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Facts
The assessee company claimed bad debts amounting to Rs. 141,66,01,735/- under section 36(1)(vii) of the Income Tax Act. The Assessing Officer accepted this claim. However, the Principal Commissioner of Income Tax (Pr. CIT) initiated revision proceedings under section 263, stating that the Assessing Officer had not conducted proper inquiry regarding the genuineness of the bad debts and the discrepancy in revenue from M/s. PCL Eagle Infra India Limited-JV.
Held
The Tribunal held that the Pr. CIT erred in invoking Section 263 jurisdiction. The bad debts claimed were for escalation costs pending for a long time, and the assessee had offered the amounts as income in earlier years, satisfying the conditions under Section 36(1)(vii) r.w.s. 36(2). The Pr. CIT's assumption of jurisdiction was without proper verification of the facts and evidence already on record with the Assessing Officer. The discrepancy in turnover was also found to be explained by the assessee with supporting reconciliation, and the Assessing Officer was satisfied with it.
Key Issues
Whether the Pr. CIT was justified in invoking Section 263 to revise the assessment order when the Assessing Officer had conducted due inquiry and accepted the assessee's claim for bad debts and turnover, and whether the bad debts claimed were allowable under Section 36(1)(vii) read with Section 36(2).
Sections Cited
36(1)(vii), 36(2), 263, 143(3), 144B, 194C, 272A(1)(d)
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Income Tax Appellate Tribunal, Hyderabad ‘B’ Bench, Hyderabad
Before: SHRI VIJAY PAL RAO & SHRI MADHUSUDAN SAWDIA
आयकर अपील�य अ�धकरण, हैदराबाद पीठ IN THE INCOME TAX APPELLATE TRIBUNAL Hyderabad ‘B’ Bench, Hyderabad BEFORE SHRI VIJAY PAL RAO, VICE PRESIDENT AND SHRI MADHUSUDAN SAWDIA, ACCOUNTANT MEMBER आ.अपी.सं /ITA.No.625/Hyd/2025 Assessment Year 2021-2022 Progressive Constructions The DCIT, Limited, Hyderabad. Circle-5(1) vs. PIN – 500 001. Telangana. Hyderabad - 500 004. PAN AABCP2274M Telangana. (Appellant) (Respondent) CA Pawan Kumar Chakrapani िनधा�रती �ारा/Assessee by : And Sri Santi Pavan Kumar, Advocate राज� व �ारा/Revenue by : Sri LV Bhaskara Reddy, CIT-DR सुनवाई की तारीख/Date of hearing: 02.02.2026 घोषणा की तारीख/Pronouncement: 04.03.2026 आदेश/ORDER PER VIJAY PAL RAO, VICE PRESIDENT :
This appeal by the Assessee is directed against the Order dated 10.02.2025 of the learned Principal Commissioner of Income Tax, Hyderabad-4, Hyderabad passed u/sec.263 of the Income Tax Act [in short "the Act"], 1961, for the assessment year 2021-2022.
2 ITA.No.625/Hyd./2025 2. The assessee has raised the following grounds of appeal:
1. “The order of the Honorable Pr. Commissioner of Income-tax Hyderabad-4, Hyderabad, passed under section 263 of the Act, in so far as it is against the Appellant is opposed to law, equity, weight of evidence, probabilities and the facts and circumstances in the Appellant's case.
2. The Honorable Pr. CIT has grossly erred in revising the order passed by the learned assessing officer without appreciating that there is no error, much less prejudicial to the interests of the Revenue to warrant a revision and therefore the order passed by the Honorable Pr. CIT is ultra vires to the scope of Section 263 and requires to be cancelled under the facts and circumstances of the Appellant's case.
3. The Honorable Pr. CIT, has erred in not appreciating the settled position of law that, where there are two opinions possible on an issue, section 263 cannot be exercised to invoke such an issue.
The Honorable Pr. CIT has grossly erred in revising the order passed by the learned assessing officer without appreciating that there is no error, much less prejudicial to the interests of the Revenue to warrant a revision and therefore the order passed by the Honorable Pr. CIT is ultra vires to the scope of Section 263 and requires to be cancelled under the facts and circumstances of the Appellant's case.
Without prejudice to the above the Honorable Pr. CIT ought to have appreciated that the aforesaid issue on which the Honorable Pr. CIT had sought to revise the assessment order is a conscious view adopted by the learned assessing officer, which is not shown to be 3 ITA.No.625/Hyd./2025 erroneous and consequently, the jurisdiction under section 263 of the Act stands ousted and accordingly the impugned order passed deserves to be cancelled, under the facts and circumstances of the Appellant's case.
6. The Honorable Pr. CIT ought to have appreciated the fact that Appellant's case, will not fall under sub-section [1], explanation 2[b] of section 263 of the Act, under the facts and circumstances of the case.
7. The Honorable Pr. CIT ought to have appreciated the fact that, the claim of bad debts are allowable as the amount of Rs.141,66,01,735/-, is taken into account in computing the income of the Appellant of the previous years, under the facts and circumstances of the case.
8. The Honorable Pr. CIT ought to have appreciated the fact that, the Appellant has taken correct revenue from operations and the amount of Rs.8,82,80,015/-, is not revenue from operation but represents the amount which was withheld and special advances, under the facts and circumstances of the case.
