AMBEY LABORATORIES LIMITED,DELHI V. ASSISTANT COMMISSIONER OF INCOME TAX, DELHI

ITA 2334/DEL/2024

AI Insights

The case involves Ambey Laboratories Limited appealing against the order of the Commissioner of Income-tax (Appeals)/National Faceless Appeal Centre, which sustained additions made by the Assessing Officer under section 68 of the Income Tax Act concerning unexplained cash credits and disallowed bad debts under section 36(1)(vii). The Tribunal examined the submissions and evidence provided by the assessee and the findings of the lower authorities. It was found that the assessee had partially discharged its burden of proof regarding the loans received, except for one case where the creditworthiness was established. The Tribunal also noted that the bad debts were written off in the books, aligning with the legal position that it is not necessary to prove the irrecoverability of the debt for claiming a deduction under section 36(1)(vii).

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 669340 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-06-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2017-2018
• Other Referred Cases: CIT v. Kamdhenu Steel & Alloys Ltd., CIT vs. Steller Investment Ltd., CIT v. Orissa Corporation Pvt. Ltd., TRF Ltd. v. CIT, Commissioner of Income-tax, Delhi-II v. Modi Telecommunication Ltd., ACIT vs. Syed Habibur Rehman, PCIT vs. Tata Chemicals Ltd.
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ASHISH TRIPATHI
• Assessee Lawyers: APOORVA BHARDWAJ
• Keywords: Opportunity of being heard; Bad and doubtful debts; Unexplained cash credit; Onus to prove; Bogus
• Section: 142(1); 68; 40(a)(ia)

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘A’: NEW DELHI BEFORE SHRI VIKAS AWASTHY, JUDICIAL MEMBER and SHRI S.RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA No.2334/DEL/2024 (Assessment Year: 2017-18) Ambey Laboratories Limited, vs. ACIT, Circle 2(2), Ground Floor, Property No.555, Delhi. Tarla Mohalla Ghitorni, Delhi – 110 030. (PAN : AAACA4317R) (APPELLANT) (RESPONDENT) ASSESSEE BY : Ms. Apoorva Bhardwaj, CA REVENUE BY : Shri Ashish Tripathi, Sr. DR Date of Hearing : 24.04.2025 Date of Order : 27.06.2025 O R D E R PER S.RIFAUR RAHMAN, ACCOUNTANT MEMBER : 1. This appeal is filed by the assessee against the order of ld. Commissioner of Income-tax (Appeals)/National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as ‘ld. CIT (A)] dated 31.01.2024 for Assessment Year 2017-18. 2. Brief facts of the case are, assessee filed its return of income on 04.11.2017 declaring loss of Rs.15,30,39,,439/-. The case was selected for scrutiny under CASS and notices under section 143(2) and 142(1) of the Income-tax 2 ITA No.2334/DEL/2024 Act, 1961 (for short ‘the Act’) were issued and served on the assessee. In response, assessee filed relevant information and documentary evidences. The assessee is engaged in the business of manufacturing of Pesticides. During assessment proceedings, AO observed that assessee has received unsecured loans from various parties and in order to verify the same, a separate notice was issued to the assessee to substantiate the transactions in view of section 68 of the Act. In response, assessee submitted the same as under :- 3 ITA No.2334/DEL/2024 3. After considering the above, the Assessing Officer also observed that assessee has received an amount of Rs.2.32 crores as loan which remained unverified to his satisfaction and all the parties have filed their return either with losses/meagre income or no information was submitted. He further observed that bank statement of the parties revealed that prior to the credit to the assessee company, certain credits were received with the same amount from unknown or other sources. Since assessee has not proved the genuineness of the transactions, he proceeded to make the addition u/s 68 of the Act. Further he observed that assessee has claimed financial cost to the extent of Rs.5,10,512/- in its Profit & Loss account and accordingly he disallowed above 67% of the same and added back to the income of the assessee. Accordingly, he also made another disallowance of Rs.3,40,000/-. 4. The AO has made further addition but before us, assessee has raised only two issues relating to section 68 and relating to bad debts claimed by the assessee. We accordingly proceeded to decide the two issues raised by the assessee. 