DCIT, NEW DELHI V. M/S. SWEKA POWER TECH ENGINEERS PVT. LTD., NEW DELHI

ITA 5064/DEL/2014

AI Insights

The case involves appeals by the Revenue against the CIT(A)'s decision which had allowed the assessee's appeal concerning additions made by the AO following a search and seizure operation under section 132 of the Income Tax Act, 1961. The AO had made several additions in the assessee's income for the assessment years 2010-11 and 2011-12, citing reasons such as bogus charges for installation of electricity poles and bogus purchases. The CIT(A) deleted these additions, leading to the Revenue's appeal. The Tribunal's decision focused on the adequacy of evidence and the procedural correctness of the CIT(A)'s decision, ultimately upholding the CIT(A)'s findings.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 23848 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-03-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Assessment Year: 2010-2011
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JAYA CHAUDHARY
• Assessee Lawyers: RAKESH GUPTA
• Keywords: Bad and doubtful debts; Bogus purchase; TDS; Search and seizure; Wrong claim; Bogus
• Section: 132; 153A; 133A

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES: G : NEW DELHI BEFORE SHRI ANUBHAV SHARMA, JUDICIAL MEMBER AND SHRI MANISH AGARWAL, ACCOUNTANT MEMBER ITAs No.5064 & 5065/Del/2014 Assessment Years: 2010-11 & 2011-12 DCIT, Central Circle-5, New Delhi. Vs Sweka Power Tech Engineers Pvt. Ltd., 254, Vardhman Plaza II, J-Block Community Centre, Rajouri Garden, New Delhi. PAN: AAHCS0666C (Appellants) (Respondents) Assessee by : Dr. Rakesh Gupta, Advocate; Shri Somil Agarwal, Advocate & Shri Shrey Jain, Advocate Revenue by : Ms Jaya Chaudhary, CIT, DR Date of Hearing : 11.02.2025 Date of Pronouncement : 19.03.2025 ORDER PER ANUBHAV SHARMA, JM: These appeals are preferred by the Revenue against the orders dated 29.06.2014 of the Commissioner of Income-tax (Appeals)-XXXI, New Delhi (hereinafter referred as Ld. First Appellate Authority or in short Ld. ‘FAA’) in appeals ITAs No.5064 & 5065/Del/2014 2 No.264/13-14, 265/13-14 and 266/13-14 arising out of the appeals before it against the orders dated 28.03.2013 passed u/s 153A/143(3) of the Income Tax Act, 1961 (hereinafter referred as ‘the Act’) by the ACIT, CentralCircle-5, New Delhi (hereinafter referred to as the Ld. AO). 2. Heard and perused the records. The two appeals were heard together and as they are set up with same background and contentions the same are being adjudicated together. The lead case being of AY 2011-12 which covers the issues of AY 2010-11 also. Thus wherever relevant the facts and impugned orders of AY 2011-12 shall be referred and reproduced. Infact the ld. CIT(A) has passed a consolidated order in appeal. While arguing the cases the ld. DR has relied the findings of ld. AO and submitted that same are quite reasoned and based on test of human probability. Ld. AR relied the facts as appreciated by the ld. CIT(A) to give the relief. 3. The background to present appeals is the search & seizure action u/s.132(1) of the Tax conducted on 28.10.2010 in Sweka Power Tech Engineers Group of cases at its business premises and the residential premises of the Directors. ITAs No.5064 & 5065/Del/2014 3 Consequent upon this action u/s. 132 of the Act, the case of the aforesaid assessee company was centralized in Central Circle-5, New Delhi vide orders passed u/s. 127 of the Act and notice under section 153A of the Act. 4. In the assessment proceedings, for AY 2011-12 the Ld. AO made four additions on account of cash seized during search, additions on account of bogus charges paid for installation of electricity polls, bogus purchases and addition on account of disallowance of bad debts. In AY 2010-11 ld. AO made two additions on account of additions on account of bogus charges paid for installation of electricity polls and bogus purchases. 5. The appeals of assessee stand allowed by the ld. CIT(A) for which the department is in appeal in both the AYs and for convenience we reproduce the grounds of appeal in AY 2011- 12, as follows:- “1. The order of Ld. CIT(A) is not correct in law and facts. 2. On the facts and circumstances of the case the Ld. CIT(A) has erred in law in deleting the addition of Rs. 30,455/- made on substantive basis and protective addition of Rs.11,94,800/- for the amount found the locker of Sh. Tejinder Pal Singh & Smt. Sweta Kaur of ITAs No.5064 & 5065/Del/2014 4 Rs.11,44,800/- & Rs. 50,000/- respectively, made by the AO in the hands of assessee company. 