inasmuch as the amount is lent in ordinary course of money lending business. It was written off after making efforts to recover. The effort was unsuccessful. In such circumstances, the Tribunal did not commit any error in reaffirming the conclusion of the Commissioner of Income Tax (Appeals) and which is to be found in paragraph no. 4.2 of the Commissioner’s order. The present Appeal also is continuation of the attempt by the Revenue to question such findings. The findings being purely of fact, the same do not raise any substantial question of law. 9.3. In the case of CIT vs. B.D.A.Ltd. Bombay in 213. ITXA-201- 2003.doc dated 23.02.2024,Hon’ble Bombay High Court has taken similar view as under: Section 36(1) (vii) of the Act, which at the relevant time, reads as under:

We further observe that the Coordinate Bench of the Tribunal in the case of M/s. Excellence Finance Private Limited vs. Deputy Commissioner of Income Tax Officer (ITA No.293/M/2025 decided on 28.04.2025), has dealt with the identical issue and ultimately deleted the identical addition, by observing and holding as under:

Coming to second issue/ground, which pertains to the addition of Rs.18,48,077/- on account of disallowance made in respect of prepaid expenses and provision for expenses. We observe that the Assessee, in the profit and loss account claimed the amount of Rs.18,48,077/- under various heads as ‘prepaid expenses and provision for expenses’, which have been disallowed by the Assessing Officer mainly by holding that the same are in the nature of provisions or as prepaid relevant to the various expenses, not allowable, as per the provisions of the Act.

The Assessee, being aggrieved, also challenged the said addition/disallowance of Rs.18,48,074/- before the Ld. Commissioner, in First Appeal and submitted asunder: -

The Ld. Commissioner, though considered the aforesaid submissions of the Assessee and also observed that it is trite that where the factum of pre-paid expenditure being actually paid and the incurrence of expenditure for the purpose of business had not been disputed by the Revenue, and the Assessee had been consistently claiming the same in the year of incurrence and/or had been allowed by the Revenue in the past and given by the nature of expenditure of given pre-paid expenses in the overall context of the business of the assessee, which indisputably was not going to disturb the determination of profit/loss, such consistent claim of expenditure should not be disturbed. However, the Ld. Commissioner rejected the claim of the Assessee mainly by holding that the Assessee has not given any documentary evidence or has made any sincere attempt to convince the Assessing Officer as well as him, to prove that it has been claiming similar expenditure towards pre-paid expenses in the year of incurrence and the same was found to be correct and was allowed following the principle of consistency.

We have given thoughtful consideration to the determinations made by the authorities below on the issue/addition under consideration. Admittedly, the Assessee before the Ld. Commissioner accepted its fault for claiming Rs.8,12,795/- on account of pre-paid expenses, being part of the total expenses of Rs.18,48,074/- as inadvertently and therefore withdrew its claim in respect of said amount, however with regard to the provisions for expenses, the Assessee submitted details of expenses, as well as documents including TDS challans in the form of additional evidence under Rule 46A of the Income Tax Rules, 1962 (in short ‘Rules’).Somehow, the Ld. Commissioner failed to determine the allowability of additional evidence and/or claim of the Assessee and rejected the same by holding contrary that the Assessee has not given any documentary evidence or made any attempt to prove that it has been claiming same expenditure towards pre-paid expenses, whereas, the Assessee before us proved contrary. Thus considering the peculiar facts and circumstances in totality qua this issue, we deem it appropriate to remand this issue/addition to the extent of Rs.10,35,282/-{18,48,074/- -8,12,792/-}on account of provisions for expenses, for which Assessee has filed certain additional evidence, to the file of the Assessing Officer for decision afresh and factual verification. Rest of the amount of Rs.812795/-, which was claimed as pre-paid expenses inadvertently but withdrawn subsequently, therefore is upheld. Resultantly, the ground/issue no. 2 is allowed partly for statistical purposes.

