TaxTMI 
TaxTMI 
2013 (1) TMI 12
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....u/s. 36(1)(vii) of the Act, it was submitted by the assessee that the claim is qua bad debts, i.e., which had become irrecoverable. Further, while Rs. 2,69,706/- related to debts carried over from an earlier year/s, the balance Rs. 6.25 lacs pertained to the current year. The primary condition for a valid claim u/s. 36(1)(vii), i.e., write off of the debt/s under reference by the assessee in its books of account, being not met, the AO disallowed the said claim vide assessment u/s. 143(3) dated 28-12-2007 as well as initiated penalty proceedings in its respect. No appeal against the said assessment was preferred by the assessee. 2.2 In the penalty proceedings, the assessee-company explained that the amount under reference was not recoverable from the concerned debtors. The relevant details had been submitted, and there was no intention or attempt to either conceal or to furnish inaccurate particulars of income. A mere difference of opinion, i.e., of the claim being required to be made by way of a write off of the relevant asset/s in its books, as against a provision in its respect, ought not to oust the assessee's case as being not bona fide; all the details being on record. The ....
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....ubstantiated nor shown to be bona fide (coupled with proper disclosure), Explanation 1 to the provision would come into play and operate to make the assessee liable for penalty thereunder (section 271(1)(c)). This is trite law, as would be clear from the relevant provision read with Explanation 1 thereto, besides having been amply clarified and endorsed by the higher courts of law time and again, even as lately by the hon'ble court in CIT v. Zoom Communication (P.) Ltd. [2010] 327 ITR 510, after a review of the law in the matter, with particular reference to the decision by the apex court in the case of Reliance Petroproducts (P.) Ltd. (supra), relied upon by the assessee in the instant case. 4.3 The issue thus boils down to the assessee's explanation. It is claimed that the 'provision' was made only by way of a technical mistake; the impugned amount being not recoverable, so that it may well have been by way of a write off and, therefore, ought to be considered as so; the amount having not been received subsequently. In fact, if so, i.e., where the assessee is able to exhibit what it states, no disallowance, much less a levy of penalty, even as observed by the ld. CIT(A), ought....
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....he clear provision of law barring deduction in respect of a 'provision'. As such, asserting, on the strength of an accounting entry itself, of there being a mistake, and a technical one at that, and that it had intended to write off an irrecoverable amount, would not hold. It cannot, by any means, be said to be a mere difference of name or even of opinion, as held by the ld. CIT(A). 4.4 The foregoing, however, does not mean to say that this forecloses the assessee's case, but only that a mere assertion, unsupported by facts, precludes its acceptance as such. It was nevertheless fully open to the assessee to show that the provision is in substance and in fact a write off, as where both the provision account and the corresponding debtor account/s are not carried over in its accounts to the following year, so that there has been in fact a write off. The assessee has toward this end submitted its balance-sheet. The same, however, is again not certified and, thus, cannot be accepted as such. It is only where the assessee's accounts for the following year (i.e., the previous year relevant to the assessment year 2006-07) show that there has been no carry over of the provision as well a....
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....e-sheet - even if for presentation purposes, it cannot be said that the assessee has no explanation at all, or that its claim is not bona fide, i.e., suffers from mala fides. It is, in fact, only on account of such unabashed depiction of the provision that the same stood noticed and, consequently, disallowed by the AO. It is apparent that in view of the uncertainty as to its realizability, the assessee made a provision against its dues under the bona fide belief that the same was allowable, and there was no attempt to conceal this fact. Put differently, the inference as to the assessee's bona fides flow from its conduct of full disclosure. It is not necessary that the same, i.e., the bona fides of its explanation, which no doubt are to be shown by an assessee, is to be so only on the basis of some materials. 4.6 The only rider, however, would be where the condition(s) of section 36(2) are not satisfied. We say so as would be presently seen, for more than one reason. There was. firstly, no examination of this aspect at any stage, and which is vital to the assessee's claim, whose only explanation has been the irrecoverability of the impugned amount, and on which basis in fact we h....
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.... off, or whether its explanation for it being so is under the circumstances, a plausible one. The same, i.e., a positive satisfaction of the conditions of section 36(2), however, is vital. This is as if the primary conditions of the said provision are not satisfied, to which a claim u/s. 36(1)(vii) is subject, the same would not hold even if the assessee's claim satisfies the condition of write off. How could then, i.e., under such circumstances, one may ask, the assessee's claim be, or considered to be, bona fide, or an explanation in its respect be so'? 4.7 In view of the foregoing, we only deemed fit and proper that the matter is restored back to the file of the AO to adjudicate the same afresh per a speaking order in accordance with law, allowing the assessee a proper opportunity to present its case on all aspects thereof, i.e., to show as to how, despite an uncontested disallowance in its respect, the deduction claimed u/s. 36(1)(vii) of the Act does not suffer from lack of any bona fides or does not fall within either Explanation 1(A) or 1(B) of section 271(1)(c) of the Act. We decide accordingly. 4.8 It may appear that we have, in deciding this appeal, and in the manne....