9. The Appellant craves leave to add, alter, delete or substitute any of the grounds urged above.
10. In the view of the above and other grounds that may be urged at the time of the hearing of the appeal, the Appellant prays that the appeal may be allowed in the interest of justice and equity.”
The assessee company filed its return of income for the year under consideration on 11.01.2022 declaring total income at Rs.NIL. The case of the assessee was selected for 4 ITA.No.625/Hyd./2025 scrutiny under CASS with the reasons as reproduced by the Assessing Officer as under:
Receipts u/s 194C (as per 26AS) and low net profit.
Very Low PBDIT ratio in specific business code and turnover range where deficiency is reported in audit report.
3.1. The Assessing Officer completed the assessment u/sec.143(3) r.w.s.144B of the Act on 19.12.2022 accepting the returned income of the assessee. Thereafter, on perusal of the record, the Pr. CIT noted from note-26 forming part of profit and loss account that assessee has claimed bad debts u/sec.36(1)(vii) of the Act to the tune of Rs.141,66,00,735/- out of which, a sum of Rs.112,59,23,924/- payable by the Executive Engineer, PIPLMC Divison-1, Dowleswaram, Government of Andhra Pradesh. Further it was also noted that from note-20 forming part of the profit and loss account that the assessee reported revenue from operations at Rs.271,13,81,000/-, out of which, Rs.130,01,28,298/- was accounted for M/s. PCL Eagle Infra India Limited-JV. However, the revenue from operations of M/s. PCL Eagle Infra
5 ITA.No.625/Hyd./2025 India Limited-JV was offered at Rs.121,18,48,283/- only and there is a difference of Rs.8,82,80,015/- as a discrepancy. The learned Pr. CIT observed that the Assessing Officer has not conducted proper enquiry and verified these issues which render the assessment order erroneous so far as prejudicial to the interests of the Revenue. Accordingly, a show cause notice dated 03.01.2025 was issued u/sec.263 of the Act. In response to the show cause notice, the assessee filed its reply on 09.01.2025 and also sought 15 days’ time to collect the necessary documents. The Pr. CIT then passed the impugned order on 10.02.2025 by holding that the Assessing Officer has failed to verify the genuineness of the bad debts and short accounting of revenue from operations while passing the assessment order. Accordingly, the assessment order passed by the Assessing Officer u/sec.143(3) r.w.s.144B of the Act was held to be erroneous as well as prejudicial to the interests of the Revenue and the Assessing Officer was directed to pass a fresh assessment order after affording an opportunity to the assessee.
6 ITA.No.625/Hyd./2025 4. Aggrieved by the impugned order of the learned Pr. CIT, the assessee filed the present appeal before the Tribunal.
Before the Tribunal, the learned Authorised Representative of the Assessee has submitted that the Assessing Officer has issued show cause notice u/sec.143(2) dated 28.06.2022 which was duly replied by the assessee vide acknowledgment dated 16.07.2022 placed at page nos.114 and 115 of the paper book. Thus, the assessee submitted copies of the ITR, balance-sheet, profit and loss account along with statutory Audit Report and 29B report. Thereafter, the Assessing Officer issued a notice u/sec.142(1) on 21.09.2022 along with the detailed questionnaire which was also replied by the assessee vide reply dated 03.10.2022, acknowledgment of which, is placed at page nos.123 and 124 of the paper book. In the said reply, the assessee sought some time of 15 days to file the requisite details and record. The Assessing Officer then issued another notice dated 142(1) on 04.10.2022 and raised a specific query about various expenses as well as bad debts written off by the assessee during the year. The Assessing Officer has given the details
7 ITA.No.625/Hyd./2025 of all the amounts of the bad debts written off by the assessee during the year which was also replied by the assessee vide reply dated 14.10.2022, acknowledgment of which, is placed at page nos.130 and 131 of the paper book. Thus, the learned Authorised Representative of the Assessee has submitted that the assessee produced all relevant details along with finance audit report, income tax return and report in Form- 3CA and Form-3CD and Form-39B. The assessee also filed the details of bad debts along with the supporting evidence and the ledger accounts as well as the ledger account and details of the preceding years wherein this amount was recognized as revenue in the profit and loss account and hence, this amount represents the claim of the assessee on account of escalation cost of execution of projects of Irrigation Department of the Government of Andhra Pradesh and the claim was pending for a long time since the year 2013-2014 onwards was ultimately written-off by the assessee as bad debts. The learned Authorised Representative of the Assessee has submitted that this was not a claim of ordinary regular running bills, but it was additional claim of escalation cost
