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Income Tax Appellate Tribunal, “C”, BENCH MUMBAI
Before: SHRI R.C.SHARMA, AM & SHRI PAWAN SINGH, JM
आदेश / O R D E R PER R.C.SHARMA (A.M): This is an appeal filed by the assessee against the order of CIT(A) for the assessment year 1998-99, in the matter of order passed u/s.143(3) r.w.s.147 of the IT Act. 2. In this appeal, assessee is aggrieved for reopening of assessment which have already been completed under scrutiny assessment proceedings u/s.143(3). In merit, assessee is aggrieved for addition of Rs.55,91,765/- on account of bad debts written off u/s.36(1)(vii) of the IT Act. 3. Rival contentions have been heard and record perused.
2 Classic Shares and Stock Broking Services Ltd., 4. Facts in brief are that assessee filed return of income declaring loss of Rs.2.51 crores on 31.08.1999. Thereafter assessment was completed u/s.143(3) determining income at net loss of Rs.1.83crores. During the course of assessment AO has dealt with in detail the assessee’s claim for provision of bad debts of Rs.55,91,765/- after having the following observation:- Provision for Bad Debts: Rs.55, 91,765/-. The assessee has claimed that nomenclature is provision, but it is write off of bad debts. Assessee has claimed that there is no particular form/method of write off of bad debts is prescribed and as per acoounting and distionery, write off means "to transfer the balance of un account, previously recorded as an asset to an expense account or to P&L account. In support of its claim, the assessee has also cited following Case laws:
1. 1. Vithaldas H. Dhanjibhai. Bandanwala -vs- ClT, (1981) 130 ITR 95 (Guj).
2. CIT -Vs- Jwala Prasad Tewari, 24 ITR 537 (Bom).
3. Sarangpur cotton Mfg. Co , Lrd. -vs- CIT, 143 ITR 166, 173 (Guj) • 4. CIT –vs- Union Carbide (1) Ltd., 7p., Taxrnan, 605, 610.
5. CIT-vs-.. United Bank of India, 115 CTR 35,38 (Cal). After considering submissions of the assessee, the claim of the assessee is allowed.”
Thereafter, the assessment was reopened u/s.147 on 28/03/2003 on the plea that the assessee has debited an amount of Rs.55,91,765/- as provision for bad debts in the P & L a/c. As per explanation below the proviso to clause vii of sub section (1) of section 36 of the I.T.Act with 3 Classic Shares and Stock Broking Services Ltd., retrospective effect from 01.04.1989, no provision for bad and doubtful debts is deductible from the assessee’s business income.
In the assessment so framed u/s.143(3) r.w.s.147, AO observed that in view of the fact that the section 36(1) (vii) Explanation, no provision should be allowed for the write-off of bad debts so the deduction allowed by the Assessing Officer is erroneous.
By the impugned order CIT(A) confirmed the action of the AO both on the ground of reopening as well as merit of the addition so made.
It was contended by learned AR that in the scrutiny assessment proceedings, the AO has dealt in great detail, the assessee’s claim for bad debts of Rs.55.91 lakhs. He further submitted that it was not the provision but actual write off of the debt and the assessee has reduced the individual amount of bad debts from the amount of respective debtors.
We have considered rival contentions and carefully gone through the orders of the authorities below.
From the record, we found that in the course of original assessment proceedings, the AO has dealt in great detail, assessee’s claim of bad debts and after considering various judicial pronouncements including decision of Bombay, Gujarat and Calcutta High Court reached to the conclusion that assessee’s claim is admissible. Thus, framing assessment under scrutiny after considering all the material facts, it amounts to change of opinion for which reopening is not admissible. No new facts have been brought on record by AO so as to hold that it was not an admissible claim. Even on merits, we found that for each amount of bad
4 Classic Shares and Stock Broking Services Ltd., debts, assessee has reduced the debtors amount. Thus, it was the claim of actual bad debts and not merely provision for bad debts. However, AO is at a liberty to bring to tax net if there is any recovery of debts in subsequent year. Accordingly, we do not find any merit in the action of the AO. 11. In the result, appeal of the assessee is allowed.