2001 (11) TMI 68 - HC - Income Tax

High Court rules on write-off of bad debts in reassessment proceedings under section 147, emphasizing timely reflection in accounts.

Commissioner of Income Tax Versus Hotel Ambassador.

The High Court ruled against the assessee in a case involving the entitlement to write-off bad debts in reassessment proceedings under section 147. The ... - Issues Involved:1. Entitlement to write-off of bad debts in reassessment proceedings u/s 147.2. Justification of Tribunal in allowing bad debts for assessment years 1981-82, 1982-83, and 1984-85.3. Tribunal's decision on bad debts for the assessment year 1986-87.4. Tribunal's finding on true and full disclosure under the amnesty scheme and immunity from penalty u/s 271(1)(c).Summary:Issue 1: Entitlement to Write-off of Bad Debts in Reassessment Proceedings u/s 147The Tribunal allowed the assessee to claim the benefit of write-off of bad debts u/s 36(1)(vii) in reassessment proceedings u/s 148. However, the High Court held that writing off of bad debts should be reflected in the profit and loss account at the time of finalization of accounts for the relevant previous year. Reassessment proceedings are for escaped income and do not permit the write-off of bad debts, as it is against the scheme of the Income-tax Act.Issue 2: Justification of Tribunal in Allowing Bad Debts for Assessment Years 1981-82, 1982-83, and 1984-85The Tribunal's acceptance of bad debts written off in personal accounts for 1981-82 and allowing the assessee an opportunity to write off bad debts for 1982-83 and 1984-85 was reversed. The High Court emphasized that bad debts should be written off at the time of finalization of accounts for the previous year in which the debt became bad. The Tribunal's direction was deemed against the scheme of section 36(1)(vii).Issue 3: Tribunal's Decision on Bad Debts for the Assessment Year 1986-87The Tribunal denied the assessee the opportunity to write off bad debts for 1986-87, as the assessee failed to prove that the debts had become bad and did not furnish details of bad debts. The High Court upheld this decision, stating that the reasoning applied for previous years also applies here, and the Tribunal rightly rejected the claim.Issue 4: Tribunal's Finding on True and Full Disclosure Under the Amnesty Scheme and Immunity from Penalty u/s 271(1)(c)The Tribunal found that the assessee made true and full disclosure under the amnesty scheme, entitling it to immunity from penalty u/s 271(1)(c). The High Court disagreed, noting that the assessee did not make a true and full disclosure voluntarily within the time provided by the amnesty scheme. The additional amounts offered by the assessee were after the detection of concealment by the Department. However, the High Court allowed partial relief for the assessment years 1981-82 and 1982-83, as the revised returns filed on September 30, 1986, disclosed additional income before the issue of notice u/s 147 on January 13, 1987. For 1984-85, the penalty was upheld as concealment was proved.Conclusion:The High Court answered the questions referred at the instance of the Department in favor of the Revenue and against the assessee, with modifications for 1981-82 and 1982-83. The question referred at the instance of the assessee for 1986-87 was answered against the assessee and in favor of the Revenue.