8 ITA.No.625/Hyd./2025 which was not allowed by the Government Department and was pending for a long time. Therefore, the assessee finally treated the said debt as bad debt and written off in the books of account. He has referred to the detailed note filed by the assessee before the Assessing Officer placed at page nos.82 and 83 of the paper book and also referred to the CBDT’s Circular No.12/2016 placed at page nos-184 and 185 of the paper book and submitted that the CBDT has clarified this issue that the legislative intent behind the amendment w.e.f. 01.04.1989 was to eliminate litigation on the issue of allowability of the bad debts by doing away with the requirement for the assessee to establish that the debts are in fact become irrecoverable. Thus, the learned Authorised Representative of the Assessee has submitted that when there is no legal requirement to establish that the debt has become irrecoverable then, the claim of bad debts is allowable u/sec.36(1)(vii) r.w.s.36(2) of the Act once the assessee has treated the debt as irrecoverable and written-off the same as bad debts. He has relied upon the Judgment of Hon'ble Supreme Court in the case of TRF Limited vs. CIT [2010]
9 ITA.No.625/Hyd./2025 323 ITR 397 (SC). The learned Authorised Representative of the Assessee then referred to the details of the bad debts written off during the year and corresponding income offered in the preceding years placed at page no.86 of the paper book along with the ledger accounts of the preceding years from the financial year 2013-2014 onwards. Thus, he has submitted that this entire amount written off during the year was opening balance of the debts representing the amounts receivable from the Irrigation and CAD Department, Government of Andhra Pradesh as well as National Highways Authority of India [in short “NHAI”]. The learned Authorised Representative of the Assessee has also referred to the profit and loss account as well as the balance sheet to show that this amount of bad debts written off is duly reflected and details are provided in the note-19 to the balance sheet as well as note-26 of the profit and loss account. All this material was filed and available before the Assessing Officer in response to the query raised by the Assessing Officer. The Assessing Officer was satisfied with the claim of the assessee which is duly supported by the documentary evidence in the 10 ITA.No.625/Hyd./2025 shape of the financials and ledger accounts of the assessee since the year 2013-2014 till date to show that this amount was recognized by the assessee as revenue and part of the profit and loss account. Thus, the learned Authorised Representative of the Assessee has submitted that the assessee has satisfied the conditions as laid down u/sec.36(1)(vii) r.w.s.36(2) of the Act to claim the deduction on account of bad debts written off. He has contended that on this issue, the Assessing Officer has taken a correct and plausible view while allowing the claim of deduction and the Commissioner has no power to invoke the provisions of sec.263 of the Act without verifying and analyzing relevant details and evidence available on assessment record. Invocation of the provisions of sec.263 of the Act by the Pr. CIT is without application of mind and even without considering the fact that the Assessing Officer has issued the show cause notice and raised a specific query about the claim of bad debts written off by the assessee during the year which was duly replied by the assessee with supporting evidence and details. Therefore, the order of the Pr. CIT passed 11 ITA.No.625/Hyd./2025 u/sec.263 of the Act on this issue is against the law as well as the binding Judgment of Hon'ble Supreme Court in the case of TRF Limited (supra) and the CBDT Circular No.12/2016.
As regards the issue of discrepancy in the operating revenue from M/s. PCL Eagle Infra India Limited- JV, the learned Authorised Representative of the Assessee has submitted that the turnover declared by the assessee in the books of account and particularly in the profit and loss account is matching with the turnover as per 26AS. The entire amount was subjected to TDS and duly reflected in Form-26AS. He has further submitted that the entire receipt cannot be considered as turnover when some of the amount was on account of mobilization advances and material as well as other advances not in the nature of the revenue and particularly revenue for the year under consideration. He has referred to the Form-26AS and submitted that the turnover as per Form-26AS from M/s. PCL Eagle Infra India Limited- JV is shown at Rs.121,18,48,816/- which is the same amount as part of the total turnover shown in the profit and 12 ITA.No.625/Hyd./2025 loss account of the assessee at Rs.271,31,80,852/-. He has also filed reconciliation of turnover as per the profit and loss account and gross receipts reflected in 26AS and submitted that if the amount of mobilization advances and material as well as other advances are reduced, the turnover declared by the assessee in the profit and loss account is matching with the turnover as per 26AS. Thus, the learned Authorised Representative of the Assessee has submitted that there is no discrepancy in the turnover declared by the assessee. He has referred to the notice issued by the Assessing Officer u/sec.142(1) of the Act dated 21.09.2022 and submitted that the Assessing Officer has specifically asked the assessee vide question no.8 to provide the details of the contract receipt or fee u/sec.194C of the Act shown in the ITR with name of the party, TDS deducted as well as the details of the income credited in 26AS and reasons for difference. The learned Authorised Representative of the Assessee has submitted that in reply to the said query, the assessee has duly submitted the reconciliation of the turnover as per profit and loss account and receipts reflected in 26AS. Thus, the 13 ITA.No.625/Hyd./2025 Assessing Officer has duly verified all these details and was satisfied with the correctness of the turnover declared by the assessee.