3. On the facts and circumstances of the case the Ld. CIT(A) has erred in law deleting the addition of Rs. 1,13,83,110/- out of total addition of Rs. 1,69,26,318/- made by the A.O. on account of labour/ erection charges. 4. On the facts and circumstances of the case the Ld. CIT(A) has erred in law deleting the addition of Rs. 95,36,078/- made by AO on account of bogus purchases. 5. On the facts and circumstances of the case the Ld. CIT(A) has erred in law in deleting the addition of Rs.7,85,83,954/- made by the A.O. on account of bad debts written off by the assessee company in Schedule - L-1 of the P& L A/c. 6. The appellant craves leave to add, amend any/all the ground of appeal before or during the course of hearing of the appeal.” 6. Ground no. 3 and 4 in AY 2010-11 and ground no. 2 and 3 in AY 2010-11. The relevant background to these grounds is that the ld. AO took in to consideration the fact that the during the Commonwealth Games for the purpose of having world class infrastructure funds were specifically allocated for the improvement of infrastructure of Delhi and various civic / engineering agencies were assigned specific task for the same. Admittedly, the assessee company is supplying / installing / ITAs No.5064 & 5065/Del/2014 5 trading standard items eg. Poles, bulbs, cover etc. Looking at the financial details of the company the ld. AO was of opinion that assessee does not appear to be capable of executing big projects. The case of assessee is that it was formed in the year 2002, and Shri Tejinder Pal Singh and Shri Harbhajan Singh Giani were the director of the company. Later on in the year 2004, Shri Harbhajan Singh Giani resigned from the directorship of the company and Shri Jasminder Pal Singh, younger brother of Shri Tejinder Pal Singh joined as new director of the company. The main activities of the company are securing Government Contracts from Government and Semi Government agencies such as MCD, NDPL, and BSES etc. The company has executed various projects related to CWG 2010 awarded through MCD apart from its regular work. The assessee company has duly executed the project of street lighting of various roads belonging to MCD. 7. Table given below mentions the amounts of projects executed by the company, which were subject of scrutiny by the ld. AO, to make additions on account of bogus charges paid for installation of electricity polls and bogus purchases: ITAs No.5064 & 5065/Del/2014 6 S.No. Project details Value of the contract 1. Upgradation of street lighting on roads in Delhi under jurisdiction of MCD (Phase-I) 34,53,68,925/- 2. Upgradation of street lighting on roads in Delhi under jurisdiction of MCD (Phase-I) 60,74,12,210/- 3. Chhatrasal stadium sports lighting 2,56,82,000/- Total 97,84,63,135/- 8. Case of department is that action u/s 132 of the Act was carried out in the assessee's case along with its promoters in connection with allegations of assessee's involvement in getting contracts relating to Commonwealth Games 2010 on the basis of extraneous factors and having made huge profits. The AO has made two additions the first by holding electric pole erection charges paid to 7 parties as bogus and the second by holding material purchases from 4 parties as bogus. 8.1 As with regard to the issue of bogus electric pole erection charges we find that along with action u/s 132 in the case of the assessee, simultaneous survey actions u/s 133A were also carried out on 7 out of 16 parties who had supplied labour / erected electrical poles for street light contracts executed by the ITAs No.5064 & 5065/Del/2014 7 company. The ld. AO noted that the assessee executed 3 main projects mentioned above. The ld. AO has given the list of 16 parties at para 6 of the assessment order, to whom the assessee has paid nearly Rs. 16 crores for supplying labour /erection of electric poles all over Delhi as per the contract. The said 7 parties who had supplied labour for erection of electric poles on whom action u/s 133A was taken up are listed below:- a. Gill Electricals, A-2125, 33 ft. Road, Near Chungi No. 17, Dabua colony, N.I.T.. Faridabad b. M/s Jayna Contractor, A-143, Jhilmil Colony, Delhi c. M/s R.C. Electricals, B-169, Aman Vihar, Sultan Puri, Delhi d. Rose Electricals, Shop No. 2101, Gali No. 15, Prem Nagar, ND e. SSR Engineers, Flat No. 5, Pocket-10, DDA LIG Flats, Nasirpur, Dwarka, ND f. Swastik Hitech Associates, A-5, Vikalp Apartment, Plot No. 92, LP. Extn., Patparganj, Delhi-92 g. Unique Electricals, 305, Parmesh Corporate Tower, Karkardooma Community Centre, Delhi-92 8.2 We find that the case of revenue is that the 'Investigation Team' could not execute the survey authorizations in case of following 4 parties out of the said 7 parties:- 1. M/s. R.C. Electricals 2. M/s. Rose Electricals ITAs No.5064 & 5065/Del/2014 8 3. M/s S.S.R. Engineers 4. M/s. Swastik Hightech Associates 8.3 Admittedly on being directed by the Investigation Team, the assessee produced representatives/proprietors of 3 out of the above 4 entities. Assessee produced the representatives / Proprietors of M/s R.C. Electricals, M/s Swastik Hightech Associates and M/s S.S.R. Engineers. The assessee could not produce before the Investigation Team any representative or proprietor of the 4th entity namely M/s Rose Electricals. 