MODI HOME PRODUCTS LIMITED,MUMBAI V. INCOME TAX OFFICER, MUMBAI

ITA 5315/MUM/2025

AI Insights

Modi Home Products Limited appealed against the order of the Commissioner of Income-tax (Appeals) which had partly confirmed the additions made by the Assessing Officer during the assessment for the year 2014-15. The main issues in the appeal were the disallowance of bad debts and the ad-hoc disallowance of various expenses. The Tribunal examined the legal provisions under the Income-tax Act, particularly sections 36(1)(vii) and 36(2), which govern the deduction of bad debts and the conditions under which such deductions are permissible. The Tribunal upheld the disallowance of bad debts as the assessee failed to prove that the amount was a 'debt' taken into account in any taxable income computation, while it rejected the ad-hoc disallowances on expenses due to lack of specific evidence of inflation or non-business expenditure.

• Counselvise Citation: [2026] 140 COUNSELVISE.COM (IT) 831967 (ITAT-MUMBAI)
• Duration Of Justice: 4 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-01-2026
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: misc
• Appeal Filed On: 27-08-2025
• Other Referred Cases: TRF Ltd. v. CIT, Walchand & Co. Pvt. Ltd.
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: LEYAQAT ALI AAFAQUI
• Assessee Lawyers: ANIL KUMAR JAIN VIRTUALLY
• Keywords: Set aside; Business expenditure; Bad and doubtful debts; Corroborative evidences
• Section: 143(3)

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “B” MUMBAI BEFORE SHRI OM PRAKASH KANT (ACCOUNTANT MEMBER) AND MS KAVITHA RAJAGOPAL (JUDICIAL MEMBER) ITA No. 5315/MUM/2025 Assessment Year: 2014-15 Modi Home Products Limited Second Floor, Akash Ganga, 89, Bhulabhai Desai Road, Mumbai- 400026 Vs. Income Tax Officer, Ward 5(2)(3), Mumbai- 400020 PAN NO. AAACM 4151 D Appellant Respondent Assessee by : Mr. Anil Kumar Jain (Virtually Present) Revenue by : Mr. Leyaqat Ali Aafaqui, SR. AR Date of Hearing : 09/12/2025 Date of pronouncement : 19/01/2026 ORDER PER OM PRAKASH KANT, AM This appeal by the assessee is directed against order dated 09.07.2025 passed by the Ld. Commissioner of Income-tax (Appeals)-National Faceless Appeal Centre- Delhi [in short ‘the Ld.CIT’] for assessment year 2014-15, raising following grounds:- “The Ld CIT(A) has erred in partly confirming the additions made in the assessment order passed by the Ld Ld.AO. 2. The Ld. CIT(A) has erred in confirming the disallowance of Rs 617138 on account of bad debts debited in profit and loss account, on adhoc/estimate basis. Printed from counselvise.com 3 The Ld CIT(A) has erred in confirming the disallowance of va expenses amounting to Rs. 14,24,452 debited in profit and loss account, on adhoc/estimate basis. 4. The order of Ld CIT is against law, facts and circumstances of the case. 5. The appellant craves leave to add, alter, amend, modify or delete all or any of the Grounds of appeal on or before the date of hearing of appeal.” 2. Briefly stated, the assessee filed its return of income for the year under consideration on 29.11.2014 declaring return was selected for scrutiny and statutory notices under the Income-tax Act, 1961 (hereinafter “the Act”) were duly issued and complied with. The assessment was completed under section 143(3) of the Act on 26.12.2016, wherein the Assessing various addition/disallowances , disallowances: (i) bad debt written off amounting to and (ii) ad-hoc disallowance of various expenses aggregating to ₹14,24,482/-. On appeal, the learned Commissioner of granted partial relief but sustained the disallowance of the bad debt written off as well as the ad Aggrieved, the assessee is in appeal before the Tribunal by way of raising grounds 3. Before us the ld. counsel for the assessee containing pages 1-116 3 The Ld CIT(A) has erred in confirming the disallowance of va expenses amounting to Rs. 14,24,452 debited in profit and loss account, on adhoc/estimate basis. 4. The order of Ld CIT is against law, facts and circumstances of the 5. The appellant craves leave to add, alter, amend, modify or delete any of the Grounds of appeal on or before the date of hearing Briefly stated, the assessee filed its return of income for the year under consideration on 29.11.2014 declaring return was selected for scrutiny and statutory notices under the tax Act, 1961 (hereinafter “the Act”) were duly issued and complied with. The assessment was completed under section 143(3) of the Act on 26.12.2016, wherein the Assessing various addition/disallowances , inter-alia, the following disallowances: (i) bad debt written off amounting to hoc disallowance of various expenses aggregating to On appeal, the learned Commissioner of Income granted partial relief but sustained the disallowance of the bad debt written off as well