The learned Authorised Representative of the Assessee has further submitted that the assessee has also given the detailed reply about both these issues during the assessment proceedings and therefore, it is not a case of lack of enquiry on the part of the Assessing Officer but the Assessing Officer has conducted due enquiry on both the issues and was satisfied with the reply of the assessee. The learned Pr. CIT has given the reasons which are contrary to record for invoking the provisions of sec.263 of the Act. Even otherwise, once the entire record was produced before the Assessing Officer and was also available then, without verifying the correctness of the claim from the supporting evidence filed by the assessee, passing the revision order u/sec.263 of the Act and setting aside the order of the Assessing Officer for fresh adjudication is not sustainable in law. In support of his contention, he has relied upon the Judgment of Hon’ble Delhi High Court in the case of Income 14 ITA.No.625/Hyd./2025 Tax Officer vs. DG Housing Projects Ltd. [2012] 343 ITR 329 (Delhi). He has referred to the details of contract receipts earned from the contract executed during the financial year relevant to the assessment year under consideration along with the ledgers as well as bank account statement to show that the assessee has declared the correct turnover and specific turnover/contract receipts from M/s. PCL Eagle Infra India Limited-JV which is placed at page no.217 of the paper book. The particular ledger account of M/s. PCL Eagle Infra India Limited-JV is placed at page no.228 of the paper book and date-wise summary of the contract receipts is placed at page no.229 of the paper book. Thus, the learned Authorised Representative of the Assessee has submitted that the assessee has correctly declared the turnover and contract receipts including the receipts from M/s. PCL Eagle Infra India Limited-JV of Rs.121,18,48,283/-. The Pr. CIT has taken this amount of Rs.130,01,28,298/- from the amounts received in the bank account during the year under consideration. Therefore, comparing the amount received in the bank account with the turnover declared by the assessee 15 ITA.No.625/Hyd./2025 without considering the nature of the receipt in the bank account is highly arbitrary on the part of the learned Pr. CIT. The assessee has specifically clarified this aspect during the assessment proceedings by filing the reconciliation of the turnover which was found to be correct and therefore, there is no error in the order of the Assessing Officer on this point. The learned Authorised Representative of the Assessee has relied upon the following Judgments:
CIT vs. Sun Beam Auto Ltd., [2011] 332 ITR 167 (i) (Del.HC); CIT vs. Gabriel India Ltd., [1993] 203 ITR 108 (ii) (Bom.HC); CIT vs. Vikas Polymers [2012] 341 ITR 537 (iii) (Del.HC); M/s. Sarvana Developers, Bangalore vs. CIT-1, (iv) Bangalore Order of ITAT Bangalore in ITA.No.620/ Bang./2011 and ITA.No.48/Bang./2013 dated 06.09.2013; Malabar Industrial Co. Ltd., vs. CIT [2000] 243 ITR (v) 83 (SC); CIT & Another vs. DG Gopala Gowda [2013] 354 (vi) ITR 501 (Karn.HC); 16 ITA.No.625/Hyd./2025 7.1. Thus, he has contended that the Pr. CIT erred in assuming the jurisdiction u/sec.263 of the Act when the Assessing Officer has conducted necessary enquiries before passing the assessment order which is as per law and therefore, the said order of the Assessing Officer cannot be held to be erroneous merely because the Commissioner does not feel satisfied with the conclusion. The learned Authorised Representative of the Assessee has further submitted that the entire record was available with the Commissioner as part of the assessment record therefore, the assessee was not required to submit any further record or material for the verification and examination of the learned Pr. CIT on both the issues. He has thus prayed that the impugned order of the learned Pr. CIT be set aside.
On the other hand, the learned DR has submitted that the furnishing of information and the record before the Assessing Officer is immediately when the Assessing Officer has not conducted any enquiry. He has further submitted that the omission of the Assessing Officer to properly examine the issue renders the order as erroneous so far as prejudicial 17 ITA.No.625/Hyd./2025 to the interests of the Revenue and therefore, the Pr. CIT was justified in invoking the provisions of sec.263 of the Act. He has further submitted that inadequate enquiry on the part of the Assessing Officer leads to the order of the Assessing Officer as erroneous so far as prejudicial to the interest of revenue. The learned DR has submitted that the Pr. CIT has raised a pertinent issue that all the bad debts written off by the assessee pertain to the Government Department, which is not acceptable in the absence of any supporting evidence to show that the claim of the assessee was rejected by the Department. Thus, the writing off the bad debts without establishing the fact that the same has gone bad is not a genuine claim. He has further submitted that the learned Pr. CIT has given an opportunity to the assessee, but the assessee failed to submit the relevant record and details in support of the claim even before Pr. CIT. In support of his contention, he has relied upon the following orders:
18 ITA.No.625/Hyd./2025 Herbalife International India (P.) Ltd. vs. CIT-1 (i) [2025] 174 taxmann.com 1009 (Karn.HC); CIT, Mumbai vs. Amitabh Bachchan [2016] 384 (ii) ITR 200 (SC); CIT vs. Infosys Technologies Ltd., [2012] 341 ITR (iii) 293 (Karn.HC); 8.1. He has relied upon the Order of the learned Pr. CIT.
We have considered the rival submissions as well as relevant material on record. The Assessing Officer, while passing the scrutiny assessment u/sec.143(3) r.w.s.144B of the Act dated 19.12.2022 has accepted the returned income of the assessee being Rs.NIL. The Pr. CIT has invoked the provisions of sec.263 by issuing show cause notice dated 03.01.2025 reproduced in para-2 of the impugned order as under: “Sir/Madam, Sub: Revision under section 263 of the income tax Act, 1961 in your own case - AY 2021-22 - Show Cause Notice Regarding *** You have filed the return of income for the assessment year 2021- 2022 on 11.01.2022 declaring loss of Rs.15,34,96,485/-. The assessment u/s.143(3) r.w.s.144B of the Income Tax Act, 1961 was completed on 19.12.2022 accepting the income returned.
19 ITA.No.625/Hyd./2025 On perusal of the record, I am of the view that the said order is erroneous in so far as it is prejudicial to the interests of revenue for the following reasons:
On verification of the assessment record, it is noticed that from Note-26 forming part of Profit and Loss Account for the year ended 31.03.2021 that Rs.141,66,00,735 was claimed as 'Bad debts' us 36(1)(vii). Bad debt written-off of Rs.112,50,23,924 payable by Executive Engineer, PIPLMC Division 1, Dowleswaram, Government of Andhra Pradesh need to be examined as it a Government Department and refusal/non-payment of contract receipts in the form of confirmation needs to be obtained and furnished by assessee which assessee did not do so. Further, for bad debts amounting to Rs.11,16,29,277/- Rs.15,18,51,614/- and Rs.2.71,96,920/- PANs provided are not in existence in ITBA. In view of the above, claim of Bad debts amounting to Rs.141,66,00,735/-needs to be examined about its veracity of claim.
