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Facts
The assessee, a partnership firm engaged in travel and tourism, filed its return of income declaring a certain total income. The Assessing Officer completed the assessment, disallowing bad debts/business loss and making an addition on account of commission income. The CIT(A) confirmed the disallowance of bad debts.
Held
The Tribunal held that the amounts written off were genuine business transactions, including forfeiture of a security deposit for hotel rooms and irrecoverable trade debts. These were considered incidental to the business and allowable as business loss or bad debts.
Key Issues
Whether the disallowance of bad debts/business loss of Rs.22,38,326/- was justified.
Sections Cited
143(3), 144B, 36(1)(vii), 36(2)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “A” BENCH, MUMBAI
Before: SHRI NARENDER KUMAR CHOUDHRY & SHRI JAGADISH
Per: SHRI JAGADISH, A.M.: 1. This appeal by the assessee is directed against the order of the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi dated 27.10.2025 for the Assessment Year 2018–19 arising out of assessment framed u/s 143(3) r.w.s. 144B of the Income- tax Act, 1961.
The brief facts are that the assessee is a partnership firm engaged in the business of travel and tourism including arrangement of Alliance International Tours & Travels tours for domestic and international travel and running of hotel operations. The assessee filed its return of income declaring total income of Rs.1,15,87,540/-. The case was selected for scrutiny and assessment was completed determining total income at Rs.1,58,58,575/- inter alia by disallowing bad debts/business loss of Rs.22,38,326/- and making addition on account of difference in commission income. The Ld. CIT(A) confirmed the disallowance of bad debts. Aggrieved, the assessee is in further appeal before us.
The effective grounds of appeal
is against the confirmation of disallowance of Rs.22,38,326/- being bad debts/business loss written off. The disallowance comprises of Rs.10,42,570/- being forfeiture of security deposit paid for blocking hotel rooms for Kifi Association, Rs.10,08,018/- due from Aseel Tours & Travels written off as irrecoverable, and Rs.1,87,647/- representing small trade balances written off in the normal course of business.
4. The Assessing Officer disallowed the claim holding that the conditions of section 36(1)(vii) r.w.s. 36(2) were not satisfied and that certain amounts were in the nature of advances. The Ld. CIT(A) confirmed the disallowance placing reliance, inter alia, on the decision in Khyati Realtors Pvt. Ltd.
5. Before us, the Ld. Authorised Representative submitted that the reliance placed on Khyati Realtors is misplaced as the facts are distinguishable. It was contended that the amounts arose in the ordinary course of business and were either trade receivables or business advances directly connected with business operations. Reliance was placed on the judgment of the Hon’ble Bombay High Court in the case of Harshad J. Chokshi [2012] 25 taxmann.com 567 (Bom) for the proposition that once a debt arising from business is written off, the deduction cannot be denied on hyper-technical grounds. In respect of Alliance International Tours & Travels forfeiture of hotel security deposit, reliance was placed on the decision in Mahakoshal Refractories Pvt Ltd in Dated 16.06.2025 of co-ordinate Bench to contend that forfeiture of advance in the course of business is allowable as business loss.
The Ld. Departmental Representative supported the orders of the lower authorities and submitted that the assessee failed to establish that the amounts were taken into account in computing income of earlier years and that the deposits were not allowable as bad debts.
We have considered the rival submissions and perused the material on record.It is not in dispute that the impugned amounts have been written off in the books of account during the relevant previous year and that they arise out of business transactions. The genuineness of the transactions has not been doubted by the revenue. Insofar, as the amount of Rs.10,42,570/- is concerned, the same represents security deposit paid for blocking hotel rooms in connection with business activities. The forfeiture occurred due to cancellation/non- arrival of participants. Such forfeiture is clearly incidental to the business carried on by the assessee and constitutes allowable business loss. The decision relied upon by the Ld. AR in Mahakoshal Refractories Pvt Ltd supports this view. The reliance placed by the Ld. CIT(A) on Khyati Realtors is distinguishable on facts, as in the present case the amount is directly linked to trading operations.
With regard to Rs.10,08,018/- due from Aseel Tours & Travels and Rs.1,87,647/- being small trade balances, these represent business receivables written off. After the amendment to section 36(1)(vii), once the amount is written off in the books and arises from business, the deduction cannot be denied unless the revenue establishes that it does not satisfy the statutory conditions. The judgment of the Hon’ble Alliance International Tours & Travels Bombay High Court in Harshad J. Chokshi supports the proposition that bona fide business write offs are allowable.
In the totality of facts and circumstances, we are of the view that the authorities below were not justified in sustaining the disallowance of Rs.22,38,326/-. The same is directed to be deleted. 10. In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 18/02/2026 Sd/- Sd/- (NARENDER KUMAR CHOUDHRY) (JAGADISH) Judicial Member Accountant Member Mumbai, Dated: 18/02/2026 Ashwani Rao Sr. Private Secretary Copy of the order forwarded to: 1. Appellant 2. Respondent 3. The CIT 4. The CIT (Appeals) 5. The DR, I.T.A.T.