as the ad-hoc disallowance of expenses. the assessee is in appeal before the Income ribunal by way of raising grounds as reproduced above Before us the ld. counsel for the assessee filed 116. Modi Home Products Limited 2 ITA No. 5315/MUM/2025 3 The Ld CIT(A) has erred in confirming the disallowance of various expenses amounting to Rs. 14,24,452 debited in profit and loss 4. The order of Ld CIT is against law, facts and circumstances of the 5. The appellant craves leave to add, alter, amend, modify or delete any of the Grounds of appeal on or before the date of hearing Briefly stated, the assessee filed its return of income for the year under consideration on 29.11.2014 declaring nil income. The return was selected for scrutiny and statutory notices under the tax Act, 1961 (hereinafter “the Act”) were duly issued and complied with. The assessment was completed under section 143(3) of the Act on 26.12.2016, wherein the Assessing Officer made , the following disallowances: (i) bad debt written off amounting to ₹6,17,138/-, hoc disallowance of various expenses aggregating to Income-tax (Appeals) granted partial relief but sustained the disallowance of the bad debt hoc disallowance of expenses. Income-tax Appellate above: filed a paper book Printed from counselvise.com 4. We have heard rival submission of the parties and perused the relevant material available on record. 4.1 Ground No. 1 of the appeal of the nature and the same is dismissed as 4.2 In ground No. 2 the assessee is aggrieved against the confirming of disallowances of Rs. 61,17,138/ bad debt written off. stated to be a security deposit allegedly paid in March 1994 to the Customs Department through M/s Balaji Shivram, Clearing Agents, Mumbai, for import of moulds, which was stated to have not been refunded. The assessee wrote off the said amount bad debt. The Assessing Officer disallowed the claim on the ground that the assessee failed to establish that the amount constituted a “debt” which had been taken into account in computing taxable income in any year, as mandated by secti section 36(2) of the Act. 4.3 Before Ld. CIT(A) the assessee argued that the under provision u/s 36(1)(vii) effective after 01.04.1989, it was sufficient to the write off of debt as unrecovered in the books of account following the decision of Hon’ble Supreme Court in TRF ltd. 937 SC. Commissioner of Income report, concurred with the Assessing Officer, noting that the We have heard rival submission of the parties and perused the relevant material available on record. Ground No. 1 of the appeal of the assessee being nature and the same is dismissed as infructuous. In ground No. 2 the assessee is aggrieved against the confirming of disallowances of Rs. 61,17,138/- on account of the off. The assessee’s claim pertains t stated to be a security deposit allegedly paid in March 1994 to the Customs Department through M/s Balaji Shivram, Clearing Agents, Mumbai, for import of moulds, which was stated to have not been refunded. The assessee wrote off the said amount and claimed it as The Assessing Officer disallowed the claim on the ground that the assessee failed to establish that the amount constituted a “debt” which had been taken into account in computing taxable income in any year, as mandated by section 36(1)(vii) read with section 36(2) of the Act. Before Ld. CIT(A) the assessee argued that the under provision u/s 36(1)(vii) effective after 01.04.1989, it was sufficient to the write off of debt as unrecovered in the books of account following the decision of Hon’ble Supreme Court in TRF ltd. 937 SC. Commissioner of Income-tax (Appeals), after calling for a remand report, concurred with the Assessing Officer, noting that the Modi Home Products Limited 3 ITA No. 5315/MUM/2025 We have heard rival submission of the parties and perused the assessee being is general in In ground No. 2 the assessee is aggrieved against the on account of the The assessee’s claim pertains to an amount stated to be a security deposit allegedly paid in March 1994 to the Customs Department through M/s Balaji Shivram, Clearing Agents, Mumbai, for import of moulds, which was stated to have not been and claimed it as The Assessing Officer disallowed the claim on the ground that the assessee failed to establish that the amount constituted a “debt” which had been taken into account in computing taxable on 36(1)(vii) read with Before Ld. CIT(A) the assessee argued that the under provision u/s 36(1)(vii) effective after 01.04.1989, it was sufficient to the write off of debt as unrecovered in the books of account following the decision of Hon’ble Supreme Court in TRF ltd. 937 SC. The learned tax (Appeals), after calling for a remand report, concurred with the Assessing Officer, noting that the Printed from counselvise.com assessee failed to produce any