2016 (4) TMI 207 - AT - Income Tax

Tribunal supports additional bad debts claim, emphasizing tax authorities' duty to assist taxpayers.

The Tribunal upheld the CIT(A)'s decision to allow the assessee's additional claim for bad debts during assessment proceedings, dismissing the Revenue's ... Deduction of bad debts disallowed - Held that:- The claim on account of bad debts written off is now settled on the basis of judgment of the Hon'ble Supreme Court in the case of T.R.F Ltd. v. CIT [2010 (2) TMI 211 - SUPREME COURT]. There is no dispute on facts that bad debts have been written off. Thus, as per law, the assessee is undisputedly eligible for the claim. The only hurdle created by the AO was that since the claim was not made in the return of income, therefore, the claim could not have been allowed to the assessee. We do not respectfully agree with the views of the AO. In our considered view, if the assessee is entitled for a deduction, as per law and facts, same should not have been denied to itr merely because the claim was not made in the return of income. That would, in our considered opinion, amount to collecting taxes without authority of law. It is further noted by us that it is well settled position of law that assessee can resile from its return of income during the course of assessment proceedings if he is able to show that the return filed was not in accordance with the law or if some income was wrongly offered to tax, which was as per law, not liable to tax, or if the assessee finds that there was omission to make a claim in the return of income. The only precaution to be taken here would be that fresh claim of the assessee should be strictly within the four corners of law. If it is so, the claim made even for the first time during the assessment proceedings should not be rejected. In our view, there are no estoppels on legal issues under the income tax law. Even if, assessee agrees or consents for something contrary to law, the A.O. is obliged under the law, to discharge his duty of making fair assessment of income and to compute amount of tax payable as per law. As per Article 265 of the Constitution of India, 'No tax can be collected except by authority of law'. Hon'ble Supreme Court in the case of Ramlal vs Rewa Coalfield Ltd (1961 (5) TMI 54 - SUPREME COURT ), held that the state authorities should not raise technical pleas if the citizens have a lawful right, which is being denied to them merely on technical grounds. The state authorities cannot adopt the attitude which private litigants might adopt. - Decided in favour of assessee. Issues Involved1. Deduction of bad debts claimed by the assessee.2. The procedural requirement for claiming deductions through a revised return.Detailed AnalysisDeduction of Bad Debts Claimed by the AssesseeThe primary issue in this appeal concerns the deduction of bad debts claimed by the assessee. Initially, the assessee claimed a deduction of Rs. 96,35,224/- for bad debts written off in the return of income. During the assessment proceedings, the assessee realized that it had mistakenly claimed a lesser amount and subsequently made an additional claim of Rs. 40,81,493/- under Section 36(1)(vii) of the Income Tax Act, 1961 ('the Act'). The Assessing Officer (AO) rejected this additional claim, citing the Supreme Court judgment in Goetze (India) Ltd. v. CIT, 284 ITR 323, which mandates that any claim for deduction not made in the return of income must be made through a revised return.The Commissioner of Income-tax (Appeals) [CIT(A)], however, allowed the additional claim, relying on the Central Board of Direct Taxes (CBDT) Circular No. 14 dated 11.4.1955, which instructs revenue officers not to take advantage of an assessee's ignorance and to assist taxpayers in determining the correct amount of tax payable. The CIT(A) also referenced the judgment in Chicago Pneumatic (India) Ltd. v. DCIT, 15 SOT 252, which emphasized that assessing authorities are bound to compute the correct income and should not compel the assessee to pay more taxes due to procedural lapses.Procedural Requirement for Claiming Deductions Through a Revised ReturnThe Tribunal noted that a similar issue had arisen in the previous assessment year (A.Y 2008-09), where the assessee made an identical claim during the assessment proceedings. The AO had rejected the claim based on the same Supreme Court judgment. However, the CIT(A) allowed the claim, and the Tribunal upheld this decision, stating that the judgment in Goetze (India) Ltd. v. CIT was not applicable to appellate authorities.The Tribunal reiterated that the power of the appellate authorities to entertain new claims is well-established. The Tribunal referenced several judgments, including:- Hero Honda Finlease Ltd., where it was held that the CIT(A) has the power to entertain claims not made in the return of income if they are raised during the assessment proceedings.- T.R.F. Ltd. v. CIT, 323 ITR 397 (SC), which clarified that it is sufficient if the bad debt is written off as irrecoverable in the accounts of the assessee to satisfy the conditions of Section 36(1)(vii) of the Act.- CIT v. Bharat General Reinsurance Co Ltd, 81 ITR 303 (Del), which emphasized that there is no estoppel in the Income Tax Act, and the department must assess the correct tax liability irrespective of the claims made in the return.The Tribunal also highlighted that the AO's duty is to make a fair assessment and compute the correct amount of tax payable as per law, even if the assessee did not make a claim in the return of income. The Tribunal emphasized that denying a legitimate claim merely because it was not made in the return of income would amount to collecting taxes without authority of law, which is against Article 265 of the Constitution of India.The Tribunal concluded that the CIT(A) had rightly allowed the assessee's claim for additional bad debts during the assessment proceedings. The Tribunal found no merit in the Revenue's appeal and dismissed it, upholding the CIT(A)'s order.ConclusionThe appeal by the Revenue was dismissed, and the order of the CIT(A) allowing the additional claim for bad debts made by the assessee during the assessment proceedings was upheld. The Tribunal emphasized that legitimate claims should not be denied due to procedural lapses and that the appellate authorities have the power to entertain new claims made during the assessment proceedings. The judgment reinforces the principle that tax authorities must assist taxpayers in determining the correct tax liability and should not take advantage of procedural technicalities to deny legitimate claims.