TaxTMI 
TaxTMI 
TaxTMI 
2015 (5) TMI 860
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....eted under section 143(3) on 26.12.2011 assessing income of the assessee at Rs. 4,16,44,133/-. Later, show cause notice was issued by the Commissioner of Income Tax under section 263 proposing to revise the assessment order dated 26.12.2011 stating that Assessing Officer has accepted the assessee company's version and allowed bad debts claimed by it. The Assessing Officer has not looked into the facts that assessee has received claim letter from M/s. BILT Power Ltd. only during August, 2009 and the assessee company's accounts were closed by 31.03.2009 and the assessee company has not actually written off the amount instead only a provision for writing off the amount was made. Therefore, Assessing Officer's order prima-facie appears to be erroneous and prejudicial to the interests of the revenue. 3. In response to the show cause notice issued by the Commissioner of Income Tax, the assessee filed a detailed reply stating that in the course of assessment proceedings, the Assessing Officer called for details in respect of the amounts written off as irrecoverable and assessee filed ledger copy and also detailed note on irrecoverable and submitted that after examining the claim of....
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....rt of its claim:- i) CIT Vs. Modi Telecommunications Ltd.( 325 ITR 291) ii) TRF Ltd. Vs. CIT ( 323 ITR 397) iii) Lawlys Enterprises P.Ltd. Vs. CIT (314 ITR 297) iv) CIT Vs. Star Chemicals (292 ITR 339) v) CIT Vs. Girish Bhagwat Prasad (256 ITR 772) 4. The assessee further contended that narration given in the journal entry is being compensation claim amount by the BILT Power Ltd. for non-performance of the contract and damages suffered by them now provided. The narration provided is given in the entry and is not a provision. This has been written off to the profit and loss account under irrecoverable and claims and further the party account has also been credited for this amount and the assessee also produced ledger copy. Therefore, the assessee submitted that the amount of irrecoverable and claims is a write off in the books as well as in the profit and loss account and the credit to the party BILT Power Ltd. and the assessee has complied with the provisions of section 36(2) of the Act. 5. However, the Commissioner of Income Tax not satisfied with the explanation given by the assessee passed order under section 263 of the Act holding that assessee's claim of Rs. 50 la....
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.... Kumar Sharma (335 ITR 83) submits that if there is an enquiry even if it is inadequate, Commissioner is not justified in invoking provisions of section 263 of the Act merely because he had a different opinion on the matter. 8. Counsel for the assessee further submits that Commissioner of Income Tax held that the claim for bad debts are not allowable in this assessment year for the reason that assessee has not actually written off the amount instead has made only a provision for writing off the amount. Counsel submits that Commissioner of Income Tax came to such a conclusion on the basis that BILT Power Ltd. has sent claim letter only during August, 2009 and the assessee company's accounts were closed by 31.03.2009. In this regard, counsel for the assessee submits that the engineering drawings relating to the civil construction were delivered prior to the March 2009, invoices were raised on the customer and accounted as income. The fact that the drawings were defective was known only when the roof collapse happened and the report of lIT, Delhi has concluded that the pattern of the failure is due to design defects which means the drawings were defective even when they were delivere....
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....is determined by commercial considerations and there is no need to establish that the debt has become bad. In accordance with sections 36(1)(vii) and 36(2) the income relating to the bad debt should have been included as income in one or more previous years and further, written off as irrecoverable in the accounts of the assesse with a corresponding credit to the customer account. This principle has been endorsed by the Hon'ble Supreme Court in TRF Limited Vs. CIT (2010) 323 ITR 397 (SC). Applying these provisions of law, the company has met the requirement of sections 36(1) (vii) and 36(2) of the Act. Counsel for the assessee submits that Assessing Officer has made a detailed enquiry on the bad debts claim and all the relevant papers relating to the claim have been filed before the Assessing Officer. Therefore, counsel for the assessee submits that Assessing Officer has allowed the claim for bad debts based on the details, evidence gathered during the assessment proceedings and the submissions made and also taking into account the correct position of law. In the circumstances, the assessment order cannot be held as erroneous or prejudicial to the interests of the Revenue just....