5. The next issue is relating to bad debts. During assessment proceedings, the AO observed that assessee has claimed discount expenses of Rs.2,56,27,064/- during the current assessment year as compared to Rs.67,97,467/- claimed during previous assessment year. Therefore, assessee was asked to substantiate the disproportionate increase. In response, assessee submitted 4 ITA No.2334/DEL/2024 that out of Rs.2,56,27,064/- an amount of Rs.1,91,02,915/- pertains to M/s. S&C Formulator Co. Ltd., Thailand. It was submitted that assessee had exported goods worth of Rs.40 crores from the period 2012 to 2016. The amount of Rs.1,91,02,915/- was written off out of deduction on account of quality differences and the party has refused to make the payment. In support of the same, assessee provided ledger copies of the parties and the AO observed that the amount being written off during the period was not supported by any documentary evidences as to in what conditions the party refused to make payments, meetings held with the parties, efforts made to recover the receivables etc. The AO observed that the required details were not provided to by the assessee which contravenes section 36(1)(vii) read with section 36(2) of the Act and accordingly he proceeded to make the disallowance of Rs.1,91,02,915/-. 6. Aggrieved with the above order, assessee preferred an appeal before the NFAC, Delhi and filed detailed submissions on both the counts. After considering detailed submissions, ld. CIT (A) analysed the individual parties in his order and not convinced with the submissions of the assessee and partly allowed grounds raised by the assessee by providing partial relief to the assessee to the extent of transaction with Bazigar Trading by observing as under :- “7.2.3 In the instant case, the explanation offered by the appellant about the unsecured loans found credited in its books of accounts is found not satisfactory to the AO. It is needless to say that the onus of proving the source of a sum of money 5 ITA No.2334/DEL/2024 found to have been credited in the books of the appellant is on him and when the nature and source of such credit cannot be satisfactory explained, the same is to be treated as unexplained credit and no further burden lies on the revenue to show that the income is from any particulars source. It goes without saying that unless the appellant discharge this onus cast upon it, the same do not gets shifted on the AO. In the written submission made the appellant has relied on plethora of judgements however failed to show a3 to how the rulings of Hon'ble Courts in those judgements are applicable to its case. On perusal of the same it is found that the facts in the instant case are distinguishable from the facts in these case laws relied upon by the appellant and hence not applicable. 7.2.4 In the written submission made the appellant has stated that it has discharged onus cast upon it of proving the identity and creditworthiness of loan creditors and genuineness of loan transactions. The appellant has further contended that the loan amount has been received through banking channel and hence the same is genuine. However it is a settled legal position of law that mere receipt of money from banking channel do not prove the transaction as genuine. 7.2.5 With the above observations, loan received from each of loan creditors is discussed in the subsequent paras. (i) Ambey Capital Pvt. Ltd. Rs.67,50,000/- The appellant has filed copy of confirmation of loan from the above loan creditor for the relevant previous year. On perusal of the same it is seen that the opening balance of loan taken by the appellant as on 01.04.2016 is of Rs.1,22,33,093/- and during the relevant previous year additional loan of Rs.67,40,000/- has been taken by the appellant. It is further noted that the appellant has not allowed interest on this unsecured loan taken. It is further noted from the copy of confirmation of loan that during the relevant previous year the appellant has made repayment of Rs.12,12,000/- and balance amount of Rs.1,77,61,093/- is carried forward. It is further noted from the copy of bank statement of loan creditor M/s. Ambey Capital Pvt. Ltd. that the loan advanced to the appellant is against an equivalent amount found credited in the bank account of the loan creditor on transfer of funds from some other account of the loan creditor and it is not out of the accumulated fund in this bank account of the loan creditor. It is worth mentioning that this loan creditor M/s. Ambey Capital Pvt. Ltd. is a related company of having common directors and shareholders. Since loan advanced to the appellant company is out of loan transferred from the loan creditors other bank account to the bank account from which loan amount is transferred to the appellant company on the same date, it is not known