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.