Coming to the 3rd issue ground/addition of Rs.66,62,474/- the payments made under various heads of expenditure, wherein no TDS has been deducted by the Assessee, as alleged and as detailed below:

We observe from the Assessment Order that the Assessing Officer made such addition/disallowance of Rs.66,62,474/- on the reason that the Assessee has not complied with the TDS provisions and, therefore the said expenses are disallowed, as per the provisions of section (40a)(ia) of the Act.

In that view of the matter, it is not necessary to examine the correctness of the Tribunal in relation to the first question.

In the result, the Income Tax Appeal is dismissed. The Bengal Chamber of Commerce Rs.2,20,000/-: The assessee had organized a Steel Raw Materials Conference on 21st and 22nd November, 2010 in Kolkata along with Bengal Chamber of Commerce & Industry. The assessee had paid Rs. 2,20,000/- to Bengal Chamber of Commerce & Industry towards their share of sponsorship and no tax was deductible. Truine Exhibitors Rs. 77,302/: The assessee had to receive Rs.77,302/- on account of exhibition expenses in earlier years. The said party was unable to pay the amount and the same was adjusted towards stall expenses payable to them during the year in the course of an exhibition. (The amount was in the nature of barter expenses). Sub commission payable Rs.1,06,393/-: The assessee had paid sub commission of Rs. 1,06,393/- to various people. The amounts were below the limits and hence no tax was deducted.

We further observe that the Ld. Commissioner though reproduced the aforesaid submissions of the Assessee in the impugned order, however without examining such claim, affirmed the aforesaid addition/disallowance by observing and holding as under: -

The Assessee therefore claimed, as it has paid the food bills/ food expenses amounting to Rs.6,48,007.50 + 31,625.71 + 5,302.50 + 7,76,688.43 + 6,44,251.50 to the Ambience Hotels & Resorts Limited. Further, also paid the amount of Rs.6,48,007.50 + 3,162.71 + 5,25,302.50 + 7,76,688.43 + 6,44,251 + 6,17,575 to Leela Hotel and therefore the Assessee would be entitled to get the benefit of aforesaid CBDT Circular.

Further, the Assessee also demonstrated the fact that it has made the payment of Rs.1,00,538/- to M/s. Om Sai, which represent amounts paid for color coping in connection with the Indian Steel Conference and the Assessee has duly deducted the TDS @ 2% of such amount. The Assessee in respect of such claim, also filed additional evidence before the Learned Commissioner and requested to accept the bills as additional evidence under Rule 46A of the Rules but the Ld. Commissioner without paying any heed to the request of the Assessee, sustained the addition.

The Assessee further claimed that it has also incurred the amount of Rs.10,00,141/- as Exhibition Expenses, in order to bridge the gap between buyers and Sellers and bring them together in a single platform for the benefit of the Indian Steel Industries. The Assessee also submitted the details of the expenses, which read as under: Particulars Amount (Rs.) Exhibition Expenses 3,72,373.00 Courier Charges 8,498 Printing & Stationery – General 76,296 Conveyance Expenses 2,695 Travelling Expenses – Staff (Domestic) 2,36,478 Travelling Expenses – Others (Foreign) 2,77,006 Printing & Stationery – Trade Fairs 26,795 Total 10,00,141

The Assessee further demonstrated the fact that the amount of Exhibition Expenses of Rs.3,72,373/- also includes the food expenses, venue expenses, electrical expenses, A.V. equipment, furniture equipment’s and logistics for exhibition participation and the breakup of the same is as under: -

The Assessee with regard to payment of Rs.2,75,750/- made to Synapse Information Services Private Limited has claimed that it has duly deducted the TDS of Rs.2,75,750 on such amount and filed the challan of the above payment, being an additional evidence under Rule 46A of the Rules before the Ld. Commissioner, who somehow failed to consider the same.

The Assessee further claimed that courier charges amounting to Rs.8498/- include all domestic and international courier deliveries for conference materials and documents, as the amounts was petty in nature, and therefore no TDS was deductible on such payment.

Further, the Assessee also claimed that the Assessee has also incurred the amounts of Rs.76,296/- and 2,695/- qua printing and stationery and conveyance expenses respectively. As the said amounts were petty in nature and therefore no tax was deductable.

