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

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ITAT DELHI BENCH ‘F

ITA No.5081/Del/2012

Assessment Year : 2008–09

Income Tax Officer

Vs.

Shri Rajinder Singh Sethi

 

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 allowability 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 taxability of any receipt or allowability 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.