ITAT Bangalore: Mere Write-off of Bad Debt is Sufficient After TRF Ltd.; AO Must Verify Only Section 36(2) Conditions

Craft Int Decor Private Limited Vs DCIT (ITAT Bangalore)

ITAT Bangalore: Mere Write-off of Bad Debt is Sufficient After TRF Ltd.; AO Must Verify Only Section 36(2) Conditions

The Bangalore ITAT in Craft Int Decor Pvt. Ltd. v. DCIT (ITA Nos. 139 & 140/Bang/2026, order dated 15.07.2026) held that after 1 April 1989, an assessee is not required to establish that a debt has actually become irrecoverable. Once the bad debt is written off in the books of account, the only remaining requirement is compliance with the conditions prescribed under Section 36(2). Since the lower authorities had rejected the claim solely for want of confirmations and without examining whether the debt had been taken into account as income in earlier years, the Tribunal restored the issue to the Assessing Officer for fresh verification in the light of the Supreme Court’s decision in TRF Ltd. v. CIT.

The Tribunal also dealt with the assessee’s contention that interest on TDS and interest on VAT had already been disallowed by the assessee in the computation of income. It observed that if these amounts had indeed been added back while computing taxable income, a further disallowance by the Assessing Officer would amount to double disallowance, and accordingly restored the matter to the Assessing Officer for verification with directions to delete the addition if the claim was found to be correct.

Regarding the donation expenditure, the Tribunal noted that the assessee had failed to furnish supporting documents such as donation receipts and certificates for claiming deduction under Section 80G. However, in the interest of justice, it granted another opportunity to produce the necessary evidence before the Assessing Officer and restored the issue for fresh adjudication.

The Tribunal also condoned a 408-day delay in filing the appeal, accepting the director’s medical condition as sufficient cause but imposing a cost of ₹5,000 payable to the Prime Minister’s National Relief Fund, noting that the assessee had not satisfactorily explained why its other director could not have filed the appeal.

Cases Discussed:

• TRF Ltd. v. CIT, (2010) 190 Taxman 391 (SC)

FULL TEXT OF THE ORDER OF ITAT BANGALORE

1. The assessee has filed the present appeal against the separate impugned orders dated 03.12.2024 and 26.12.2025 passed under section 250 of the Income Tax Act, 1961 (“the Act”) by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [“learned CIT(A)”], which in turn arose from the assessment order passed under section 143(3) and penalty order passed under section 270A of the Act, respectively, for the assessment year 2017-18

ITA No. 140/Bang/2026

Quantum Appeal — A.Y. 2017-18

2. This appeal by the assessee is delayed by 408 days. Along with the appeal, the Director of the assessee company has filed an affidavit seeking condonation of delay, stating as follows: –

1. That I am the Director of the appellant in the above matter and am fully conversant with the facts of the case. I am competent to swear to this affidavit.

2. That there has been a delay of 408 days in filing the appeal before the Hon’ble Tribunal. The delay is neither intentional nor deliberate but solely due to circumstances beyond my control.

3. That I am key person responsible for handling tax and compliance matters in our organization. I am aged about 70 years and had undergone Coronary Artery Bypass Grafting (CABG) surgery in the year 2012. Since then, I have been under continuous medical supervision and medication.

4. That in December 2024,1 was advised strict bed rest by my doctor due to severe low back pain. My medical condition further restricted my mobility and ability to attend to official and statutory matters.

5. That owning to the above medical conditions, the appeal could not be filed within the prescribed time. The delay is attributable solely to these unavoidable health circumstances.

6. That the delay is bona fide and not intentional. I humbly submit that if the delay is not condoned. I shall suffer irreparable loss and injury, whereas no prejudice will be caused to the Revenue.

7. That I respectfully pray that this Hon’ble Tribunal may kindly condone the delay in filing the appeal and admit the same for hearing on merits.

