Bad debt write-off and unsupported receipt additions: estimated disallowance reduced where evidence was produced.

Bad debt claims were treated as allowable once the debts were actually written off in the books and supported by invoices, ledger extracts and journal entries, with further proof of irrecoverability not required after statutory conditions were met. An addition for alleged unaccounted receipts was deleted because the assessee had substantially reconciled the material and the amount was not established through proper enquiry or supporting evidence. An ad hoc expense disallowance based only on estimate was curtailed where vouchers, bills and ledger details were produced, leaving only a limited disallowance as reasonable.

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Issues: (i) Whether the disallowance of bad debts written off was sustainable; (ii) Whether the addition made on account of alleged unaccounted receipts could be sustained; (iii) Whether the ad hoc disallowance out of various expenses was justified.

Issue (i): Whether the disallowance of bad debts written off was sustainable.

Analysis: The assessee had written off the debts in its books and furnished invoices, ledger extracts and journal entries to connect the write-off with the relevant transactions. Once the debts were actually written off as irrecoverable, the claim was required to be examined under section 36(1)(vii) along with section 36(2) of the Income-tax Act, 1961. The finding of the lower authorities that the debts were not correlated to earlier income was found to be incorrect on the material placed on record. The claim was also covered by the principle that, after write-off in the books, further proof of irrecoverability is not necessary.

Conclusion: The disallowance of bad debts was deleted and the claim was allowed in favour of the assessee.

Issue (ii): Whether the addition made on account of alleged unaccounted receipts could be sustained.

Analysis: The addition was made only because a small part of the receipts reflected in departmental information could not be reconciled by the assessee. The relevant material showed that the assessee had substantially reconciled the entries and had not been shown to have earned the disputed amount. In such a situation, an addition based merely on third-party information, without proper enquiry from the concerned parties, could not be sustained.

Conclusion: The addition on account of alleged unaccounted receipts was deleted and the issue was decided in favour of the assessee.

Issue (iii): Whether the ad hoc disallowance out of various expenses was justified.

Analysis: The disallowance made by the lower authorities was purely on estimate and was not supported by any concrete defect in the expenditure claims. Sample vouchers, bills and ledger details were produced, and the estimated disallowance was considered excessive. On the facts, only a limited disallowance was considered reasonable.

Conclusion: The disallowance was restricted to a smaller amount, and the assessee succeeded partly on this issue.

Final Conclusion: The assessee obtained relief on all three grounds, with full relief on the first two issues and partial relief on the third, resulting in a partly allowed appeal.

Ratio Decidendi: A bad debt claim is allowable once the debt is written off in the books in accordance with the statutory conditions, and a merely estimated or information-based addition cannot be sustained without proper enquiry and supporting material.

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