Furthermore, it is noticed from Note-20 forming part of Profit and Loss account to the end of 31.03.2021 that assessee reported revenue from operations at Rs.271,13,81,000 As seen from details of revenue from operations that Rs.130,01,28,298 was accounted for M/s. PCL Eagle Infra India Limited-JV during the year under consideration. However, revenue from operations of Rs.121,18,48,283 was offered from M/s. PCL Eagle Infra India Limited-JV. Thus, difference of revenue from operations to the tune of Rs.8.82,80.015 (Rs.130,01,28,295 - Rs.121,18,48,283) from M/s. PCL Eagle Infra India Limited-JV M/s PCL. Eagle Intra India Limited-IV escaped assessment. This aspect was not taken into consideration during the course of assessment proceedings and needs to be examined thoroughly. Therefore, you are required to 20 ITA.No.625/Hyd./2025 furnish clarification, in this regard, along with supporting documents to substantiate the claim. In view of the above, the assessment completed by the Assessing Officer by not verifying the issues, as mentioned above, is erroneous in so far as it is prejudicial to the interest of revenue. You are, therefore, requested to show cause as to why the order under section 143(3) r.w.s 144B of the Income Tax Act, 1961 was dated 19.12.2022 should not be revised/set aside. You are requested to submit your explanation/ objections/ submissions in this regard on or before 10.01.2025 You may also produce necessary evidences on which you may rely in support of your claim. You are requested to upload any further explanations and the necessary documents in e-filing portal on or before 10.01.2025. In case you want to submit any explanation in person you are case is posted for hearing on10.01.2025 at 03:45 PM. It may please be noted that in the absence of any response on the said date, it will be presumed that you have no objection for the proposed revision and suitable orders will be passed on merits as per available records.”
9.1. Thus, the proceedings u/sec.263 of the Act were invoked on the ground that the Assessing Officer has not conducted the enquiry in respect of two issues i.e., (1) claim of bad debts u/sec.36(1)(vii) written-off during the year and (2) discrepancy in the turnover declared by the assessee in respect of the contract receipts from M/s. PCL Eagle Infra 21 ITA.No.625/Hyd./2025 India Limited-JV. The Pr. CIT has specifically mentioned that the bad debts written-off by the assessee pertains to the Executive Engineer, a Government Department and refusal/non-payment of contract receipt in the form of confirmation need to be obtained and furnished by the assessee which assessee did not do so. This observation of the Pr. CIT is against the settled proposition of law as held by the Hon'ble Supreme Court in the case of TRF Ltd., vs. CIT (supra) as well as contrary to the CBDT’s Circular No.12/2016 which reads as under:
Circular No. 12/2016 F.No.279/Mise./140/2015-ITJ Government of India Ministry of Finance Department of Revenue Central Board of Direct Taxes *** New Delhi, Dated 30th May, 2016 Subject: Admissibility of claim of deduction of Bad Debt under section 36(1) (vii) read with section 36(2) of the Income-Tax Act, 1961-reg. Proposals have been received by the Central Board of Direct Taxes regarding filing of appeals/pursuing litigation on the issue of allowability of bad debt that are written off as irrecoverable in the accounts of the assessee. The dispute relates to cases involving 22 ITA.No.625/Hyd./2025 failure on the part of assessee to establish that the debt is irrecoverable.
Direct Tax Laws (Amendment) Act, 1987 amended the provisions of sections 36(1)(vii) and 36(2) of the Income Tax Act 1961, (hereafter referred to as the Act) to rationalize the provisions regarding allowability of bad debt with effect from the 1st April, 1989.
The legislative intention behind the amendment was to eliminate litigation on the issue of the allowability of the bad debt by doing away with the requirement for the assessee to establish that the debt, has in fact, become irrecoverable. 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 Hon'ble Supreme Court in the case of TRF Ltd. In CA Nos. 5292 to 5294 of 2003 vide judgment dated 9.2.2010, has stated that the position of law is well settled. "After 1.4.1989, for allowing deduction for the amount of any bad debt or part thereof under section 36(1)(vii) of the Act, it is not necessary for assessee to establish that the debt, in fact has become irrecoverable; it is enough if bad debt is written off as irrecoverable in the hooks of accounts of assessee.
In view of the above, claim for any debt or part thereof in any previous year, shall be admissible under section 36(1)(vii) of the Act, if it is written off as irrecoverable in the books of accounts of the assessee for that previous year and it fulfills the conditions stipulated in sub section (2) of sub-section 36(2) of the Act.”
9.2. Thus, CBDT has clarified that in view of Judgment of Hon'ble Supreme Court in the case of TRF Ltd., the intention of the legislature behind the amendment w.e.f.
