Revenue's appeal dismissed as bad debts write-off allowed and excess material consumption deletion upheld

ITAT Delhi dismissed revenue's appeal on two grounds. Regarding bad debts write-off disallowance, the tribunal upheld CIT(A)'s deletion of addition, finding that AO mechanically copy-pasted previous year's order without proper application of mind. On excess material consumption disallowance, CIT(A) correctly deleted addition after examining evidence including invoices, TDS details, stock valuation, and police complaints regarding material theft. The tribunal found CIT(A)'s factual findings regarding material degradation and consumption plausible, confirming no interference warranted with lower authority's decision.

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Issues Involved:
1. Deletion of addition under section 36(1)(vii) of the Income Tax Act, 1961.
2. Deletion of addition on account of bad debts written off.
3. Deletion of addition by ignoring the procedure prescribed by the Supreme Court in the case of TRF Ltd. vs. CIT.
4. Deletion of addition on account of excess material consumed.
5. Admission of additional evidence under Rule 46A of the Income Tax Rules, 1962.

Summary:

Issue 1: Deletion of addition under section 36(1)(vii)
The Revenue challenged the deletion of Rs. 1,41,59,848/- made by the Assessing Officer (AO) under section 36(1)(vii) of the Income Tax Act, 1961. The AO had copied the disallowance from the previous year's assessment order without examining the current year's specifics. The CIT(A) found that the disallowance was a result of a "cut & paste job" and that the bad debts written off were supported by evidence. The Tribunal upheld the CIT(A)'s decision, finding no error or infirmity.

Issue 2: Deletion of addition on account of bad debts written off
The Revenue contended that the assessee failed to prove that the bad debts were written off in the accounts. The CIT(A) allowed the bad debts written off, citing the CBDT Circular No. 12/2018 and the Supreme Court ruling in TRF Ltd. vs. CIT, which clarified that it is sufficient if the bad debt is written off in the books of accounts. The Tribunal agreed with the CIT(A) and dismissed the Revenue's grounds.

Issue 3: Deletion of addition by ignoring the procedure prescribed by the Supreme Court in the case of TRF Ltd. vs. CIT
The Revenue argued that the CIT(A) ignored the Supreme Court's procedure for writing off bad debts. The CIT(A) referred to the Supreme Court's decision in TRF Ltd. vs. CIT, which states that post-1.4.1989, it is not necessary for the assessee to establish that the debt has become irrecoverable. The Tribunal found no merit in the Revenue's argument and dismissed the grounds.

Issue 4: Deletion of addition on account of excess material consumed
The AO had made an addition of Rs. 1,88,54,804/- due to excess material consumption, claiming the assessee did not substantiate its claim with bank statements and item-wise stock details. The CIT(A) found that the assessee had provided necessary documents, including invoices, Form 26AS, and evidence of material degradation and theft. The Tribunal upheld the CIT(A)'s findings, seeing no reason to interfere.

Issue 5: Admission of additional evidence under Rule 46A
The Revenue claimed that the CIT(A) admitted additional evidence without providing an opportunity for the AO to be heard. However, the Tribunal noted that the Departmental Representative did not point out any specific additional evidence considered by the CIT(A). Consequently, the Tribunal dismissed this ground.

Conclusion:
The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s order on all grounds. The decision emphasized the necessity for the AO to apply due diligence and consider the specific details of the assessment year in question.

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