3. During the hearing, the learned Authorised Representative (“learned AR”) submitted that as the Director was under continuous medical supervision and medication and was advised bed rest, the assessee could not file the present appeal within the prescribed limitation period. From the perusal of the financials of the assessee, we find that the assessee company had other directors, and therefore, it is difficult to appreciate that, due to the non-availability of one of the directors due to medical conditions, there was no one else who was authorised to take necessary steps for filing the present appeal within the prescribed limitation period. Be that as it may, we are of the considered view that in the interest of justice, the substantial justice deserves to be preferred when pitted against the technical considerations. Therefore, we are of the considered view that the reasons stated by the assessee constitute sufficient cause for not filing the present appeal within the prescribed limitation period. However, as the assessee has not come forth with complete facts regarding the non-availability of the other director, we deem it appropriate to impose a cost of Rs. 5000/-, which shall be paid by the assessee within 30 days from the date of receipt of this order to the Prime Minister’s National Relief Fund. Thus, with the above condition, the delay in filing the present appeal is condoned, and we proceed to decide the appeal on the merits.

4. In this appeal, the assessee has raised the following grounds: –

1. The learned CIT(A) erred in passing the order in the manner he did.

2. The learned CIT(A) erred in disallowing the Bad debt to the tune of Rs. 14,46,007 without appreciating the explanation of the Assessee.

3. The learned CIT(A) further ought to have appreciated that Assessee could not recover a sum of Rs. 14,46,007 from certain service recipient on account of dissatisfaction in execution of work content services. Hence the said sum was written off as Bad debt in the books of Accounts of Assessee.

4. The learned CIT(A) further ought to have appreciated the Judgment of Apex Court in the case of TRF Ltd. Vs. Commissioner of income tax, Ranchi before disallowing the bad debts.

5. The learned CIT(A) further erred in confirming the adding back of Rs. 1,48,445 and Rs. 4,44,734 to the income returned without looking into the facts that the Assessee himself had added back to income in the computation of income return. Hence addition once again amounts to double taxation which is against the Interest of Justice.

6. Without prejudice the disallowance is excessive, arbitrary and unreasonable and ought to be deleted.

7. For these and such other grounds that may be urged at the time of hearing the appellant prays that the appeal may be allowed.

5. We have considered the submissions of both sides and perused the material available on record. The brief facts of the case are that the assessee is engaged in the business of Interior Decoration and Designing. For the year under consideration, the assessee filed its return of income on 30.11.2016, declaring a total income of Rs. 69,94,702/-. The return filed by the assessee was selected for scrutiny through CASS, and statutory notices under section 143(2) and section 142(1) of the Act were issued and served on the assessee. During the assessment proceedings, from the perusal of the financial statements and return of income filed by the assessee, it was observed that the assessee has debited an amount of Rs. 14,46,007/-towards Bad debt in the profit and loss account. As per the assessee, it had provided services to M/s Sonata Software Pvt Ltd and M/s Greenage Graha Nirman Pvt Ltd during the financial year 2015-16. However, these companies raised certain objections towards the short supply of material, damaged material, defective work and deducted Rs. 12,70,692/- and Rs. 1,75,314/- from the final payment. Accordingly, as per the assessee, it debited an amount of Rs. 14,46,007/- towards Bad debt in the profit and loss account. The Assessing Officer (“AO”), vide order dated 16.12.2019 passed under section 143(3), on the basis that the assessee has not furnished the confirmation from the aforesaid two entities to whom services were claimed to have been provided by the assessee, disallowed the Bad debt amounting to Rs. 14,46,007/- debited to the profit and loss account.

6. Further, during the assessment proceedings, it was observed that the assessee has debited Rs. 31,194/- towards interest on TDS, Rs. 38,251/-towards interest on VAT and Rs. 79000/- towards donation and contributions in the profit and loss account. As the assessee did not respond to the show cause notice, the Assessing Officer, vide order passed under section 143(3) of the Act, disallowed the sum of Rs. 1,48,445/-.