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....h of Aug '09 before the accounts for the year ended 31st March '09 got finalized. BIL T Power Ltd. also substantiated the claim for damages by a report from Indian Institute of Technology, Delhi and also adjusted Rs. 50 lakhs towards non-performance of the contract and damages suffered by them. While the amount of claim was intimated to the assessee company during all the meetings, the same was adjusted by them in their accounts and followed up by letter dated 24th Aug.2009. Under section 36(2) of the I.T Act, claim for deduction of bad debt is allowable provided the debt has been included as income of the assessee in any previous year and is actually written off in the books. In all the cases of claims made by the assessee, the income has been accounted in the year ended March '09 or in earlier years and the amount having been written off in the books of the assessee by debiting to profit and loss and crediting to party's account shall be allowable as bad debt u/s 36(2) of the I.T Act. Accordingly, Standard AS.9 - Revenue recognition also mandates an enterprise to recognize the income and provide for the same if the ultimate realisability of the income is doubtf....
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....ents before they are finally adopted. Therefore bad debts could be written off even after closure of accounting year. However, the Commissioner of Income Tax passed order under section 263 of the Act holding that bad debts in respect of BILT Power Ltd. is not allowable during the assessment year 2009-10 and directed to consider the same in the subsequent assessment year, subject to fulfillment of conditions laid down in the provisions of the Act. The Commissioner of Income Tax was of the opinion that in this case Assessing Officer has not looked into facts and it is lack of enquiry. 14. In the case of CIT Vs. Amit Corporation (supra) the Hon'ble Gujarat High Court held as under:- "5. We are of the opinion that the Tribunal committed no error. When during the course of framing of the assessment, the Assessing Officer had access to all the records of the assessee, after pursuing such record the Assessing Officer framed the assessment, such assessment could not have been reopened in exercise of revision power under section 263 of the Act for making further inquiries. In the facts of the case....
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....;.-CIT vs. Gabrial India Ltd. (1993) 114 CTR (Bom) 81 (1993) 203 ITR 108 (Bom) relied on." 16. The Hon'ble Bombay High Court in the case of CIT Vs. Development Bank Ltd. (323 ITR 206) held as under:- "A reading ,of the order passed by the CIT would show that the principal objection which the revisional authority expressed against the order of the AO was an alleged failure of the AO to examine; firstly whether the capital gain of Rs. 1.26 crores has been earned by the assessee on transactions relating to investments 'held to maturity', and secondly whether the depreciation of Rs. 622.39 lakhs was claimed on investments which were held as stock-in-trade. Now from the , material on record before the Court it is evident that the assessee, in response to a specific query ' of the AO dt. 20th Sept., 2004 supplied details of the long-term investments held for a period in excess of one year which the assessee treated as investments held to maturity. The profit on these investments was computed at Rs. 1.26 crores. In so far as the aspect of depreciation of Rs. 622.39 lakhs on Investments held as stock-in-trade ....
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....n perusal of the provisions here-in-above, it reveals that the only requirement for allowing the bad debt under Section 36 (1) (vii) of the Income-tax Act, is that any bad debt or part thereof is written off as irrecoverable and secondly, they should be written off in the accounts of the assessee for the previous year. In the instant appeal, neither the department nor the assessee disputes that the debt had become bad and it was written off. 7. The prescription as provided is to write off bad debt by the assessee in the accounts 'for the previous year', but it does not say to write off bad debt 'in the previous year'. Thus, there is a vast difference if the word 'in' would have been there in place of 'for'. Further, the words 'accounts of the assessee' are qualified with further words 'for the previous year'. Thus, it only means that the accounts in which the Act of writing off is to be done by the assessee should be for the previous year. Therefore, the law requires to write off the bad debt in the accounts ofthe assessee in the relevant accounting ....