23 ITA.No.625/Hyd./2025 01.04.1989 was to eliminate the litigation on the issue of allowability of bad debts by doing away with the requirement by the assessee to establish that the debts have in fact become irrevocable. The Pr. CIT has not doubted or questioned the satisfaction of the conditions as provided u/sec.36(2) of the Act which means that the assessee has already recognized these amounts as revenue in the preceding years which is also evident from the financials and particularly the ledger accounts of the assessee right from the year 2013-2014. The assessee also filed the details of the bad debts written off along with the details of the corresponding income in summary manner placed at pages-186 of the paper book as under:
24 ITA.No.625/Hyd./2025 9.3. Thus, it is clear that the amounts in question were considered and offered as income in the financial year 2013- 2014 relevant to the assessment year 2014-2015 onwards. It is also pertinent to note that the Assessing Officer vide show cause notice u/sec.142(1) of the Act dated 04.10.2022 has raised a specific query in question no.2(ii) as under:
“ii) You have shown the following amounts as bad debts and have claimed deduction. Please provide the justification, ledger accounts, contracts and agreement signed, efforts made to recover the dues, deed signed to waive off the liability and ITR of the corresponding parties to establish that they have offered income on the said liability written off.
25 ITA.No.625/Hyd./2025 9.4. Thus, the Assessing Officer has raised this query about the amounts of bad debts which were claimed as deduction and called upon the assessee to provide the justification, ledger accounts, contract agreements, efforts made to recover the dues etc. The Assessing Officer has given the specific amounts along with the PAN numbers. The assessee in response has provided all the details vide reply dated 28.10.2022, the acknowledge of which is placed at page nos.134 and 135 of the paper book as under:
26 ITA.No.625/Hyd./2025 27 ITA.No.625/Hyd./2025 9.5. The assessee has also filed a note on entitlement of the claim of bad debt written off which is placed at page nos.182 and 183 of the paper book as under:
“PROGRESSIVE CONSTRUCTIONS LIMITED ASSESSMENT YEAR 2021-22 NOTE ON ENTITLEMENT OF CLAIM OF BAD DEBTS WRITTEN OFF AS DEDUCTION During the year under consideration the company had written off Rs.141,66,01,735/- In this regard, we bring to your kind attention that the claim for bad debt will be allowed in the year in which the bad debt has been written off as irrecoverable in the accounts of the company and the company doesn't requires to establish the debt to have become bad in the relevant previous year.
Reference is this regard invited towards the provisions of section 36 of The Income Tax Act, 1961 (hereinafter referred to as the 'Act']. The relevant extracts of the said section reads as under.
"Other deductions. (1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28- ….. (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 …..
28 ITA.No.625/Hyd./2025 (2) In making any deduction for a bad debt or part thereof, the following provisions shall apply- (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,"
From the above provisions it is clear that while computing the business profit, the company is entitled to avail the deduction with respect to bad debts written off in the books if the following conditions are being fulfilled,
The debt in question must be written off as irrecoverable in the books of accounts for the relevant previous year and 2. The amount of the debt must be taken into account while computing the income either during the previous year or during the earlier years. In the year under consideration, the company had written off the bad debts in its books of accounts, the company has fulfilled the condition (1) mentioned above.
Further, the debts must have been taken into account while computing the total income for the earlier year. In this regard we bring to your kind attention that the company had offered income in the earlier years against the corresponding bad debt written off during the year under consideration and thereby the company has fulfilled the condition (2) mentioned above.
We further herewith enclosing the copy of CBDT Circular 12/2016 dated 30.05.2016 for your kind perusal and record.
29 ITA.No.625/Hyd./2025 From that it can be seen that the claim for any debt or part thereof in any previous year, shall be admissible under section 36(1)(vii) of the Act, if it is written off as irrecoverable in the books of accounts of the assessee for that previous year and it fulfils the conditions stipulated in sub section (2) of sub-section 36(2) of the Act." Since the company has written off amount as bad debt as irrecoverable in the Books of account of the company in the year under consideration and the company had offered income in the earlier years against the corresponding bad debt written off during the year under consideration and thereby the company has fulfilled the condition (2) mentioned. We are herewith enclosing the ledger copies of the receivable written off during the year under consideration along with proof of income offered against the corresponding Bad Debts Written off during the year under consideration for your kind perusal and record.
Therefore, company had rightly claimed the bad debts written off as deduction in the Books of account as per the section 36 read with CBDT Circular 12/2016 dated 30.05.2016.”