8.4 We find that the findings of the department during search / survey actions in respect of the said 7 labour parties involved in supply of labour and erection of poles is that certain adverse inferences have been drawn indicating therein that the assessee could not have incurred expenditure on these labour contractors. During the assessment proceedings, the ld. AO called upon the assessee to produce the said 7 parties for verification and cross-examination by the assessee. At para 6.3 the ld. AO has given the list of details which he required from the assessee and from the said 7 parties which is reproduced below:- ITAs No.5064 & 5065/Del/2014 9 (i) In regard to these parties; Books of Accounts audited Their P&L a/c, B/sheet, ROI and Ack of ROI All relevant documents including the transportation bills evidencing the purchase of material & supply of your site Bills of loading and unloading of the material Your ledger a/c in their books of accounts (ii) In regard to assessee; Books of Accounts Transportation Bills debited by you purchase of material from these parties Ledger A/c of these parties in you Books of Accounts Stock Register kept at site Record of security showing movement of stock 8.5 The case of ld. assessing officer is that the assessee did not produce the parties along with documents of those parties therefore he concluded that the non production of the said parties along with documents clearly prove that the assessee was not interested in any \"Re-examination of these parties and cross-examination by it of these parties\". Thereafter he has held that, in view of the findings of the search and survey operations and post-search and assessment proceedings, the transactions of the assessee with the above parties was not a genuine one and that the assessee has claimed these expenses to reduce the actual profit. He, therefore, disallowed all the expenditure incurred on the said 7 parties during the previous ITAs No.5064 & 5065/Del/2014 10 years relevant to assessment years 2009-10 to 2011-12. The relevant paragraph of the assessment order where the AO holds the expenditure on erection of electrical poles paid to the said 7 parties as bogus are reproduced below:- “6.4 The assessee has not produced these parties till date along with the above documents. This clearly proves that assessee is not interested in any reexamination of these parties and cross examination by it of these parties. In view of the findings of the search and survey operations coupled with post search and during assessment enquiries, it is held that the transactions with the above parties are not genuine and the assessee has claimed these expenses to reduce the actual profit. It is pertinent to mention that M/s SPEL has claimed expenses toward salary and wages amounting to more than Rs. Eight crores, besides these erection sub contracts. As such, the labour expenses to the sub contractor appears to have been taken only for reducing the profits and no actual work has been done by these sub contractors. Hence, the payment amounting to Rs. 5,24,68,150/- is held to be bogus to inflate the expenses and is liable to be added back to the total income of the assessee for respective assessment years. 6.5 The year wise and party wise break up of erection charges as debited in the books of accounts is tabulated as under:- Parties/Sub-contractors to whom payment under the head Erection Charges was made during the FY. 2008-09 to 2010-11 relevant to A.Y. 2009-10 to A.Y. 2011-12 S.No. Name of the Party Amount paid Rs. Amount paid Rs Amount paid Rs. Amount paid Rs. Α.Υ. 2009-10 Α.Υ. 2010- 11 Α.