as to why the loan amount was not transferred to the appellant company from such other bank account of the loan creditor which could have showed the availability of funds with the loan creditor and could have proved the genuineness of loan transaction. It is also noted from the financials of the loan creditor for relevant previous year that this loan creditor company is not carrying out any business activity and the only source of income is income from other sources in the nature of interest income. The balance sheet of the loan creditor company further reveal that this company is loss making company having accumulated loss to the extent of Rs.1,82,73,800/-. It is further seen from the balance sheet that the loan 6 ITA No.2334/DEL/2024 creditor company is not having his own funds for advancement of interest free loans but the loans have been advanced mainly out of borrowed funds. Considering the above facts off the case, I am of the considered view that the appellant has not discharged onus cast upon it of proving creditworthiness of this loan creditor as also the genuineness of loan transaction. I therefore concur with the view of the A.O. that this amount of loan is liable to be taxed u/s. 68 of the I. T. Act. Addition made by the A.O. to the extent of Rs.67,40,000/- is therefore confirmed. (ii) Aromatic Alloy and Allied Pvt. Ltd. Rs.64,60,000/- It is found from the copy of loan confirmation filed by the appellant that the opening balance of loan taken by the appellant is of Rs.1,00,00,000/- and during the relevant previous year the appellant has taken additional loan of Rs.64,60,000. It is further noted from the loan confirmation letter that during the relevant previous year the appellant has made cash repayment of loan of Rs.16,00,000/- and balance amount of Rs.1,48,60,000/- has been adjusted against (may be sale) cars. The appellant has not provided any evidence showing valuation of cars and documents relating to transfer of cars from the appellant company to the loan creditor as repayment of loan. It is noted from the balance sheet of loan creditor that this loan creditor company is not carrying out any business activity and accumulated loss at the end of relevant previous year is to the extent of Rs.2,18,727/-. It is further noted that the loan creditor company is again related concern of appellant company having common directors and shareholders. It is also evident from the balance sheet that the loan advanced to the appellant company is not out of own funds but out of borrowed funds on which no interest is charged. The bank account of the loan creditor company shows that the loan advanced to the appellant company is not out of accumulated bank balance of the loan creditor but the same is out of funds received on transfer. Considering the above facts off the case, I am of the considered view that the appellant has not discharged onus cast upon it of proving creditworthiness of this loan creditor as also the genuineness of loan transaction. I therefore concur with the view of the AO. that this amount of loan is liable to be taxed u/s. 68 of the I. T. Act. Addition made by the A.O. to the extent of Rs.64,60,000/- is therefore confirmed. (iii) Bazigar Trading Rs.14,50,000/- The appellant has filed copy of confirmation of loan however it is seen that the same is un-signed by the loan creditor. The appellant has also filed copies of financials of loan creditor and it is found that the loan creditor is having its own sufficient funds for advancement of loan of Rs.14,50,000/-. Considering these facts, I am of the considered view that the appellant has discharged onus cast upon it by provision u/s. 68 of the I. T. Act of proving the identity and creditworthiness of this loan creditor and the genuineness of loan transaction. The addition made by the A.O. in respect of this unsecured loan taken by the appellant of Rs.14,50,000/- is therefore found not justified. The A.O. is therefore directed to delete the same. 7 ITA No.2334/DEL/2024 (iv) Loan from Green World International Pvt. Ltd. Rs. 16,00,000/- The appellant has filed copy of confirmation of loan in respect of this loan creditor. The appellant has also filed copy of bank statement of loan creditor from which it is found that the advancement of loan of Rs.16,00,000/- to the appellant is out of transfer of funds. The appellant has not filed copies of financials of this company to establish its creditworthiness and genuineness of transaction. Considering these facts, I am of the considered view that the appellant has failed to discharge onus cast upon it by provision u/s. 68 of the