CIT-I, LUDHIANA vs. M/S BATA STEELS PVT. LTD.

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ITA/474/2010HC Punjab & HaryanaPHHC01093411201001 November 2010Author: MR. JUSTICE ADARSH KUMAR GOEL,MR JUSTICE RAKESH KUMAR JAIN3 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that no substantial question of law arises. It noted that it is not disputed, in view of the Supreme Court judgment in T.R.F. Ltd. v. CIT [2010] 323 ITR 397, that an assessee is not required to establish that a debt had already become irrecoverable. If the assessee takes a bonafide decision that writing off bad debts was necessary, it may be justified. For the levy of penalty under Section 271(1)(c), it must be shown that the assessee made a concealment or gave wrong information to evade tax. In view of the concurrent findings of the CIT(Appeals) and the Tribunal that there was no intention to evade tax, the High Court was unable to hold that any substantial question of law arose. Therefore, the appeal was dismissed.

What were the facts?

The Revenue, Commissioner of Income Tax, appealed to the High Court under Section 260-A of the Income Tax Act, 1961, against an order of the Income Tax Appellate Tribunal (ITAT). The ITAT had deleted a penalty of Rs. 5,79,673 imposed under Section 271(1)(c) of the Act for the assessment year 2005-06. The Assessing Officer (AO) had disallowed the assessee's claim for writing off bad debts, stating that the assessee could not furnish justification. Consequently, the AO imposed a penalty. The CIT(Appeals) set aside the penalty, finding that the writing off of bad debt was not to evade tax and that full particulars were disclosed. The ITAT affirmed this finding.

What were the issues?

1. Whether on the facts and circumstances of the case, the Hon’ble ITAT is justified in law in deleting the penalty imposed u/s 271(1)(c) of the Income Tax Act, 1961, amounting to Rs. 5,79,673, ignoring the fact that the assessee had furnished inaccurate particulars of its income and had failed to substantiate its claim of bad debts written off? Assessee's contentions: The assessee argued that the claim for writing off bad debts was made in terms of Section 36(1)(vii) of the Act. Reliance was placed on the Special Bench of the Tribunal in the case of Oman International Bank, which held that it is sufficient if the assessee writes off the debt as irrecoverable in its books of account, and the requirement to prove the debt had become bad to the hilt was done away with by amended provisions w.e.f. 01.04.1989. This decision was affirmed by the Bombay High Court in 223 CTR 382 (Bom). The assessee contended that its claim could not be termed patently erroneous or made in ignorance of law, and no falsity was found during assessment proceedings. The disallowance was based on the AO's view, and the claim was made with bonafides. Revenue's contentions: The revenue contended that the assessee had furnished inaccurate particulars of its income and failed to substantiate its claim of bad debts written off, justifying the penalty under Section 271(1)(c).

Which sections of the Income-tax Act were involved?

Section 260-A,Section 271(1)(c),Section 36(1)(vii)

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH.

Date of decision: 1.11.2010 Commissioner of Income Tax. -----Appellant. Vs. M/s Bata Steels Pvt. Ltd. -----Respondent CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOEL HON'BLE MR. JUSTICE RAKESH KUMAR JAIN Present:- Mr. Rajesh Katoch, Advocate for the appellant. --- ADARSH KUMAR GOEL, J.

1.

This appeal has been preferred by the revenue under Section 260-A of the Income Tax Act, 1961 (for short, “the Act”) against the order dated 9.9.2009 of the Income Tax Appellate Tribunal, Chandigarh in I.T.A. No.465/CHANDI/2009 for the assessment year 2005-06 proposing to raise following substantial questions of law:- “Whether on the facts and circumstances of the case, the Hon’ble ITAT is justified in law in deleting the penalty imposed u/s 271(1)(c) of the Income Tax Act, 1961 amounting to Rs.5,79,673/- ignoring the fact that the assessee had furnished inaccurate particulars of its income and had failed to substantiate its claim of bad debts written off.?

2.

The Assessing Officer made addition to the declared income of the assessee by not accepting the entry of writing off of bad debts. It was observed that the assessee could not furnish justification for writing off the bad debts. Apart from the addition on that account, the penalty was also imposed. On appeal, the penalty was set aside with the observations that writing off of bad debt was not to evade tax. Full particulars of the bad debts were disclosed by the assessee. The said finding has been affirmed by the Tribunal. It was observed:- “9......... It is a case where a claim made by the assessee has been rejected and we may further say that the claim made by the assessee cannot be termed as patently erroneous or in complete ignorance of the relevant provisions of law. The assessee had made a claim in terms of Section 36(1) (vii) and this Section, as understood by the Special Bench of the Tribunal in the case of Oman International Bank (supra), provides that in order to claim deduction, it would be sufficient if assessee chooses to write off the date as irrecoverable in the book of account. It is further observed by the Special Bench that the requirement of proving the debt having become bad to the hilt, has been done away by the amended provisions of Section 36(1)(vii) w.e.f. 01.04.1989. Notably, the said decision of the Tribunal stands affirmed by the Hon’ble Bombay High Court in the case reported at 223 CTR 382 (Bom). Therefore, testing the claim of the assessee on the anvil of such position of law, in so far as it is relevant for our present purpose, it is safe to deduce that the claim of the assessee cannot be said to be patently erroneous in the eyes of law. In fact, no falsity in claim of the assessee has been found even during the assessment proceedings. The disallowance is based on a mere view adopted by the Assessing Officer. The claim made in the return cannot be said to be bereft of bonafides. Considering the entire facts and circumstances of the case, we find ample force in the conclusion drawn by the CIT(Appeals) that the Assessing Officer was not justified in imposing penalty u/s 271(1)(c) of the Act.”

3.

We have heard learned counsel for the revenue.

4.

It is not disputed that in view of judgment of the Hon’ble Supreme Court in T.R.F. Ltd. v. CIT

[2010] 323 ITR 397, it is not necessary for the assessee to establish that the debt had already become irrecoverable. If the assessee takes a bonafide decision that it was necessary to write off the bad debts, the writing off may be justified. In any case, for levy of penalty, it has to be shown that the assessee had made concealment or had given wrong information to evade tax.

5.

In view of concurrent finding of the CIT(A) and the Tribunal that there was no intention to evade tax, we are unable to hold that any substantial question of law arises.

6.

The appeal is dismissed. (ADARSH KUMAR GOEL) JUDGE November 01, 2010 (RAKESH KUMAR JAIN) ashwani JUDGE 3

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