2013 (11) TMI 965 - AT - Income Tax

Tribunal dismisses appeal on bad debt & trading loss, allows penalty appeal for fresh decision.

The Tribunal dismissed the assessee's appeal regarding the disallowance of the bad debt claim, the alternate claim of trading loss, and the computation of ... Provision for bad debts or trading loss – held that:- claim of bad debts which is a provision made in the books of account not allowed - Regarding claim of trading loss, . If a bad debt cannot be allowed as a deduction on the general commercial principles, then how a trading loss could be allowed, specially when could not be supported by specific evidences. If the assessee wanted to claim bad debt as a trading loss then it was accepted to place on record the supporting evidences. It is worth to quote an observation of the A.O - Decided against the assessee. Deduction u/s 80HHC - Held that:- In the present case there was no export turnover of the impugned amount of bad-debt so no question to consider the same for the deduction u/s 80HHC - The assessee was asked to furnish the computation of deduction u/s 80HHC but at all stages of proceedings the assessee had not furnished the same - The four ingredients for allowance of deduction u/s 80HHC have not been fulfilled in the present case - The sales should have been shown in either year under consideration or past years and over which on the profit the assessee ought to have got the benefit of deduction u/s 80HHC – Deduction not permissible – Decided against assessee. Penalty u/s 271(1)(c) – Held that:- The assessee had not appeared before the Revenue Authorities - In the light of the order now pronounced by department pertaining to the quantum addition, the assessee deserves right to explain his case pertaining to the concealment of penalty to learned CIT(A) – The issue was restored for fresh decision. Issues Involved:1. Disallowance of the claim of bad debt.2. Alternative claim of trading/business loss under Section 28.3. Computation of deduction under Section 80HHC.4. Levy of penalty under Section 271(1)(c).Detailed Analysis:1. Disallowance of the Claim of Bad Debt:The assessee's appeal contested the disallowance of a bad debt claim amounting to Rs. 2,70,22,276/-. The AO disallowed this claim on the grounds that the assessee had only made a provision for bad debts and had not actually written off the same as irrecoverable. The CIT(A) upheld this disallowance, noting that the 'Explanation' to Section 36(1)(vii) explicitly states that a bad debt written off does not include any provision for bad and doubtful debt. The Tribunal agreed with the lower authorities, emphasizing that the assessee's representative conceded that the provision of bad and doubtful debt should not be allowed in view of the Explanation to Section 36(1)(vii). Therefore, the Tribunal dismissed the assessee's claim for bad debt.2. Alternative Claim of Trading/Business Loss under Section 28:The assessee alternatively claimed that the amount should be allowed as a trading loss under Section 28. The CIT(A) rejected this claim, stating that the Tribunal's mandate was limited to reconsidering the bad debt deduction under Section 36(1)(vii) and did not extend to adjudicating the claim of trading loss. On merits, the CIT(A) found that the assessee did not provide any details regarding the actual write-off of debts or any subsequent claims for bad debts. The Tribunal upheld this view, noting that the assessee failed to furnish specific corroborative evidence to support the trading loss claim. The Tribunal emphasized that if a particular claim is expressly dealt with under a specific provision of the statute, it should be considered under that provision. Consequently, the Tribunal dismissed the alternate claim of trading loss.3. Computation of Deduction under Section 80HHC:The assessee argued that the disallowance of bad debts should affect the computation of deduction under Section 80HHC, leading to higher business profits. The AO and CIT(A) rejected this claim, noting that the assessee's export turnover was Rs. 3,18,68,248/-, and the deduction under Section 80HHC was correctly computed at Rs. 1,81,50,397/-. The CIT(A) found that the impugned bad debt was not part of the sale proceeds received in or brought into India, and therefore, the assessee was not eligible for further deduction under Section 80HHC. The Tribunal agreed, stating that the basic conditions for deduction under Section 80HHC were not fulfilled, as the export proceeds were not brought into India. Thus, the Tribunal upheld the computation of deduction under Section 80HHC as done by the lower authorities.4. Levy of Penalty under Section 271(1)(c):The assessee challenged the levy of penalty amounting to Rs. 1,20,47,061/- under Section 271(1)(c) for allegedly deliberately claiming a bad debt which was not genuine. The CIT(A) confirmed the penalty, noting that the assessee failed to respond to multiple notices and did not discharge the burden of proof under Explanation 1 to Section 271(1)(c). The Tribunal, however, restored the issue of concealment penalty back to the CIT(A) for a de novo decision, directing the assessee to appear before the CIT(A) within 30 days and present their case regarding the concealment penalty. The Tribunal emphasized that the assessee should not seek unnecessary adjournments, and the CIT(A) should decide the appeal as per law.Conclusion:The Tribunal dismissed the assessee's appeal regarding the disallowance of the bad debt claim, the alternate claim of trading loss, and the computation of deduction under Section 80HHC. However, the Tribunal allowed the penalty appeal for statistical purposes, restoring the issue of concealment penalty back to the CIT(A) for a fresh decision.