I. T. Act of proving the creditworthiness of this loan creditor and the genuineness of loan transaction. The addition made by the A.O. in respect of this unsecured loan taken by the appellant of Rs.16,00,000/- is therefore found to be justified. The same is therefore confirmed. (v) Rakshit Chemicals Industries Ltd. Rs. 62,00,000/- The appellant has filed copy of loan confirmation letter, copy of bank statement, copy of acknowledgement of return of income filed and copy of ledger account as appearing in appellant's books of accounts. It is noted from copy of bank statement of the loan creditor that each of the loan amount received by the appellant is out of the equivalent amount got deposited in the loan creditors bank account on the same date/earlier date out of amount received from Green World International Pvt. Ltd. (might be the same party from whom the appellant has received loan of Rs.16,00,000/- discussed at point (iv) above). The appellant has not filed the copies of financials of this loan creditor. Also as per the return of income filed by the loan creditor for the relevant previous year the total taxable income is a meagre amount of Rs.45,541/-. Considering these facts, I am of the considered view that the appellant has failed to discharge onus cast upon it by provision u/s. 68 of the I. T. Act of proving the creditworthiness of this loan creditor and the genuineness of loan transaction. The addition made by the A.O. in respect of this unsecured loan taken by the appellant of Rs.62,00,000/- is therefore found to be justified. The same is therefore confirmed. (vi) SG Art Entertainment Rs.7,50,000/- The appellant has filed copy of confirmation of loan however it is found that the same do not give the address of the loan creditors or PAN no. Also this loan confirmation is not signed by the loan creditor. It is noted from the copy of bank statement, submitted by the appellant that the same do not give information of the account holder and hence whether it is of the loan creditor or not is not ascertainable. Also transactions appearing on this page of the bank statement shows that the loan creditor is not worth advancing said amount of loan to the appellant. The copy of acknowledgement of return of income filed by the appellant is not in respect of this loan creditor but the same is of Smt. Sumedha Jindal whose relationship with the loan creditor is not evident. 8 ITA No.2334/DEL/2024 7.2.6 Considering these facts, I am of the considered view that the appellant has failed to discharge onus cast upon it by provision u/s. 68 of the I. T. Act of proving the creditworthiness of this loan creditor and the genuineness of loan transaction. The addition made by the A.O. in respect of this unsecured loan taken by the appellant of Rs.7,50,000/- is therefore found to be justified. The same is therefore confirmed.” 7. With regard to bad debts, ld. CIT (A) dismissed the grounds raised by the assessee by observing following observations := “9.2.1 The appellant has filed copies of ledger account of export sale for the financial year 2014-15 and 2015-16 wherein it is seen that the total export sale is of Rs.13,16,18,533/- and Rs. 2,57,32,154/- respectively. The appellant has also filed copies of ledger account of M/s. SC Formulator Co. Ltd. for the period from 01.04.2014 to 31.03.2015 and 01.04.2015 to 31.03.2016. It is noted from this ledger account that the total amount outstanding receivable from M/s. S.C. Formulator as on 31.03.2015 is of Rs.1,91,03,814/- and as on 31.03.2016 is at Rs.1,91,02,914/-. The appellant has not filed copy of ledger account of M/s. S. C Formulator Co. Ltd. for the relevant previous year i.e. for financial year 2016-17. In the absence of the ledger account of M/s. S. C. Formulator Co. Ltd. for the relevant previous year it is not shown by the appellant that the amount of bad debts is actually been written off in the books of the appellant company which is one of the conditions given in section 36(1)(vii) r.w.s. 36(2) of the I. T. Act. In view of this provision claim of deduction on account of bad debts shall not be allowed unless su.ch debt are part thereof has actually been written off in the relevant previous year. Since the appellant has not shown that debt of Rs.1,91,02,914/- relating to M/s. S. C. Formulator Co. Ltd. has actually been written off in the books of accounts of the appellant company, I am of the considered opinion that appellant is not eligible for claim of such deduction. Disallowance made by the A.O. to the extent of Rs.1,91,02,914/- is therefore found to be justified and hence confirmed. This ground of appeal raised by the appellant is thus dismissed.” 