ITAT Mumbai Allows Bad Debt Deduction of ₹14.62 Lakh; Holds Write-Off Sufficient Under Section 36(1)(vii)

Key Facts and Tribunal Findings

The Income Tax Appellate Tribunal (ITAT), Mumbai Bench, allowed the appeal of Kishor Chandrakant Dharia for Assessment Year 2023–24, deleting disallowance of ₹14.62 lakh claimed as bad debts under Section 36(1)(vii) read with Section 36(2) of the Income Tax Act.

The assessee, engaged in operating a petrol pump through a proprietorship concern, had written off bad debts arising from business transactions with multiple customers. The Assessing Officer disallowed the claim on grounds that the assessee failed to furnish complete details such as PAN, addresses of debtors, efforts made for recovery, and proof that such debts were offered to tax in earlier years. The disallowance was upheld by the Commissioner (Appeals).

Before the Tribunal, the assessee produced ledger accounts and supporting documentation demonstrating that the debts were part of regular business transactions and had been considered in earlier income computations. It was also shown that the amounts were written off in the books of account during the relevant year.

The Tribunal noted inconsistencies in the appellate order, observing that while the CIT(A) acknowledged receipt of submissions, the same were not considered while adjudicating the issue.

Relying on the Supreme Court ruling in TRF Ltd., the Tribunal held that post-1989, it is not necessary for the assessee to establish that the debt has become irrecoverable; it is sufficient if the debt is written off in the books of account, subject to conditions under Section 36(2).

Finding that these conditions were satisfied, the Tribunal held the disallowance to be unsustainable and directed deletion of the entire addition.