acknowledgements or recei establishing either the nature of the payment as a recoverable debt or its inclusion in taxable income in any year. 4.4 Before us ld. counsel for the assessee referred to the paper book pages 26 to 29. The paper book page 26 shows that the assessee has paid Rs. 37,705 being consignment of 300 Aqua master also reflected the same entry paid to custom authorities. The paper book page 28 also reflected the similar entry of Rs. 5,79,433/ authorities and paper book page No. 29 show amount with custom authorities as written 4.5 Under the provisions debt written off as deduction have been taken as part of income the earlier years. The ledger extracts in the paper book indicating payments purportedly made to clearing agents and Customs authorities by themselves, neither establish the payment as a security deposit with the Customs Department nor demonstrate that the amount represented a debt arising in the course of business which had been offe assessee failed to produce any documentary evidence, acknowledgements or receipts from the Customs Department, establishing either the nature of the payment as a recoverable debt or its inclusion in taxable income in any year. Before us ld. counsel for the assessee referred to the paper 29. The paper book page 26 shows that the assessee has paid Rs. 37,705/- to Babaji Shivram Clearing Agents being consignment of 300 Aqua master. The paper book page 27 also reflected the same entry of Rs. 37,705 claiming to custom authorities. The paper book page 28 also reflected entry of Rs. 5,79,433/- claiming to be amount of custom authorities and paper book page No. 29 show amount with custom written off . provisions of section 36(1)(vii) for claiming of bad as deduction, firstly, the amount of debt should as part of income either in the current year or in The ledger extracts in the paper book indicating portedly made to clearing agents and Customs authorities by themselves, neither establish the payment as a security deposit with the Customs Department nor demonstrate that the amount represented a debt arising in the course of business which had been offered to tax in any earlier year. Modi Home Products Limited 4 ITA No. 5315/MUM/2025 documentary evidence, such as pts from the Customs Department, establishing either the nature of the payment as a recoverable debt Before us ld. counsel for the assessee referred to the paper 29. The paper book page 26 shows that the to Babaji Shivram Clearing Agents The paper book page 27 of Rs. 37,705 claiming to be amount custom authorities. The paper book page 28 also reflected amount of custom authorities and paper book page No. 29 show amount with custom of section 36(1)(vii) for claiming of bad the amount of debt should either in the current year or in The ledger extracts in the paper book indicating portedly made to clearing agents and Customs authorities by themselves, neither establish the payment as a security deposit with the Customs Department nor demonstrate that the amount represented a debt arising in the course of red to tax in any earlier year. Printed from counselvise.com 4.6 The assessee has squarely fail assessee had paid said custom authorities as receipt issued by custom auth said amount was taken into account for income of the current earlier years, same written off u/s 36(1)(vii) of the Act. 4.7 Section 36(1)(vii) of the Act permits written off as irrecoverable in the accounts of the assessee for the previous year. However, section 36(2) expressly conditions such deduction on the requirement that the debt must have been taken into account in computing the income previous year or of an earlier previous year, or must represent money lent in the ordinary course of business of money 4.8 The Hon’ble Supreme Court in 397 (SC)] clarified that post 01.04.19 debt is written off as irrecoverable in the accounts; however, this principle operates subject to the fulfilment of the conditions of section 36(2). Thus, the requirement that the debt should have been taken into account in mandatory. 4.9 In the present case, the assessee has failed to establish that the alleged security deposit constituted a “debt” within the meaning The assessee has squarely failed to explain that actually the said amount as a security deposit with the as no evidence in support thereof including receipt issued by custom authorities has been filed. Further, u said amount was taken into account for income of the current cannot be allowed as deduction as bad debt u/s 36(1)(vii) of the Act. Section 36(1)(vii) of the Act permits deduction of bad debts written off as irrecoverable in the accounts of the assessee for the previous year. However, section 36(2) expressly conditions such deduction on the requirement that the debt must have been taken into account in computing the income of