Υ. 2011- 12 Total 1. Gill Electricals 6,68,936 66,43,069 18,80,598 91,92,603 ITAs No.5064 & 5065/Del/2014 11 2. Jayna Electricals --- 35,61,558 30,89,679 66,51,337 3. R. C. Electricals --- 11,28,242 39,89,597 51,17,839 4. Rose Electricals 5,27,941 41,66,159 14,75,232 61,69,332 5. SSR Engineers --- 62,71,332 40,67,976 103,39,308 6. Swastic Hitech Ass 34,37,072 25,33,804 20,29,124 80,00,000 7. Unique Electricals 13,07,479 68,00,712 3,94,112 85,02,294 Total 59,41,419 3,11,04,975 169,26,318 539,72,713 Hence, the amount of Rs. 59,41,419/- debited under this head during the relevant assessment year is held to be bogus and added to the total income of the assessee. 8.6 In regard to the issue of bogus material purchases, we find that along with action u/s 132 the investigation team had conducted actions u/s 133A on several parties who had supplied material in connection with execution of the contracts by the assessee. The ld. AO has narrated the findings in respect of four parties on the basis of adverse inferences. Thereafter he has called upon the assessee to produce the said four parties for verification and cross-examination by the ITAs No.5064 & 5065/Del/2014 12 assessee along with following documents and books of accounts of those parties and those belonging to the assessee; (1) In regard to these parties Books of Accounts audited Their P&L a/c, B/sheet, ROI and Ack of ROI All relevant documents including the transportation bills evidencing the purchase of material & supply of your site Bills of loading and unloading of the material Your ledger a/c in their books of accounts (ii) In regard to the assessee Books of Accounts Transportation Bills debited by you purchase of material from these parties Ledger A/c of these parties in you Books of Accounts Stock Register kept at site Record of security showing movement of stock 8.7 The case of ld. AO is that the assessee did not produce those parties nor did he produce the documents belonging to them. The AO therefore concluded that the assessee was not interested in any re-examination and cross-examination of these parties and held that the transactions of the assessee with the above parties was not genuine and that the assessee has claimed these expenses to reduce the actual profit. He, therefore, disallowed all the payments made to the said 4 parties during the previous years relevant to assessment years 2009-10 to 2011-12. The relevant paragraph of the assessment ITAs No.5064 & 5065/Del/2014 13 order where the AO holds the payments made to the aforesaid parties as bogus is reproduced below for ready reference. The assessee has not produced these parties till date along with the above documents. This clearly proves the assessee is not interest in any re-examination of these parties and cross examination by it of these parties. In view of the findings of the search and survey operations coupled with post search and during assessment enquiries, it is held that the transactions with the above parties are not genuine and the assessee has claimed these expenses to reduce the actual profit. Hence, the payment made to these parties is held to be bogus to inflate the expenses and is liable to be added back to the total income of the assessee for respective assessment years. 8.8 As we go through the impugned order of ld. CIT(A) we find that ld. CIT(A) has taken note of all the relevant documents and information furnished by the assessee before the Ld. AO, but which were not given any indulgence by the ld. AO to find any infirmity or discrepancy in them but instead the ld. AO has drawn adverse inference on the basis that some parties could not be produced and in survey necessary corroborative evidences could not be found. This is a very strange way of assessment by expecting the assessee to prove the genuineness of an expenditure on the basis of assertion that nothing incriminating or corroborating the expenditure was found in search of vendors of material or the labour. At the same time it ITAs No.5064 & 5065/Del/2014 14 can be seen that Ld.CIT(A) has very meticulously examined the evidence of each of the suspicious or doubtful vendors. Nothing could be cited before us to allege that the appreciation of evidence and inferences drawn on the basis of evidences was so perverse so as to be interfered with in these appeals. We are of considered view that when the only ground of revenue to challenge the findings of ld. FAA is that appreciation of evidences or information is erroneous then ld. DR should be able to show some absurdity or perversity in the inferences drawn which is not at all the case here. 8.9 Thus in regard to these grounds we find that the ld. AO had made the addition on the basis of a search and seizure operation proceedings and the reason for doubting the transaction was failure of the assessee to file necessary evidences showing that the purchases from material supplier was not bogus. On the other hand ld. CIT(A) has examined the party wise additions on the basis of evidences filed by the assessee and their evidentiary value. 