Further, the Assessee has also demonstrated the fact that the amounts of Rs.2,36,478/- and 2,77,006/- pertains to travelling expenses of staff (domestic) and travelling expenses of others (Foreign) of which, no tax was deductible.

The Assessee further claimed that with regard to the payment of Rs.26,795/- which pertains to printing and stationery for trade fairs, consisting various heads like stand graphics, roll-ups, promotional flyers and other print collateral specific to trade-fair exhibitions, as the amount was petty in nature and therefore no tax was deductible on such amount.

The Assessee further claimed that around 272 delegates had attended the conference. Thus, the Assessee has collected the amount of Rs.13,59,510/- in total, as participation fees/delegate participation fees from delegates and entered into a joint agreement with Major and Minor Exims Private Limited on 07.01.2011 to jointly organize a conference on Steel Markets in Gurgaon. As per terms and conditions of agreement, the surplus generated was to be distributed equally and losses, if any, would also be borne equally. As the Assessee had incurred loss of Rs.4,59,660/- and has paid its share of loss to them, which amounted to reimbursement of expenses and therefore deduction of TDS of such amount, was not attracted.

The Assessee further claimed that the payment of Rs.2,20,000/- made to the Bengal Chamber of Commerce pertains to Conference of Steel Raw Materials on 21st and 22nd November, 2010 in Kolkata along with Bengal Chamber of Commerce and Industry towards their share of sponsorship and therefore no tax was deductible on such amount.

The Assessee further submitted that Assessee had to receive Rs.77,302/- from M/s. Truine Exhibitors on account of exhibition expenses in earlier years. The said party was unable to pay the amount and therefore the same was adjusted towards stall expenses payable to them during the year and in the course of an exhibition. (The amount was in the nature of barter expenses). And therefore no such TDS was deductible on that particular amount, which was adjusted.

The Assessee with regard to the sub-commission amounting to Rs.1,06,393/- has claimed that it had paid sub commission of such amount to various persons below the limits, as prescribed for non-deduction of TDS and hence, no tax was deductible on such payments. The Assessee in support of aforesaid contentions or claim, has also filed relevant documents in the form of paper book with duly certification that the documents as indexed, except Circular No.12/2016, decision of the Supreme Court in the case of TRF Limited vs. Ld. CIT(A)and Circular No.715 dated 08.08.1995, have been submitted before Ld. CIT(A).

We have given thoughtful consideration to the peculiar facts and circumstances of the case. It is not in controversy that in Circular No.715 dated 08.08.1995question No.11is formulated as under: “Whether a contract for catering would include serving food in a restaurant/sale of eatables?”

The CBDT replied/clarified such question as under:

Therefore as per circular, no TDS is liable to be deducted when payment is made for serving food in a restaurant in the normal course of running of the restaurant/café. And thus the claim of assessee qua food expenses, is required to be adjudicated in view of the above clarification in Circular.

We further observe that some of the expenses as observed above are petty in nature, which did not attract the provisions of TDS. Some payments adjusted by the Assessee and/or by using barter system, also did not attract any TDS provisions.

Further, with regard to payments made for ancillary services, like small conveyance expenses, Taxies and Auto Rickshaw fares, fuel reimbursement and local transport hired for conference team members, printing and stationery for trade-fairs, courier charges, etc., we are of view that if payments were made to the unorganized service providers and falls below than the prescribed limit, then the Assessee would be entitled the benefit of non-deduction of TDS.

We also observe from the certificate given in the paper book filed by the Assessee, that the Assessee before the Assessing Officer has not filed any such documents, as filed before the Ld. Commissioner and before this Court, as well. Thus, we are of the considered opinion that factual verification is imperative, and hence the issue qua disallowance/addition of Rs.66,62,474 is remanded to the file of the Jurisdictional Assessing Officer (in short JAO), for decision afresh, by carrying out factual verification. Resultantly, the issue/ground no. 3 is allowed for statistical purposes.

In the result, the Assessee’s Appeal is partly allowed, in the above terms.