8. Aggrieved with the above order, assessee is in appeal before us raising following grounds of appeal :- “1. That the Ld. Commissioner of Income Tax (Appeal) has erred in law and facts of the case while sustaining the addition made by the Ld. Assessing officer of Rs.2,17,50,000/- under section 68 of the Act without appreciating that the provisions of Section 68 of the Act are not applicable in the case of Appellant. As such, the addition of Rs.2.17,50,000/- is illegal and may please be deleted. 9 ITA No.2334/DEL/2024 2. That the Ld. Commissioner of Income Tax (Appeal) has erred in law and facts of the case while sustaining the addition made by the Ld. Assessing officer of Rs.2,1 7,50,000/- under section 68 of the Act without appreciating the submission of the appellant. As such, the addition of Rs.2,17,50,000/- is bad in law and may please be deleted. 3. That the Ld. Commissioner of Income Tax (Appeals) has erred in law and fact of the case while confirming the disallowance made by the Ld. Assessing officer of Rs.1,91,02,915/- under section 36(i)(vii) of the Act without considering the fact that the same was actually written off from the accounts of the appellant in year under consideration. As such, the addition of Rs.l,91,02,915/- bad in law and may please be deleted. 4. That the Ld. Commissioner of Income Tax (Appeals) has erred in law and facts of the case while confirming the disallowance made by the Ld. Assessing officer of Rs.1,91,02,915/- under section 36(i)(vii) of the Act without appreciating the submissions of the appellant. As such, the addition of Rs.1,91,02,915/- is bad in law and may please be deleted. 5. That the Ld. Commissioner of Income Tax (Appeals) has erred in law and facts of the case while sustaining the addition made by the ld. Assessing Officer of Rs.3,95,040/- under section 40(a)(ia) of the Act without appreciating the facts of the case and submissions of the appellant. As such, the addition of Rs.3,95,040/- is bad in law and may pleased be deleted.” 9. At the time of hearing, ld. AR of the assessee submitted as under :- “ISSUE -1: ADDITION UNDER SECTION 68 AMOUNTING TO Rs.2,17,50,000/- 1. Section 68 provides that where any sum is found credited in the books of account and the nature and source of such credit is not explained by the assessee, such credit will be taxable under the provisions of the Act. In order to discharge onus under section 68, the assessee is required to satisfy following. three Limbs in respect of each transaction of loan: - Identity of the party - Genuineness of the transaction - Credit worthiness of the party 2. The appellant had duly discharged its onus of proving identity and creditworthiness of the lender as well as genuineness of the transaction by submitting various documents in respect of the Lenders before the Ld. Assessing Officer/ Ld. CIT(A). The detail is attached as Annexure A. 3. Once the primary onus is discharged by the Appellant, the burden gets shifted to the Revenue. However, the Ld. AO has made no enquiries whatsoever to discharge Revenue's onus to disprove the evidence tendered by the Appellant. The 10 ITA No.2334/DEL/2024 Ld. Assessing Officer/ Ld. CIT(A) has neither made any further enquiry on the basis of the details submitted by the Appellant company nor he has asked the Appellant company to explain further by submitting additional documents. The Ld. Assessing Officer/ Ld. CIT(A) have simply rejected all the positive evidences submitted by the Appellant and made the impugned additions. It is established law of evidence that the apparent state of affair is presumed to be real and who asserts otherwise has the onus to prove that the apparent state of affairs is not real. Accordingly, the onus •was on the Ld. AO to prove that the apparent state of affairs is not real. In this connection, the Appellant has relied on the following decisions: • CIT v. Kamdhenu Steel & Alloys Ltd. [2014361 ITR 220 (Delhi High Court) • CIT vs. Steller Investment Ltd. [2001] 251 ITR 263 (Supreme Court) [Decision in CIT v. Stellar Investment Ltd. [1991] 192 ITR 287 (Delhi High Court) affirmed] • CIT v. Orissa Corporation Pvt. Ltd. [1986] 159 ITR 78 (Supreme Court) 4. The Appellant has duly established the genuineness of the transaction, the same being routed through legitimate banking channels, where payment was made through account payee cheques in such a case there is no reason to doubt the genuineness of the transaction. The Hon'ble Supreme Court in the case of CIT vs Lovely Exports Pvt. Ltd. (2008) 216 CTR 195 (SC) has observed that, even if the share capital money is received by the assessee from alleged bogus shareholders, whose names are given to the AO, then the Department is free to proceed to reopen their individual assessment in accordance with law, but it cannot be regarded as undisclosed income of the assessee company. 