9. Further we find that ld. AO has not doubted the fact of allotment of contract to the assessee and that the assessee had ITAs No.5064 & 5065/Del/2014 15 completed the contracts as per the work orders. Certainly, the completion of the contracts of the nature of street-lighting of various roads belonging to MCD would have required use of definitive material, in terms of quality and quantity. There may be allegation of escalation of prices and the matter may have be investigation by other agencies but that did not dispense with onus on the ld. AO, to cite discrepancy in the evidences of assessee to allege bogus expenditure on labour or material. Thus without bringing anything to discredit the expenditure in terms of labour and other charges corresponding to the use of the material in completion of the work order, the ld. AO had doubted the expenditures which have been rightly deleted by ld. CIT(A) and findings need no interference. The grounds in hand deserve to be rejected. 10. Ground no. 2 in AY 2011-12. The ground has in its background the addition of Rs. 30,455/- made on substantive basis and protective addition of Rs.11,94,800/- for the amount found the locker of Sh. Tejinder Pal Singh & Smt. Sweta Kaur of Rs.11,44,800/- & Rs. 50,000/- respectively, by the ld. AO in the hands of assessee company. We find that the sworn ITAs No.5064 & 5065/Del/2014 16 statement of Mr. T.P. Singh, J.P. Singh and Mrs. Shweka Kaur is the foundation of addition by the ld. AO. It is noted that Mr. T.P. Singh had allegedly stated during the search, before the beginning of actual search, that there was about Rs.6 lac cash and out of it Rs. 4 lacs roughly belonged to the appellant company and the rest belonged to him and his family members. Mr. J.P. Singh had also stated on oath that he was having approximately Rs. 1.04 lacs of cash in his office brief case which belongs to the company. As he was not having a locker in his cabin, he kept the Company’s cash which was at his disposal, in the brief case kept at his residence. He had also stated that some cash of the company was also held by Mr. T.P. Singh and that the exact amount was not known to him. The relevant answers of Mr. T.P. Singh and Mr. J.P. Singh have been reproduced by the ld. CIT(A). Same establish that the promoters of the appellant company had at the time of search itself explained that the cash found at the residence and in their possession in the brief case etc belonged to the appellant company or represented their family savings. The amount mentioned in the statement is slightly lesser than what was actually found during search. What is material is that ITAs No.5064 & 5065/Del/2014 17 when the promoters of the company had made it clear on the day of search itself that the cash belonged to the company thereafter there is no finding of fact by the ld. AO that the books of accounts did not reflect such cash balance on the day of search. The assessee has duly submitted before the ld. AO, copies of imprest accounts standing in the names of Mr. T.P. Singh and Mr. J.P. Singh in the books of the company and same have been relied by the ld. CIT(A) to delete the addition. There is no error in the findings of ld. CIT(A) that the ld. AO has simply brushed them aside holding it as an after-thought. There is no error in the conclusion of ld. CIT(A), that the amount found in the locker being Rs, 2 lacs also cannot be considered as unexplained cash as it has been submitted that the said amount represented savings of Mr. T.P. Singh and his family. Ld. CIT(A) has noted that Mr. T.P. Singh’s wife was also working in a public sector undertaking. Considering the quantum of the amount found in the locker, we approve the conclusion of ld. CIT(A) to treat it as explained cash when the same could be explained by long years of savings of the family. Therefore, the addition made on account of unexplained cash is rightly deleted. ITAs No.5064 & 5065/Del/2014 18 11. Ground no. 5 in AY 2011-12. Coming to disallowance of bad debts of Rs. 7,85,83,954/- being bad debts written off we find that assessee has written off debts amounting to Rs.7,85,83,954/- appearing in schedule-1 of the P&L A/c filed for the assessment year 2011-12. The AO noted that the work relating this debt was executed during and bills were raised during F.Y. 2009-10. During the subsequent year i.e. F.Y. 2010-11, the assessee has claimed the same as bad debts. When called upon to explain as to why the same has been done