9.6. Thus, it is manifest from the record that this issue was duly taken up by the Assessing Officer for verification and assessee filed relevant details as well as evidence in support of the claim that these amounts pertains to the escalation cost claimed from the Irrigation Department of the Government of Andhra Pradesh and pending for the last so 30 ITA.No.625/Hyd./2025 many years since financial year 2013-2014 and therefore, finally the assessee decided to treat these amounts as unrecovered and written-off. Therefore, the assessee has satisfied the conditions provided u/sec.36(1)(vii) r.w.s.36(2) of the Act while making its claim. The allowance of this claim by the Assessing Officer cannot be said to be contrary to law rather the order of the Assessing Officer is in accordance with law once the assessee has satisfied the conditions u/sec.36(1)(vii) of the Act. Even if the order of the Assessing Officer allowing the claim is found to be erroneous, the Pr. CIT was required to demonstrate that the Assessing Officer has allowed an unallowable claim under law, or the Order of the Assessing Officer is contrary to the facts on record. Revising the Order of the Assessing Officer on the ground that the Assessing Officer has not verified the claim goes against the fact and record available on the assessment record to manifest that the Assessing Officer has conducted the enquiry on the issue and assessee has filed all relevant details as well as the documentary evidences in support of the claim. Thus, the Order of the Assessing Officer cannot be held as 31 ITA.No.625/Hyd./2025 erroneous on the ground of lack of enquiry. The Pr. CIT has the jurisdiction to revise the Order of the Assessing Officer by holding that the Assessing Officer has passed the Order which is not in accordance with law or is contrary to the facts. Therefore, ignoring all the relevant facts and record while invoking the provisions of sec.263 by the Pr. CIT is not permissible. Th Hon'ble Supreme Court in the case of TRF Limited (supra) has held as under:
“In these appeals, we are concerned with Assessment Year 1990-1991 and Assessment Year 1993-1994. Prior to 1nt April, 1989, every assessee had to establish, as a matter of fact, that the debt advanced by the assessee had, in fact, become irrecoverable. That position got altered by deletion of the word "established", which earlier existed. in Section 36(1) (vii) of the Income Tax Act, 1961 [Act', for short).
For the sake of clarity, we re-produce hereinbelow provisions of Section 36 (1) (vii) of the Act, both prior to 1st April, 1989 and post-1 April, 1989:
"Pre-1 April, 1989: Other deductions.
32 ITA.No.625/Hyd./2025 36.(1) The deductions provided for in the following clauses shall be allowed in respect with therein, in computing the income referred to in section of the matters dealt 28-- (i) to (vi) xxxx xxxx xxxx (vii) subject to the provisions of sub-section (2), the amount of any debt, or part thereof, which is established to have become a bad debt in the previous year.
Post-1st April, 1989: Other deductions. RI OF IND 36.(1) The deductions provided for in the following clauses shall be allowed in respect matters dealt with therein, in computing the income referred to in section of 28- (i) to (vi) xxxx xxxxx xxxxx (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."
This position in law is well-settled. April, 1989, it is not necessary for the assessee establish that the debt, in fact, to has become irrecoverable. It is enough if the bad debt is written off as irrecoverable in the accounts of the assessee. However, in the present case, the Assessing Officer has not examined whether the debt has, in fact, been written When bad debt occurs, off in accounts of the assessee. the bad debt account is debited and the 33 ITA.No.625/Hyd./2025 customer's account is credited, thus, closing the account of the customer. In the case of Companies, the provision is deducted from Sundry Debtors. As stated above, the Assessing Officer has not examined whether, in fact, the bad debt or part thereof is written off in the accounts of the assessee. This exercise has not been undertaken by the Assessing Officer. Hence, the matter is remitted to the Assessing Officer for de novo consideration of the above- mentioned aspect only and that too only to the extent of the write off.
Subject to above, the civil appeals filed by the assessee are disposed of with no order as to costs.”
9.7. Thus, once the assessee is not required to establish that the debts have become irrecoverable and the only requirement to claim the deduction on account of bad debts is write-off in the books of account and satisfaction of condition as per sec.36(2) of the Act. In case in hand, the assessee has satisfied both the conditions as writing-off the debts being unrecoverable which are already recognized as revenue and offered as income right from the assessment year 2014-2015 onwards. This fact is also evident from the books of account of the assessee and also not disputed either by the Assessing Officer or by the Commissioner.
34 ITA.No.625/Hyd./2025 10. As regards the discrepancy in the contract receipt from M/s. PCL Eagle Infra India Limited-JV this issue was also very much subject matter of the enquiry conducted by the Assessing Officer as the queries were raised by the Assessing Officer while issuing the show cause notice u/sec.142(1) of the Act dated 21.09.2022 placed at page nos.119 to 122 as under:
“ANNEXURE 1. आयकर अ�ध�नयम, 1961 क� धारा 142 (1) के तहत �न�न�ल�खत खाते या द�तावेज या जानकार� मांगी गई है: 1. The following accounts or documents or information is/are sought under section 142(1) of the Income-tax Act, 1961:
Please provide complete information with respect to the following queries and also submit all relevant documentary evidences to support and substantiate your contentions.
Brief note on your source of income and detail of business activities carried out during the year. Please provide a detailed note on objectives of the entity.
Provide details of the method of accounting followed during the F.Y.2020-21. In case of deviation in method of accounting, please mention and give a note on it.
Please provide copy of computation of total income for the assessment year under consideration. Provide evidences to substantiate the deductions claimed in the ITR.
35 ITA.No.625/Hyd./2025 4. Please provide the details of income tax assessment completed in your case for the previous assessment years and also the present status of appeals, if any.
Please furnish the Profit & Loss Account, Balance Sheet, Audit Report, copy of the Income Tax Return and any other Forms filed in the e-filing during the year under consideration.
Please provide a copy of the Form 26AS along with the reconciliation with the income offered to tax in this AY.
It is seen that a deficiency is reported in the Audit report. Please provide explanation regarding this deficiency noted by the Auditor.
Further, it is seen that you have declared abnormally low PBDIT (Profit before Depreciation, interest and taxes) to turnover ratio as compared to the normal in your business category and turnover range. Provide reason for low PBDIT to turnover ratio along with supporting documentary evidences.
It is seen that you have shown very low net profit while your receipts u/s 194C are comparatively large. Provide reasons for low profit as compared to receipts and provide evidences for establishing the genuineness of the receipts.
