1998 (12) TMI 99 - AT - Income Tax

Tribunal Upholds Bad Debt Claim, Rejects Revenue's Appeal

The Tribunal upheld the CIT(A)'s decision to allow the assessee's bad debt claim, rejecting the Revenue's appeal. It found the debt to be bad based on ... Appeal (Tribunal) Issues Involved:1. Legitimacy of the Tribunal's order rejecting the Revenue's appeal.2. Authority of the Departmental Representative to file the miscellaneous application.3. Merits of the bad debt claim by the assessee.4. Procedural compliance with Sections 254 and 256 of the Income Tax Act.Issue-wise Detailed Analysis:1. Legitimacy of the Tribunal's order rejecting the Revenue's appeal:The Tribunal had previously rejected the Revenue's appeal, which contested the CIT(A)'s decision to allow the assessee's bad debt claim of Rs. 7,99,675. The Revenue argued that the assessee failed to provide details such as the names and addresses of the debtors and the nature of the transactions. The Tribunal noted that, although strict proof of bad debt is not required under the amended Section 36(1)(vii) of the Income Tax Act, prima facie evidence must indicate that the debt is indeed bad. The Tribunal found that the new management of the assessee company, which took over in September 1989, was unable to recover the debts, most of which were over three years old and disputed by debtors due to issues like poor quality of printing and rates. The Tribunal concluded that the CIT(A)'s decision was based on valid reasoning and required no interference.2. Authority of the Departmental Representative to file the miscellaneous application:The assessee raised a preliminary objection, arguing that the Departmental Representative lacked the authority to file the miscellaneous application under Section 254 of the Income Tax Act. The Tribunal agreed, noting that Section 254 allows only the assessee or the Assessing Officer (AO) to file such an application. There was no evidence that the AO had instructed the Junior Departmental Representative to file the application. The Tribunal emphasized that statutory provisions must be strictly followed to prevent misuse of authority. Consequently, the Tribunal held that the application filed by the Junior Departmental Representative was without jurisdiction and not maintainable.3. Merits of the bad debt claim by the assessee:On the merits, the Tribunal found that the CIT(A) had allowed the bad debt claim based on evidence produced by the assessee, which was not before the AO. The Tribunal had considered relevant facts and concluded that the debt had become bad, thereby approving the CIT(A)'s order. The Tribunal also noted that the claim was covered by the amended Section 36(1)(vii) read with Section 36(2) of the Income Tax Act, effective from April 1, 1989. The paper book filed by the assessee was duly certified, and the Tribunal found no apparent mistake from the record that warranted rectification of its earlier order.4. Procedural compliance with Sections 254 and 256 of the Income Tax Act:The Tribunal highlighted the procedural requirements under Sections 254 and 256 of the Income Tax Act. Section 254 allows either the assessee or the AO to file an application for rectification of any mistake apparent from the record. In contrast, Section 256 permits the assessee or the CIT to file a reference application to the High Court on any question of law arising from the Tribunal's order. The Tribunal found that the Junior Departmental Representative's application did not comply with these statutory provisions, as it was not filed by the AO or with the AO's authorization. Additionally, no reference application had been filed by the CIT against the Tribunal's order, indicating acceptance of the order by the Department.Conclusion:The Tribunal rejected the miscellaneous application filed by the Junior Departmental Representative. It held that the application was without jurisdiction and not maintainable, as it was not filed by the AO or with his authorization. On the merits, the Tribunal found no mistake apparent from the record that warranted rectification of its earlier order, which had correctly allowed the assessee's bad debt claim based on the evidence and relevant legal provisions. The Tribunal emphasized strict adherence to statutory provisions to prevent misuse of authority and ensure procedural compliance.