and why it should not be disallowed, the assessee has explained that MCD has stopped making payments in respect of bills raised during F.Y. 2008-09. They had approached the MCD Authorities a number of times for making the payment but failed to receive any payment from them. Therefore, on the refusal of the MCD to release the payments the debts were written off. The ld. AO has however rejected the assessee’s claim on the following grounds as mentioned at page 14 of the assessment order:- (a) CWG projects were still in progress in the year of claim of bad debts. (b) There is arbitration mechanism in such cases, which has not been tried, indicating that such works may be of sub standard quality or bill raised but not executed. ITAs No.5064 & 5065/Del/2014 19 (c) Further on perusal of projects agreement it is seen that the assessee company has reversed the entry in respect of invoice number 1432 amounting to Rs. 5,39,67,805/- without even pursuing the matter with the authorities and resorting to the legal recourse. (d) Besides this amount of security deposit of Rs. 2,46,16,149/- with MCD has also been claimed as bad debts, which is a capital loss. The reasons for forfeiture of such security are also not given by the assessee. Why are remedial action has not been taken so far. 12. The ld. AO, therefore, observed that the assessee could not claim bad debts in respect of payments which have not yet become bad and for which legal remedies have not been exhausted. He opined that the appellant was entitled to receive the payment only after completion of the project and fulfillment of the conditions of the contract. He, therefore, held that the appellant has made wrong claim of bad debts and disallowed the same. During the appeal proceedings the AR had submitted that the ld. AO has disallowed the legally allowable claim by whims and surmises and only on doubts ignoring explanation given by the assessee. He explained that post 01.04.1989, in order to claim a deduction of bad debts, the only condition, to be fulfilled, is that the debt should be written off as bad in the accounts of the assessee. He explained that MCD had awarded the CWG contract for erection of electric poles with lights etc. ITAs No.5064 & 5065/Del/2014 20 during the F.Y. 2008-09. Bills for the work done were raised during the period 2009-10 relevant to A.Y. 2010-11. MCD, all of sudden, starting raising several objections and refused to make the payment in respect of outstanding balances. The company followed up the matter with MCD with all sincerity but failed to get positive response from MCD. Several investigating agencies had got involved in the affairs and the chances of recovery were bleak. Therefore, they decided to write off the amount of Rs. 7,85,83,954/-, as otherwise they would have been paying tax on the amount the recovery of which would be very bleak. 13. The ld. AR of the respondent assessee has relied before us the evidences which were also provided to the ld. CIT(A) and same were considered. We find that assessee had provided the list of the evidences like ledger account of Municipal Corporation of Delhi, for the period 01.04.2009 to 31.03.2010, copy of bad debt account showing the amount debited to bad debt amounting to Rs.7,85,83,954/-, copy of reminder letter dated 19.07.2010 to Executive Engineer, MCD, for release of payment, copy of letter dated 28.08.2010 to the Executive Engineer, MCD, conveying displeasure for not remitting the ITAs No.5064 & 5065/Del/2014 21 payment with a threatening to MCD to stop the maintenance of MCD Phase -1 street lightning project if the payment is not made within 10 days, copy of reminder letter dated 02.09.2010 to Chief Engineer, Electricals, MCD, to clear the outstanding bill within 3 working days, copy of letter dated 13.11.2010 to Chief Engineer, Electricals, MCD informing to stop further maintenance if dues are not clear, copy of letter dated 27.11.2010 to Executive Engineer, MCD in response to his letter dated 18.11.2010 informing that all rectification were carried out within the scope of the assessee to ensure smooth passage of common wealth games and Diwali festival and requested to resolve the issue and payment to made, copy of letter dated 17.10.2011 from the MCD to the assessee company which refers to the legal notice dated 29.7.2011 given by the assessee to MCD claiming outstanding Rs. 9,62,53,749/-. MCD stated in the said letter that the amount demanded by the assessee is less than the recoveries pointed out by audit and other investigation agencies. 