5. Once the Lender confirms their transaction with the Appellant company, there remain no basis for drawing adverse inference in the hand of Appellant company. Under such a situation, if the A.O. still doubts the source of the amount lent by the creditor to the assessee company, adverse inference can be drawn in case of the creditor and not in the case of Appellant company. 6. The remarks of the Ld. AO that \"as all the parties have filed their return either at Losses/ meager income or no information as called for from the assessee was provided to the undersigned. Further, perusal of the bank statement of the parties revealed that prior to credit to the assessee company, the account of the parties were credited with same amount from unknown sources/parties\" is no ground for making the addition u/s 68 of the Act. It is humbly submitted that there is no requirement under the law that Investor has to made the investment out of income only or the loan creditor has to keep funds idle in bank accounts for some period before giving loan to others. Reliance is being placed on the decision of Hon'ble Delhi Tribunal in Addl. CIT vs Prayag Poly tech Pvt. Ltd., ITA No. 5970/DEL/2017, Date of Order: 18/06/2019, wherein it has been held as under: \"We are of the view that there is no such condition in section 68 that loan can only be advanced out of the taxable income of the current year. The 11 ITA No.2334/DEL/2024 requirement of section 68 are 3 i.e. identity, creditworthiness and genuineness. In the present case admittedly there is no doubt about the identity. As regards the creditworthiness the AO has gone with the presumption that it is only the current year taxable income which can establish the creditworthiness. This presumption of the AO is incorrect. The creditworthiness can be established by showing the source from where the money has been paid. Such money can be paid out of its net worth out of the loan raised by it or out of income earned by it. The source can be any of such means or mixed of these. \"[Please refer Page No.1-50 of Case Law Compilation] 7. That for the instant year 'Source of Source' is not the relevant criteria - It is submitted that the deeming provision regarding non-explanation or unsatisfactory explanation of source of the person from whom amount is received in respect of Loan transactions came into effect with effect from 1st April 2023 i.e. relevant to AY 2023-24. a. ITO vs Sh. Balwan Singh, ITA No. 2869/Dell2019, A.Y. 2014-15, Date of Pronouncement: 07.08.2023, ITAT - Delhi [Please refer Page No. 51-55 of Case Law Compilation] b. Gagandeep Infrastructure (P) Ltd. 394 ITR 680 (Bombay High Court) c. M/s Mall Hotels Ltd. V. CIT, ITA No. 2688/Dell2014, Date of Order: 31/05/2022, ITAT - Delhi [Please refer Page No. 56-61 of Case Law Compilation] 8. Under section 68, the Lender's creditworthiness has to be judged vis-a-vis transactions, which have taken place between assessee and the Lender, and it is not business of assessee to find out source of money of his Lender or genuineness of transactions, which took place between lender and sub-lenders and/or creditworthiness of sub-lenders for these aspects may not be within special knowledge of assessee. a. Nemi Chand Kothari vs CIT [2003] 264 ITR 254 (Gauhati High Court), b. CIT vs Shiv Dhooti Pearls & Investment Ltd. [2015] 64 taxmann.com 329 (Delhi High Court) [Please refer Page No. 62-67 of Case Law Compilation] c. Gaurav Triyugi Singh vs ITO [2020] 4231TR 531 (Bombay High Court) d. Mod. Creations Pvt. Ltd. v ITO (2013) 354 ITR 282 (Delhi High Court) 9. Therefore, the Appellant has duly established the identity and creditworthiness of the Lenders and genuineness of the transaction. Mere suspicion is not sufficient grounds to invoke Section 68 without tangible basis. 12 ITA No.2334/DEL/2024 ISSUE - 2: DISALLOWANCE UNDER SECTION 36(1)(VII) OF THE ACT AMOUNTING TO RS.1,91,02,914/-IN RESPECT OF BAD DEBT WRITTEN OFF 1. The Appellant had made Export Sales to M/s. S&C Formulator Co. Ltd., Thailand during the period from FY 2012-13 to FY 2015-16 aggregating to more than Rs.40 crores. Due to some quality differences, the party refused to make payment to the extent of Rs.1,91,02,914/-. The Appellant made its best efforts for the recovery of the amount, however, could not recover. The copy of ledger account for the period from FY 2012-13 to FY 2016-17 was submitted before the Ld. AO vide Letter dated 19-12-2019 [PB No. 86-88 & 146-150]. 