ITAT Bangalore Restores Bad Debt Claim: Write-Off Alone Sufficient After TRF Ltd.; AO to Verify Only Section 36(2) Conditions
Case Overview
Case Name: Craft Int Decor Private Limited Vs DCIT
Forum: Income Tax Appellate Tribunal, Bangalore
ITA Numbers: ITA Nos. 139 & 140/Bang/2026
Order Date: 15.07.2026
Assessment Year: 2017-18
The Bangalore Bench of the Income Tax Appellate Tribunal delivered a significant ruling in the matter of Craft Int Decor Pvt. Ltd., reaffirming the well-established legal position under Section 36(1)(vii) of the Income Tax Act, 1961 that after 1 April 1989, an assessee is not obligated to prove that a debt has actually become irrecoverable. The Tribunal, relying on the Supreme Court's landmark decision in TRF Ltd. v. CIT, (2010) 190 Taxman 391 (SC), held that a mere write-off of the bad debt in the books of accounts is sufficient, and the Assessing Officer's scope of inquiry is restricted solely to examining whether the conditions prescribed under Section 36(2) of the Act have been satisfied.
The Tribunal was dealing with two separate appeals — one concerning the quantum of additions (ITA No. 140/Bang/2026) and the other relating to penalty under Section 270A of the Act (ITA No. 139/Bang/2026) — both pertaining to Assessment Year 2017-18.
Background of the Case
The assessee, Craft Int Decor Private Limited, is engaged in the business of interior decoration and designing. For Assessment Year 2017-18, it filed its return of income on 30.11.2016 declaring a total income of Rs. 69,94,702/-. The return was selected for scrutiny under CASS, following which statutory notices under Section 143(2) and Section 142(1) of the Income Tax Act, 1961 were duly issued and served.
During the course of assessment proceedings, the Assessing Officer examined the financial statements and return of income filed by the assessee and noted three primary areas of concern:
- A sum of Rs. 14,46,007/- debited as bad debt in the profit and loss account
- Amounts aggregating Rs. 1,48,445/- debited on account of interest on TDS (Rs. 31,194/-), interest on VAT (Rs. 38,251/-), and donations (Rs. 79,000/-)
- A further amount of Rs. 4,44,734/- also brought into question
Issue 1: Condonation of Delay of 408 Days
Before proceeding to the merits, the Tribunal was required to address a significant procedural hurdle — the appeal in ITA No. 140/Bang/2026 was filed with a delay of 408 days beyond the prescribed limitation period.
Director's Affidavit and Medical Grounds
The Director of the assessee company filed an affidavit attributing the delay to compelling health circumstances. The key submissions in the affidavit were:
- The Director is approximately 70 years of age and had undergone Coronary Artery Bypass Grafting (CABG) surgery in 2012, following which he has remained under continuous medical supervision and medication.
- In December 2024, the Director was advised strict bed rest by his physician owing to severe low back pain.
- These health conditions rendered it impossible for the Director to attend to statutory and official matters within the prescribed time.
- The delay was neither intentional nor deliberate and was caused entirely due to unavoidable medical circumstances.
Tribunal's Findings on Delay Condonation
The Tribunal acknowledged the Director's medical condition as constituting sufficient cause within the meaning of applicable law. It held that in matters of delay condonation, substantial justice must be preferred over technical considerations.
However, the Tribunal noted an important factual gap — the assessee company had other directors on its board, and no satisfactory explanation was furnished as to why none of the other directors could have taken steps to file the appeal within the prescribed time. The Tribunal found this omission difficult to overlook.
Balancing these considerations, the Tribunal condoned the delay subject to a cost of Rs. 5,000/-, directing the assessee to deposit this amount to the Prime Minister's National Relief Fund within 30 days from the date of receipt of the order.