the assessee of that previous year or of an earlier previous year, or must represent money lent in the ordinary course of business of money The Hon’ble Supreme Court in TRF Ltd. v. CIT 397 (SC)] clarified that post 01.04.1989, it is sufficient if the bad debt is written off as irrecoverable in the accounts; however, this principle operates subject to the fulfilment of the conditions of section 36(2). Thus, the requirement that the debt should have been taken into account in computing taxable income remains In the present case, the assessee has failed to establish that the alleged security deposit constituted a “debt” within the meaning Modi Home Products Limited 5 ITA No. 5315/MUM/2025 that actually the a security deposit with the no evidence in support thereof including any . Further, unless said amount was taken into account for income of the current or deduction as bad debt deduction of bad debts written off as irrecoverable in the accounts of the assessee for the previous year. However, section 36(2) expressly conditions such deduction on the requirement that the debt must have been taken of the assessee of that previous year or of an earlier previous year, or must represent money lent in the ordinary course of business of money-lending. [(2010) 323 ITR 89, it is sufficient if the bad debt is written off as irrecoverable in the accounts; however, this principle operates subject to the fulfilment of the conditions of section 36(2). Thus, the requirement that the debt should have been computing taxable income remains In the present case, the assessee has failed to establish that the alleged security deposit constituted a “debt” within the meaning Printed from counselvise.com of section 36(1)(vii), or that it was ever considered as income in any year. In the absence of such foundational facts, the claim cannot be sustained as a bad debt. While, in a given case, a non deposit may be eligible for consideration as a business loss under section 28, such a claim would also require proof that the expenditure or loss was incurred wholly and exclusively for the purposes of business 4.10 Accordingly, we find no infirmity in the concurrent findings of the authorities below on this issue. The disallowance of is sustained. 4.11 The ground No. 2 of the appeal of the assessee is accordingly dismissed. 5. In ground No 3 the assessee is aggrieved with the confirming the disallowances of Rs. 14,24,452/ Assessing Officer noticed an increase in certain heads of expenditure vis-à-vis the immediately preceding year and sought explanations. The assessee furnished explanations supported by bills and vouchers, attributing the increase to business requirements such as additional of office staff, increased vehicle usage for official purposes, and other operational needs. Despite this, the Assessing Officer made an ad-hoc disallowance on the premise that comprehensive documentation and third of section 36(1)(vii), or that it was ever considered as income in any In the absence of such foundational facts, the claim cannot be sustained as a bad debt. While, in a given case, a non deposit may be eligible for consideration as a business loss under section 28, such a claim would also require proof that the expenditure or loss was incurred wholly and exclusively for the business proof which is conspicuously absent here. Accordingly, we find no infirmity in the concurrent findings of the authorities below on this issue. The disallowance of The ground No. 2 of the appeal of the assessee is accordingly In ground No 3 the assessee is aggrieved with the confirming the disallowances of Rs. 14,24,452/- against various expenses noticed an increase in certain heads of vis the immediately preceding year and sought explanations. The assessee furnished explanations supported by bills and vouchers, attributing the increase to business requirements such as additional promotional material, engagement of office staff, increased vehicle usage for official purposes, and other operational needs. Despite this, the Assessing Officer made an hoc disallowance on the premise that comprehensive documentation and third-party confirmations were not furnished. Modi Home Products Limited 6 ITA No. 5315/MUM/2025 of section 36(1)(vii), or that it was ever considered as income in any In the absence of such foundational facts, the claim cannot be sustained as a bad debt. While, in a given case, a non-recoverable deposit may be eligible for consideration as a business loss under section 28, such a claim would also require proof that the expenditure or loss was incurred wholly and exclusively for the proof which is conspicuously absent here. Accordingly, we find no infirmity in the concurrent findings of the authorities below on this issue. The disallowance of ₹6,17,138/- The ground No. 2 of the appeal of the