Simple Write-Off is Enough: Tribunal Grants Rs. 1.91 Cr Bad Debt Deduction

The assessee, engaged in manufacturing pesticides, filed its return for AY 2017-18, declaring a loss of Rs. 15.30 crores. The case was selected for scrutiny, and during assessment, the AO added Rs. 2.32 crores under Section 68 on account of unsecured loans, citing a lack of clarity on creditworthiness and unexplained bank entries of lenders. Further, the AO disallowed Rs. 1.91 crores claimed as bad debts under Section 36(1)(vii) related to non-payment by a foreign buyer, citing insufficient documentary evidence of write-off or recovery efforts.

The assessee appealed before the NFAC, which upheld most additions under Section 68 and rejected the bad debt claim, stating the write-off was not proven in the books. Aggrieved by the said order, the assessee filed the present appeal before the Income Tax Appellate Tribunal (ITAT).

Main Issue: Whether the addition under Section 68 was justified based on identity, creditworthiness, and genuineness of unsecured loans and whether the disallowance of Rs. 1.91 crore as bad debts under Section 36(1)(vii) was valid despite the claimed write-off in the books.

Tribunal’s Decision: The Tribunal determined that even though the assessee provided bank records and confirmations, the AO and CIT(A) did not accept the authenticity of loans from related parties. It concluded that the authorities had not adequately checked the evidence and instructed the AO to review the information again, focusing on the related-party status and the “source of source” problem for AY 2017-18.

The Tribunal acknowledged the assessee’s claim regarding bad debts, pointing out that Rs. 1.91 crore had been properly written off in the books under “Discounts“. The disallowance under Section 36(1)(vii) was removed, citing TRF Ltd. v. CIT, which reaffirmed that, after 1989, a simple write-off is adequate.

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