14. Thus quite apparently the company had made all reasonable efforts to recover the dues, but failed to do so. ITAs No.5064 & 5065/Del/2014 22 Accordingly they wrote off dues outstanding as required u/s 36(1)(vii) of the Act. It is not necessary that only after approaching the court of law and spending money on litigation an assessee can be given benefit of his claim that reasonable efforts for recovery were made. The amounts were due from a statutory body so if there was any denial on the basis of audit objections, then that was sufficient for assessee to assume that the amount is non-recoverable. 15. As regards the ld. AO’s observation that Rs. 2,46,16,149/- represented capital loss the fact is that said amount was security deposit retained by MCD out of the bill amount payable to the assessee. This amount was retained by the MCD while remitting payments, as security towards future warranty etc. By no stretch of imagination such amount could be treated as capital in nature. It is the portion of the trade receipts retained out of bill payment. We find that before the ld. CIT(A), the ld. AR submitted copies of the relevant ledger accounts and submitted that the security deposits of Rs. 2.64 crores written off as bad debt represented amount retained by MCD while releasing the payments on the bills raised by the appellant. He explained that as per the terms of the contract, MCD used to ITAs No.5064 & 5065/Del/2014 23 retain 10% of the bill amount as performance guarantee/warranty etc. out of the amount being released. He drew attention to the copy of reply received from executive engineer/Electricals dated 17.10.2011 to show that the amount lying with MCD has been withheld and they were not ready to release them till certain investigations are completed and the financial loss/likely recoveries are duly determined. In the said letter it has also been mentioned that the likely recoveries are much more than the amount being retained. He has explained that the appellant had offered to tax entire bill amount including 10% component retained by MCD as towards performance guarantee. Since the said amount is not recoverable, the assessee has taken conscious decision to write it off in its account. Having done so he was eligible for claiming deduction u/s 36(l)(vii). 16. In this context we find that ld. CIT(A) has relied the documents submitted before the ld. AO vide letter dated 15.03.2013 which show that there is an opening balance of Rs. 1,55,64,973/- as on 01.04.2009 in the security deposit account (MCD). To it Rs. 33,72,664/- has been added on ITAs No.5064 & 5065/Del/2014 24 15.07.2009 by voucher no. 184 in the ledger account of MCD in the books of the appellant which is also part of the submissions made before the AO. The voucher no. 184 is amount credited to MCD of Rs. 3,37,26,643/- on 15.07.2009 being total bill amount. The AR has explained that the amount added to security deposit (MCD account) on 15.07.2009 represented 10% of the said Rs. 3,37,26,643/-. He also drew attention to the .bank account copy wherein the actual amount received on 15.07.2009 in HDFC bank account is actually Rs.2,85,46,232/- being net of TDS, WCT and labour cess. Similar is the next entry for Rs. 56,78,512/- in security deposit (MCD) dated 01.09.2009. Thus there is no error in the findings of ld. CIT(A) that assessee is only required to show that he has written off the bad debts in his books of accounts. The judicial pronouncements are uniform in this regard that it is the reasonable decision of the assessee which is relevant in examining whether a particular debt has become bad or not. In the present case it is an undisputed fact that due to allegations of the loss and mismanagement in the contracts awarded in connection with Commonwealth Games 2010, several government agencies were investigating the affairs. Because of ITAs No.5064 & 5065/Del/2014 25 this, MCD had refused to release the payments. Therefore, it would unreasonable to argue that the amount lying with MCD had not become bad merely because the appellant had not yet exhausted the legal remedies. Considering all these factors the deduction for bad debts written off claimed by the appellant is rightly allowed by the ld. CIT(A). The ground has no substance. 17. On the basis of aforesaid discussion we are of considered view that the grounds raised have no substance. The appeals of revenue are dismissed. Order pronounced in the open court on 19.03.2025. Sd/- Sd/- (MANISH AGARWAL) (ANUBHAV SHARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 19th March, 2025. dk Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asstt. Registrar, ITAT, New Delhi "