assessee is accordingly In ground No 3 the assessee is aggrieved with the confirming against various expenses. The noticed an increase in certain heads of vis the immediately preceding year and sought explanations. The assessee furnished explanations supported by bills and vouchers, attributing the increase to business promotional material, engagement of office staff, increased vehicle usage for official purposes, and other operational needs. Despite this, the Assessing Officer made an hoc disallowance on the premise that comprehensive nfirmations were not furnished. Printed from counselvise.com 5.1` The learned Commissioner of Income acknowledging the settled principle that ad impermissible—as laid down by the Hon’ble Supreme Court in v. Walchand & Co. Pvt. Ltd. upheld the disallowance on the ground that the assessee had not fully substantiated the claims. 5.2 We are unable to concur with the approach of the learned Commissioner of Income Officer has not pointed out any specific defect, discrepancy, or non genuineness in the vouchers or bills produced by the assessee. The disallowance has been made purely on an estimated and ad basis. It is well settled that where books of account are and no specific instance of inflation or non identified, ad-hoc disallowances cannot be sustained. Suspicion, however strong, cannot substitute proof. 5.3 In the absence of any concrete finding of defect or falsity in supporting evidence, the impugned disallowance is unsustainable. We, therefore, set aside the findings of the learned Commissioner of Income-tax (Appeals) on this issue and direct deletion of the ad disallowance of ₹14,24,482/ 5.4 The ground No. allowed. The learned Commissioner of Income-tax (Appeals), while acknowledging the settled principle that ad-hoc disallowances are as laid down by the Hon’ble Supreme Court in v. Walchand & Co. Pvt. Ltd. [(1967) 65 ITR 381 (SC)] upheld the disallowance on the ground that the assessee had not fully substantiated the claims. We are unable to concur with the approach of the learned Commissioner of Income-tax (Appeals) on this issue. The Assessin Officer has not pointed out any specific defect, discrepancy, or non genuineness in the vouchers or bills produced by the assessee. The disallowance has been made purely on an estimated and ad basis. It is well settled that where books of account are and no specific instance of inflation or non-business expenditure is hoc disallowances cannot be sustained. Suspicion, however strong, cannot substitute proof. In the absence of any concrete finding of defect or falsity in supporting evidence, the impugned disallowance is unsustainable. We, therefore, set aside the findings of the learned Commissioner of tax (Appeals) on this issue and direct deletion of the ad 14,24,482/-. The ground No. 3 of the appeal of the assessee is accordingly Modi Home Products Limited 7 ITA No. 5315/MUM/2025 tax (Appeals), while hoc disallowances are as laid down by the Hon’ble Supreme Court in CIT 7) 65 ITR 381 (SC)]—nevertheless upheld the disallowance on the ground that the assessee had not We are unable to concur with the approach of the learned tax (Appeals) on this issue. The Assessing Officer has not pointed out any specific defect, discrepancy, or non- genuineness in the vouchers or bills produced by the assessee. The disallowance has been made purely on an estimated and ad-hoc basis. It is well settled that where books of account are not rejected business expenditure is hoc disallowances cannot be sustained. Suspicion, In the absence of any concrete finding of defect or falsity in the supporting evidence, the impugned disallowance is unsustainable. We, therefore, set aside the findings of the learned Commissioner of tax (Appeals) on this issue and direct deletion of the ad-hoc 3 of the appeal of the assessee is accordingly Printed from counselvise.com 6. The ground No. 4 and 5 the same are not required dismissing as infructuous 7. In the result, appeal of the assessee is Order pronounced in the open Court on Sd/- (KAVITHA RAJAGOPAL JUDICIAL MEMBER Mumbai; Dated: 19/01/2026 Disha Raut, Stenographer Copy of the Order forwarded to 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. //True Copy// The ground No. 4 and 5 are general in nature and therefore the same are not required be adjudicating upon and, therefore, infructuous. appeal of the assessee is partly allowed. nounced in the open Court on 19/0 Sd/ KAVITHA RAJAGOPAL) (OM PRAKASH KANT JUDICIAL MEMBER ACCOUNTANT MEMBER forwarded to : BY ORDER, (Assistant Registrar) ITAT, Mumbai Modi Home Products Limited 8 ITA No. 5315/MUM/2025 are general in nature and therefore be adjudicating upon and, therefore, allowed. /01/2026. Sd/- OM PRAKASH KANT) ACCOUNTANT MEMBER BY ORDER, (Assistant Registrar) ITAT, Mumbai Printed from counselvise.com "