With respect to the profit/loss shown by you during the year under consideration, kindly submit the below specified details: 1. Copy of financials in the form of balance sheet, P& L account, tax Audit report.
Nature of business undertaken by you during the year under consideration.
With respect to the purchases made by you, kindly provide details as under:
xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx 36 ITA.No.625/Hyd./2025 8. With respect to contract receipts or fees u/s 194C shown in ITR, kindly provide the following details: i) Name of the party ii) Section under which tax was deducted iii) Please provide detail of Income credited in 26AS vis-à-vis ITR; and also explain the reasons for difference, if any iv) Please provide detail of tax credit claimed in ITR vis-a-vis tax credit available in 26AS and explain the reasons for difference, if any Please furnish your reply by 03.10.2022. Failure to comply to this notice may lead to penalty of Rs.10,000/- u/s 272A(1)(d) of the Act.
Assessment Unit/verification Unit/Technical Unit/Review Unit Income Tax Department.”
10.1. The Assessing Officer has specifically asked the assessee to provide copy of Form-26AS along with the reconciliation with the income offered to tax and specific query under question no.8 with respect to the contract receipts/fee u/sec.194C shown in the ITR along with the details of parties, TDS and income credited in the 26AS. The assessee has duly responded to the said query by filing the reply vide acknowledgment dated 14.10.2022 placed at pages nos-130 and 131 of the paper book as under:
37 ITA.No.625/Hyd./2025 38 ITA.No.625/Hyd./2025 10.2. Thus, along with the explanation and reply, the assessee has also filed reconciliation of the turnover. The assessee has declared the turnover as contract receipts at Rs.271,31,81,000/- which is not in dispute. The Pr. CIT has taken the amount of contract receipt from M/s. PCL Eagle Infra India Limited-JV which is shown by the assessee as income from revenue operations at Rs.121,18,48,283/-. However, the total amount received from the said company in the bank account is Rs.130,01,28,298/-. Thus, this discrepancy taken up by the Pr. CIT without verifying the record that during the assessment proceedings the assessee has filed the reconciliation of turnover and also matching with the 26AS. The relevant part of the Form-26AS is as under:
39 ITA.No.625/Hyd./2025 10.3. Therefore, even as per Form-26AS the contract receipts subjected to TDS u/sec.194C from M/s. PCL Eagle Infra India Limited-JV is the same amount as declared by the assessee in the profit and loss account. The other amounts as reflected in the bank account of the assessee are not in the nature of contract receipts for the year and further those amounts include the mobilization advance and material and other advances. These details were very well produced before 40 ITA.No.625/Hyd./2025 the Assessing Officer and therefore, ignoring all these records by the learned Pr. CIT while invoking the provisions of sec.263 and passing the impugned order is highly arbitrary and unjustified. Once the turnover declared by the assessee is found to be correct as it is supported by Form-26AS and the financial of the assessee including the ledger account then, the amounts received in the bank account cannot be considered as turnover without verifying the nature of the receipt and that too when the assessee has specifically provided all the details including the reconciliation of turnover during the assessment proceedings. Accordingly, we find that on this issue there is no reason to doubt the correctness of the turnover declared by the assessee when all the facts and details are taken into consideration. It manifests from the impugned order of the Pr. CIT that only the superficial details regarding turnover/contract receipts from M/s. PCL Eagle Infra India Limited-JV as against the total receipt as per the bank account was the basis for invoking the provisions without even making any attempt to verify the nature of the alleged differential amount duly 41 ITA.No.625/Hyd./2025 explained by the assessee during the assessment proceedings. Therefore, once the assessee has produced all the relevant details and evidence in respect of the turnover declared in the form of contract receipts then, the Order of the Assessing Officer cannot be held as erroneous or prejudicial to the interests of the Revenue. Once the Assessing Officer was satisfied with the reply of the assessee which is supported by the documentary evidence then, it was not required for the Assessing Officer to give detailed reasoning for accepting the claim of the assessee while passing the assessment order. The Order of the Assessing Officer cannot be considered in isolation of the relevant record and enquiry conducted by the Assessing Officer for the purpose of invoking the provisions of sec.263 of the Act. The Pr. CIT ought to have conducted a minimum verification of the relevant record as available on the assessment file before initiating the proceedings u/sec.263 of the Act. Without going through the relevant record, assumption of jurisdiction u/sec.263 by the Pr. CIT would amount to misuse and abuse of the provisions of Law. Since the assessee claim is found to 42 ITA.No.625/Hyd./2025 be allowable and correct on the facts as well as in law, the decisions relied upon by the learned DR on the legal point are not applicable to the facts of the case and therefore, would not help the case of the Department. Accordingly, in the facts and circumstances of the case as discussed above, we are of the considered opinion that the Assessing Officer has passed the assessment order in accordance with Law as well as the facts and material available before him and therefore, the same cannot be held as erroneous or prejudicial to the interests of the Revenue. Hence, the impugned order of the learned Pr. CIT is not tenable and liable to be set aside. We Order accordingly.
In the result, appeal of the Assessee is allowed.
Order pronounced in the open Court on 04.03.2026.
Sd/- Sd/- [MADHUSUDAN SAWDIA] [VIJAY PAL RAO] ACCOUNTANT MEMBER VICE PRESIDENT Hyderabad, Dated 04th March, 2026 VBP