7. The learned CIT(A), vide impugned order, upheld the disallowance of Bad debts by observing as follows:-

“6.5. The assessee could have sought some other measures for recovery of such huge amount, which the assessee failed to do so. The assessee was also required to submit the confirmation of the transactions carried out with the aforesaid companies. However, the assessee failed to provide the same during the assessment as well as appellate proceedings. Mere stating that such huge amount was written off as it was irrecoverable does not prove the contention of the assessee, it has to be justified with proper documentary evidences which the assessee failed to provide. In view of this fact, as the assessee failed to provide proper documentary evidences during the assessment as well as during the appellate proceedings, I do not find any excuse to take a divergent view from the findings of the AO. Therefore, the addition made by the AO on account of disallowance of bad-debts amounting to Rs. 14,46,006/- is hereby confirmed. Accordingly, Ground Nos. 3 to 6 are hereby dismissed.”

8. Further, the learned CIT(A) also upheld the disallowance of interest on TDS, interest on VAT and donations, by observing as follows: –

“7.4. On going through the submission of the assessee it is seen that the assessee stated that the amounts of Rs. 1,48,445/- and Rs. 4,44,734/-were already been added in Schedule-2 of the computation of income. However, the assessee was required to file the documentary evidence in support of his claim regarding the interest on TDS and interest paid on VAT. The receipts of the transactions held on which the VAT and TDS was deducted was required to be submitted by the assessee. However, the assessee during the assessment as well as during the appellate proceedings failed to submit the same.

7.5. Further, the assessee has stated that the amount of Rs. 79,000/- was paid for donation and was eligible for deduction u/s.80G. However, the assessee was required to submit the donation certificate/receipt/voucher of the payment made, the person/company/firm/trust to whom the donation was paid and confirmation from the same for receiving the donation. However, the assessee merely stated that the said amount was paid for donation and that to without any proof of documentary evidences regarding the same. In view of this fact, merely stating that the amounts of Rs. 1,48,445/- and rs.4,44,734/- were already been added to the computation of income is not acceptable, it has to be clarified with roper documentary evidences which the assessee failed to submit during the assessment as well as during the appellate proceedings. In view of this fact, I do not find any excuse to take divergent view from the findings of the AO, therefore the addition made by the AO amounting to Rs. 1,48,445/- and Rs. 4,44,734/- is hereby confirmed. Accordingly, Ground Nos. 7 and 8 are hereby dismissed.”

Being aggrieved, the assessee is in appeal before us.

9. During the hearing, the learned AR submitted that the assessee suo moto disallowed an amount of Rs. 31,194/- towards interest on TDS and Rs. 38,251/- towards interest on VAT while filing its return of income. Further, the learned AR submitted that out of the total donation of Rs. 79,000/-, the assessee only claimed an amount of Rs. 39,500/-, being 50% of the donation amount under section 80G of the Act. Thus, the learned AR submitted that the addition on account of interest on TDS and interest on VAT amounts to double disallowance, as these amounts were already added back by the assessee. Further, as regards the disallowance of donation, the learned AR submitted that, to an extent of Rs. 39,500/-, there is again a double disallowance being made by the AO. As regards the disallowance of bad debts, the learned AR submitted that the assessee had offered the amount of Rs. 14,46,007/- as income in earlier years. However, on account of the refusal of the service recipient to pay for the services, the assessee claimed the said amount as bad debt and debited the same to the profit and loss account.

10. On the other hand, the learned Department Representative vehemently relied upon the order passed by the lower authorities.

11. Having considered the submissions of both sides and perused the material available on record, we find from the perusal of the computation of income, forming part of the paper book from pages 47-51, that the interest on TDS amounting to Rs. 31,194/- and interest on VAT amounting to Rs 38,251/- were already disallowed by the assessee while computing its total income. Therefore, we restore this issue to the file of the Jurisdictional AO for de novo adjudication after verification of the necessary details. If the amount of Rs. 31,194/- on account of interest on TDS and Rs. 38,251/- on account of interest on VAT are found to be already disallowed by the assessee, the AO is directed to delete the said addition as the same tantamount to double disallowance.

