TaxTMI 
TaxTMI 
2001 (11) TMI 68
X X X X Extracts X X X X
X X X X Extracts X X X X
....81-82, 1982-83 and 1984-85. The only reference case at the instance of the assessee, namely, I.T. R. No. 21 of 1998, arises out of the order of the Tribunal dismissing the assessment appeal of the assessee for the assessment year 1986-87. The assessee is a partnership firm, running a bar hotel at Kottayam. The business premises of the assessee and the residential premises of the partners were searched by the Income-tax Department on April 9, 1986, and the records relevant for the assessment years 1982-83 to 1986-87 were recovered. Prior to the issue of notice on January 13, 1987, proposing income escaped assessments under section 148 of the Income-tax Act, 1961, the assessee filed revised returns on September 30, 1986, for the assessment years 1981-82 and 1982-83, claiming to be returns under the amnesty scheme. However, assessments were completed under section 147 for the assessment years 1981-82 and 1982-83 and under section 143(3) for the assessment years 1984-85 and 1986-87 by making further additions to the income returned by the assessee and penalty under section 271(1)(c) was also levied after rejecting the assessee's claim for immunity under the amnesty scheme for all th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ns referred to this court at the instance of the Revenue are against the finding of the Tribunal on these issues in favour of the assessee, whereunder bad debts were ordered to be allowed, and penalties were cancelled by the Tribunal for all these assessment years. Though the assessment for the assessment year 1986-87 was also completed pursuant to the data gathered on the same inspection, the Tribunal declined to allow write-off of bad debts claimed by the assessee, for the reason that the assessee has not in fact written off the bad debts, nor did it file details of bad debts either before the Assessing Officer or before the Tribunal. According to the assessee, it was entitled to the same opportunity granted by the Tribunal for the earlier assessment years 1982-83 and 1984-85, and so much so the assessee questions the legality and propriety of the order of the Tribunal in declining to grant an opportunity to them to write off the bad debts for the assessment year 1986-87. Accordingly, the question referred at the instance of the assessee in I. T. R. No. 21 of 1998 is for the purpose of getting bad debts written off. We have heard Sri P. K. R. Menon, senior counsel for the Reve....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d to the benefit of the amnesty scheme? (3) Whether, on the facts and in the circumstances of the case, the Tribunal is right in holding that the disclosure made by the assessee in the, amnesty returns' could be considered as having been made voluntarily and in good faith and are not the findings, such as 'amnesty returns'; 'voluntarily'; 'good faith', wrong, unreasonable and against law and logic? (4) Whether, on the facts and in the circumstances of the case, the Tribunal is right in law and fact in confirming the cancellation of penalty levied under section 271(1)(c)?" I. T. R. No. 21 of 1998 (at the instance of the assessee): "Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in law in not giving the assessee the benefit of write off of bad debts in the books of account even though the Tribunal had given the benefit of such write off in the assessee's own case for the assessment years 1985-86 and earlier years?" Broadly speaking, the issues can be summarised as follows: "(1) Whether the assessee is entitled to write off of bad debts in reassessment proceedings initiated under section 147 of the Income-tax Act purs....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... previous year filed the returns and even assessment was completed and, therefore, writing off of bad debts in reassessment proceedings is against the scheme contemplated in the Act. However, the Tribunal accepted the assessee's case stating that the write off of bad debts in the personal account of the debtors is sufficient for claiming deduction under section 36(1)(vii) of the Income-tax Act. The assessee has placed reliance on the decision of the Andhra Pradesh High Court in State Bank of Hyderabad v. CIT [1988] 171 ITR 232. This, of course, is not a case of claim of bad debt after finalisation of the accounts. Apart from this, the Supreme Court in CIT v. Sun Engineering Works Pvt. Ltd. [1992] 198 ITR 297, disapproved the view expressed in the decision of the Andhra Pradesh High Court. We feel that writing off of bad debts, without charging the same in the profit and loss account is not a write off at all because assessment is made based on the audited accounts and the profit and loss account and balance sheet filed along with the returns. It is not enough if the assessee writes off the same in some of the books maintained by it, which do not form part of the audited accounts in....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nalisation of the accounts was made by the assessee, and the same was famished before the Department. The Tribunal has pointed out that there is no time limit for writing off of bad debts. We cannot agree with this proposition. We have already held that the writing off of bad debts should be done at the time of finalisation of the accounts for the previous year in which the debt had become bad and there cannot be finalisation of the accounts several times. This is a case of detection of suppressed income and consequently reassessment proceedings were initiated for assessment of escaped income. At this stage, the assessee is not entitled to conduct an investigation about the debts, declare them bad, and decide to write them off, years after the end of the relevant previous year. In fact, the debts that had become bad in the relevant previous year only can be written off at the time of finalisation of the accounts for that year. Therefore, the Tribunal"s observation that there is no time limit for writing off of bad debts cannot be accepted, and is against the scheme of accounting relevant for the income-tax assessment. Obviously, if the assessee is allowed to write off the bad debts....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nbsp; returned return filed on dated 21-5-1987 (section 147) orders 30-9-1986 &nb....
X X X X Extracts X X X X
X X X X Extracts X X X X
....; 7,37,440 1984-85 62,120 62,150 By letter dated 26-11- 2,06,560 (return on 30-3- 1987 denied suppres- &....
X X X X Extracts X X X X
X X X X Extracts X X X X
....m Raval v. CIT [1993] 115 CTR 518. On the other hand, counsel for the assessee has relied on the decision in CIT v. Mayank Rotoplast Industries [2002] 253 ITR 442 (Guj) (Appex.), wherein it was held, that if the survey yielded no incriminating materials the assessee will still be entitled to the benefit of the amnesty scheme for the disclosure made after survey. He has also relied on the decision of the Calcutta High Court in Anand Kumar Saraf v. CIT [1995] 211 ITR 562 to contend that the disclosure after search will entitle the assessee for the benefit of the amnesty scheme. Another decision cited by the assessee is a decision of this court in Joy (A. V.), Alukkas Jewellery v. CIT [1990] 185 ITR 638. We do not think it necessary to decide whether the declaration subsequent to search will entitle the assessee for the benefit of the amnesty scheme under the circular referred to above, because on the facts we find that the assessee has not made any bona fide declaration in the returns filed within the time provided for under the amnesty scheme introduced by Circular No. 453, dated 4th April, 1986. Though the assessee filed the returns before issue of notice under section 147 after se....
X X X X Extracts X X X X
X X X X Extracts X X X X
....se account and suppression in the sales account, and, ultimately, the income assessed was Rs.2,06,560. Therefore, on the facts, we find that the assessee has not made true and complete disclosure voluntarily at any stage much less within the time provided for declaration under the amnesty scheme, which expired on March 31, 1987. We find that the assessment of the escaped income is clearly attributable to the effort made by the Department in the search and the concrete proof obtained by them. The assessee at no stage has made true and full disclosure of income. But what the assessee has done was that it agreed for the additions when the Department confronted it with the data gathered on search. Therefore, the finding of the Commissioner of Income-tax (Appeals) and the Income-tax Tribunal that the assessee is entitled to immunity under the amnesty scheme as the assessee has made true and full disclosure before detection, is not sustainable. We are of the view that the cancellation of penalty by the first appellate authority and the order of the Tribunal confirming it are not tenable. However, we feel that for the assessment years 1981-82 and 1982-83, the assessee had filed the revise....