2009 (9) TMI 23 - HC - Income Tax

High Court upholds Tribunal's decision on bad debts written off as genuine loss under Income Tax Act

The Commissioner of Income Tax Versus M/s Punjab Tractors Ltd.

The High Court upheld the Income Tax Appellate Tribunal's decision to delete an addition of Rs.2,62,326 made by the Assessing Officer on account of bad ... Bad Debts written off – Business Loss – no efforts for recovery – held that - it is not the case of the revenue that the debt was ever recovered or had ever become recoverable. Before the Tribunal, the contention on behalf of the revenue was that the amount may be treated as bad debt in subsequent year. While the debt has to be allowed as bad debt in the year in which the same became bad debt, it will depend on facts of each case as to the year in which the same became bad debt, depending upon judgment of the assessee unless such a judgment was not genuine - . In the present case, the judgment of the assessee that the amount became bad debt in the year relevant for assessment i.e. 1984-85 itself, could not be rejected. Mere fact that assessee continued efforts by obtaining decree which could not be executed in subsequent year is not enough to reject the opinion of the assessee that the amount had already become bad debt The judgment by the High Court of Punjab and Haryana involves a case where the Income Tax Appellate Tribunal referred a question of law regarding the deletion of an addition of Rs.2,62,326 made by the Assessing Officer on account of bad debts written off by the assessee. The Tribunal held that the assessee was justified in writing off the amount as bad and irrecoverable based on honest judgment and conviction. The Tribunal also accepted the alternative plea that the amount was allowable as a loss under section 28(1) of the Income Tax Act. The revenue contended that the debt should have been shown to be justifiably written off, but the Tribunal found that the opinion of the assessee was genuine. The court agreed with the Tribunal, stating that the judgment of the assessee that the amount became a bad debt in the relevant assessment year could not be rejected. The court concluded in favor of the assessee, upholding the Tribunal's decision to delete the addition.The judgment highlights the importance of the genuine judgment of the assessee in declaring bad debts and the need for valid reasons to support such decisions. The court emphasized that the judgment of the assessee regarding the recoverability of the debt should be given due consideration unless proven otherwise. The case serves as a reminder that the assessment of bad debts should be based on honest judgment and conviction, with supporting evidence where necessary. The decision also underlines the significance of the Tribunal's role in evaluating such matters and ensuring fair treatment for the taxpayer.