12. As regards the disallowance of donation of Rs. 79,000/-, as per the assessee, it had only claimed an amount of Rs. 39,500/- under section 80G of the Act. We find that the learned CIT(A) disagreed with the submissions of the assessee in the absence of a donation certificate, receipt, voucher of the payment made by the assessee and the details of the person/company/firm/trust to whom the donation was paid. Therefore, in the absence of documentary evidence, the learned CIT(A) upheld the addition on account of the donation made by the assessee. In the appeal before us also, all these details have not been furnished by the assessee in support of its claim of deduction under section 80G of the Act. Accordingly, in the interest of justice and fair play, we grant one more opportunity to the assessee to furnish all the details in support of its claim of deduction under section 80G of the Act before the AO for necessary verification. Accordingly, with the above directions, the impugned order on this issue is set aside, and this issue is restored to the file of the Jurisdictional AO for de novo

13. As regards the disallowance of bad debts of Rs. 14,46,007/-, as per the assessee, the said amount was offered to tax in the preceding years. In support of its submission, the assessee has placed on record the copy of its sales register for the assessment year 2014-15, a copy of tax invoices raised on Sonata Software Ltd and Greenage Graha Nirman Pvt Ltd in the preceding year. Further, the assessee has also placed on record the ledger account for the financial year 2014-15.

14. It is undisputed that after 01.04.1989, it is not necessary for the assessee to establish that the debt, in fact, has become irrecoverable, and it is enough if the bad debt is written off as irrecoverable in the accounts of the assessee. This position is settled by the Hon’ble Supreme Court in TRF Ltd. vs. CIT, reported in (2010) 190 Taxman 391 (SC). However, at the same time, it is necessary that the assessee satisfies the conditions of the provisions of section 36(2) of the Act. However, in the present case, this aspect has not been examined by any of the lower authorities.

15. Therefore, in view of the facts and circumstances as noted above, we restore this issue to the file of the Jurisdictional AO for de novo adjudication after verification of the necessary details/documents filed by the assessee in support of its claim of allowance of bad debts under section 36(1)(vii) of the Act. Needless to mention, no order shall be passed without affording the assessee a due opportunity of being heard. Accordingly, the impugned order on this issue is set aside.

16. In view of our directions in the foregoing paragraphs, the impugned order is set aside, and the grounds raised by the assessee are allowed for statistical purposes.

17. In the result, the appeal by the assessee, being ITA No. 140/Bang/2026, is allowed for statistical purposes.

ITA No. 139/Bang/2026

Penalty Appeal A.Y. 2017-18

19. In this appeal, the assessee has raised the following grounds: –

1. The learned CIT(A) erred in passing the order in the manner he did.

2. The learned CIT(A) erred in upholding the Penalty u/s 270A of the Act which is opposed to law and is liable to be deleted.

3. The learned CIT(A) ought to have appreciated that the Assessee had filed Return of Income wherein there was full disclosure of income and there was no omission of income. Hence there cannot be levy of penalty u/s 270A of the Act.

4. The learned CIT(A) ought to have appreciated that the Assessee had given sufficient explanation with regard to addition made in Assessment Order, bad debts and other addition during the Penalty proceeding merely not accepting the explanation without assigning any reason is not justification for confirming penalty u/s 270A of the Act.

5. The learned CIT(A) ought to have accepted the explanation offered and ought to have refrained from levying Penalty u/s 270A of the Act.

6. Without prejudice the disallowance is excessive, arbitrary and unreasonable and ought to be deleted.

7. For these and such other grounds that may be urged at the time of hearing the appellant prays that the appeal may be allowed.

20. The grievance of the assessee in the present appeal is against the penalty levied under section 270A of the Act on the issues on which addition was made vide order passed under section 143(3) of the Act. As we have already restored the matter to the file of the Jurisdictional AO in quantum proceedings, the consequential penalty proceedings under section 270A of the Act are also restored to the file of the Jurisdictional AO for de novo consideration. With the above directions, the impugned order is set aside, and the grounds raised by the assessee in this appeal are allowed for statistical purposes.

21. In the result, the appeal by the assessee, being ITA No. 139/Bang/2026, is allowed for statistical purposes.

22. To sum up, both appeals by the assessee are allowed for statistical purposes.

Order pronounced in the open court on 15th July, 2026