Expense cannot be disallowed merely because assessee named it as short recovery and not bad debt

ITAT DELHI BENCH ‘F

ITA No. 5081/Del/2012

Assessment Year :  2008–09

Income Tax Officer

Vs.

Shri Rajinder Singh Sethi

ORDER

PER G.D.AGRAWAL, VP:

This appeal by the Revenue is directed against the order of learned CIT(A)-XXIV, New Delhi dated 20^th July, 2012 for the AY 2008- 09.

2.           The Revenue has raised following grounds:-

“1. On the facts and circumstances of the case and in law the CIT(A) has erred in deleting the addition of Rs.16,66,081/- made by the A.O. on account of short receipt of payment under the head hire charges received from MIs CCILLtd.

2. On the facts and circumstances of the case and in law the CIT(A) has erred and held that the A.O. is of the view that this amount should have been claimed as bad debts whereas this argument was put by the AO for the sake of argument only.”

3. At the time of hearing before us, the learned DR relied upon the order of the Assessing Officer and he stated that the sum of Rs. 16,66,081/- was debited to the profit & loss account as short receipts. The Assessing Officer has rightly held that under the mercantile system of accounting, tax is to be levied on accrual basis and not on receipt basis. He stated that before the learned CIT(A), the assessee changed the stand and claimed the same to be bad debt. The claim of the assessee before the learned CIT(A) was contrary to the claim made before the Assessing Officer. He, therefore, submitted that the order of learned CIT(A) should be reversed and that of the Assessing Officer should be restored.

4. The learned counsel for the assessee stated that during the year under consideration, the assessee has raised the bill of 74,30,575/- upon M/s Container Corporation of India Ltd. (in short ‘CCIL’) for crane charges and the same was credited to crane charges account and debited to CCIL. However, ultimately, his claim for crane hire charges was approved by CCIL only to the extent of 58,39,011/-. Thus, the balance amount i.e. Rs. 16,66,081/- could not be recovered from CCIL. Though it was debited to the profit & loss account as a short recovery, in substance, it was a bad debt of the amount receivable from CCIL. The assessee has never changed any fact before the learned CIT(A). On the same facts, it was contended by the assessee, that the short recovery of the amount is in fact on account of bad debt and the same should be allowed. The learned CIT(A) rightly allowed the same. He stated that the nomenclature given by the assessee is not material. What is material is the true nature of the transaction.

5. We have carefully considered the arguments of both the sides and perused the material placed before us. The undisputed facts are that the assessee was to receive the sum of 74,30,575/- from CCIL towards crane hire charges.   However, actually, the assessee could receive only 58,39,011/-. The Revenue has not disputed the correctness of the assessee’s contention that it could not recover the sum of Rs. 16,66,081/-. The only ground on which the Assessing Officer made the disallowance is that the sum of Rs. 16,66,081/- was claimed as a short receipt which is not allowable because the assessee is following mercantile system of accounting. However, it is not the case of the assessee that the sum of Rs. 16,66,081/- is still receivable from CCIL and the assessee is offering the income on receipt basis. The contention of the assessee is that the assessee is unable to recover the sum of Rs. 16,66,081/-.  Once the assessee is unable to recover, the non‑ recovery of the trading receipt is rightly accepted to be bad debt by the learned CIT(A). Now, so far as allow ability of bad debt is concerned, this aspect has been examined by the Hon’ble Apex Court in the case of T.R.F. Ltd. Vs. CIT- [2010] 323 ITR 397 (SC) wherein their Lordships held that after the amendment of Section 36(1)(vii) of the Income-tax Act, 1961, with effect from 1^st April, 1989, in order to obtain a deduction in relation to bad debts, 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. In the case of the assessee, it is undisputed that the sum of Rs. 16,66,081/- has already been written off in the books of account, of course, named as short recovery. But, what is required is the writing off the bad debt. Therefore, in our opinion, even if the bad debt is written off in the profit & loss account as short recovery, the assessee is entitled to claim the same as bad debt. While deciding the tax ability of any receipt or allow ability of any deduction/claim, the true nature of such receipt/deduction is to be seen and the nomenclature given by the parties to such receipt/claim is not decisive. On examining the facts of the case, we are satisfied that the short recovery of sum of Rs. 16,66,081/- was in the nature of bad debts. That the assessee’s claim cannot be denied merely because the assessee named it as short recovery and not bad debt. Therefore, respectfully following the above decision of Hon’ble Apex Court in the case of T.R.F.Ltd., we uphold the order of learned CIT(A) and dismiss the appeal filed by the Revenue.