2. Consequently, the amount of Rs.1,91,02,914/- was written off as Bad debts in the books of account and was reported under Note No. 22 'Other Expenses' as 'Discount' in the Profit & Loss Account [PB No. 61-78, relevant at PB No. 77]. 3. Section 36(1 )(vii) of the Act provides that any bad debt written off in the books of account as irrecoverable is an allowable deduction. It has been settled by the Apex Court in TRF Ltd. v. CIT [2010] 323 ITR 397 that writing off of debt in the books of account is the only condition for claiming deduction of bad debt under section 36(1 )(vii) of the Act and it is not necessary for the assessee to establish that the debt become irrecoverable for allowance of deduction. \"4. This position in law is well-settled. After 1-4-1989. 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. However, in the present case, the Assessing Officer has not examined whether the debt has, in fact, been written off in accounts of the assessee. When bad debt occurs, the bad debt account is debited and the customer's account is credited, thus, closing the account of the customer. In the case of companies, the provision is deducted from sundry debtors. As stated above, the Assessing Officer has not examined whether, in fact, the bad debt or part thereof is written off in the accounts of the assessee. This exercise has not been undertaken by the Assessing Officer. Hence, the matter is remitted to the Assessing Officer for de novo consideration of the above-mentioned aspect only and that too only to the extent of the write off.\" 4. Further reliance placed on the following judicial precedents: • Commissioner of Income-tax, Delhi-II v. Modi Telecommunication Ltd. [2010] 325 ITR 291 (Delhi High Court) • ACIT vs. Syed Habibur Rehman [2022] 195 ITD 480 (Delhi - Trib.) [Please. refer Page No. 68-72 of Case Law Compilation] • PCIT vs. Tata Chemicals Ltd. [2024] 469 ITR 250 (Bombay High Court) 13 ITA No.2334/DEL/2024 5. Therefore, the assessee company is entitled to avail the deduction with respect to bad debts written off in the books as the debt in question is irrecoverable and the amount of the debt has been taken into account while computing the income of the previous years.” 10. On the other hand, ld. DR of the Revenue relied on the findings of the lower authorities. 11. Considered the rival submissions and material placed on record. With regard to ground nos.1 and 2, we observed that during assessment proceedings, assessee was asked to justify the transactions with supporting documents, however assessee has not filed the relevant information during assessment proceedings. However, during appellate proceedings, assessee has submitted relevant information for six parties and ld. CIT (A) has analysed the individual cases and found that only in the case of Bazigar Trading, assessee has submitted copies of evidences of the creditors and found that the loan creditor is having its own sufficient fund for the advancement of loan of Rs.14,50,000/-. With regard to other parties, he found that assessee has not submitted and discharged the onus cast upon them We observed from the findings of the ld. CIT (A) with regard to Ambey Capital Pvt. Ld. that ld. CIT (A) observed that it is a related concern having common Directors and shareholders. The loan advanced to the assessee is out of loan transferred from loan creditors other bank account to the bank account from which loan amount is transferred to the assessee on the same date. It is not known as to why the loan amount was not transferred to the assessee from such other 14 ITA No.2334/DEL/2024 bank account of the loan creditor which could have shown the availability of funds with the loan creditor and could have proved the genuineness of the loan translations. He rejected this party with the observations that the company has declared loss and also having huge accumulated loss. We observed that all the details were submitted during appellate proceedings and ld. CIT (A) has analysed the above information from the same document. It is fact on record that assessee has filed confirmation from the above creditor. However, he rejected the same on the basis of huge accumulated loss and not having creditworthiness. With regard to Aromatic Alloy and Allied Pvt. Ltd., the ld. CIT (A) has observed from the confirmation letter submitted during the year shows that assessee had repaid part of the loan amount and further taken additional loan from the same party and also observed that certain cars belonging to the assessee were transferred to them towards repayment of loan. Further he observed that this concern is also related concern having common Directors and shareholders and also observed that loan advanced to the assessee is not out of own funds but out of borrowed funds against which no interest is charged and observed that assessee has not discharged onus cast upon them and accordingly sustained the addition. 12. With regard to Green World International Pvt. Ltd., ld. CIT (A) observed that assessee has not filed any financial details of this company to establish creditworthiness and genuineness of the transactions. With regard to Rakshit 15 ITA No.2334/DEL/2024 Chemicals Industries Ltd., even in this case assessee has not filed any financials of this loan creditor. Similarly in case of SG Art Entertainment, it was held that assessee has not filed any details of the above creditor. 13. Even before us, ld. AR of the assessee submitted that assessee had filed all the relevant documents before the lower authorities and also submitted that creditworthiness depends upon the capacity to make the loan not on the basis of earning capacity. Further he submitted that in the current year, the concept of proving source of source is not relevant since section 68 of the Act was amended and it is effective from 01.04.2023. After considering the submissions of both the parties, in our considered view, majority of the loan transactions were carried with the related concerns having common directors and funds were transferred without charging any interest and also we observed that assessee had filed confirmations from the abovesaid parties. In our considered view, the tax authorities have not appreciated the relevant facts available on record with the supporting documents and they have partly verified the documents, therefore, we are inclined to remit this issue back to the file of AO to verify the document in line of the documents available on record. In this regard, various courts have held that capacity is not dependent on earning capacity of creditor rather it is on availability of funds with the creditor based on the ability to make or arrange funds for lending and also not analysed the transaction on the basis of related concerns transactions and also 16 ITA No.2334/DEL/2024 not analysed the aspect whether the assessee has to prove the source of source in this assessment year. In the result, ground nos.1 & 2 raised by the assessee is allowed for statistical purposes and we direct the AO to verify the information available on record as per law after giving proper opportunity of being heard to the assessee. 14. With regard to ground nos.3 & 4, we observed that assessee had made export sales to M/s. S & C Formulator Co., Ltd. during the period FY 2012-13 to FY 2015-16. It is brought to our notice that due to quality differences, the party refused to make payment to the extent of Rs1,91,02,915/-. As per the ledger account brought on record, we observed that assessee in fact exported the goods worth Rs.40 crores during the period. The tax authorities denied the bad debts claimed by the assessee on the basis that the assessee has not submitted relevant documents proving the efforts made by the assessee to recover the same. However, we observed that Hon’ble Supreme Court in the case of TRF Limited (supra) had settled this issue that writing off of debt in the books of account is the only condition for claiming deduction of bad debts u/s 36(1)(vii) of the Act and it is not necessary for the assessee to establish that the debt become irrecoverable for allowance of deduction. We observed that assessee has credited the relevant export sales in its Profit & Loss account and paid due tax and due to non-recovery of the same certain amount, the assessee claimed the same as bad debts. Since the issue is 17 ITA No.2334/DEL/2024 already settled what is relevant is only the condition for claiming bad debt u/s 36(1)(vii) of the Act is to establish that it is not recoverable. Accordingly, we are inclined to allow the grounds raised by the assessee by relying on the above rule of law. Accordingly, ground nos.3 & 4 raised by the assessee are allowed. 15. Ground No.5 is not pressed, hence dismissed as not pressed. 16. In the result, the appeal filed by the assessee is partly allowed for statistical purposes. Order pronounced in the open court on this 27th day of June, 2025. Sd/- sd/- (VIKAS AWASTHY) (S. RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 27.06.2025 TS Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI "