Delhi High Court In Commissioner Of Income Tax v. Ita 38/2003

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN TUESDAY, THE 20TH DAY OF DECEMBER 2011/29TH AGRAHAYANA 1933 ITA.No. 38 of 2003 ( ) ====================== ITA.168/C/2000 of I.T.A.TRIBUNAL,COCHIN BENCH APPELLANT/APPELLANT ============ M/S.SAMPANNA KURIES(P) LTD., REP. BY CHAIRMAN C.A.FRANCIS, HIGH ROAD, TRICHUR-1. BY ADV. DR.K.B.MUHAMED KUTTY (SR.) SRI.K.M.FIROZ RESPONDENT/RESPONDENT ============= DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-I, DIVISION-II, TRICHUR. BY ADV. SRI.P.K.R.MENON (SR.), SC ADV. SRI.JOSE JOSEPH, SC THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 20-12-2011 , THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: APPENDIX ANNEXURE A: TRUE COPY OF ASSESSMENT ORDER DT.13.1.1998. ANNEXURE B: TRUE COPY OF ORDER OF THE COMMISSIONER OF INCOME TAX, COCHIN,UNDER SEC.263 OF THE I.T. ACT DT.22.3.2000. ANNEXURE C: TRUE COPY OF ORDER OF THE INCOME TAX APPELLATE TRIBUNAL,COCHIN BENCH DT.30.1.2003. TRUE COPY P.S. TO JUDGE C.N.RAMACHANDRAN NAIR &K.VINOD CHANDRAN, JJ. .................................................................... I.T. Appeal No.38 of 2003 ....................................................................Dated this the 20[th] day of December, 2011. C.R. JUDGMENT Ramachandran Nair, J. This is an appeal filed under Section 260A of the Income Tax Actagainst the Single Bench order of the Tribunal declining to interferewith the order issued by the Commissioner under Section 263 of theIncome Tax Act directing revision of assessment for the purpose ofwithdrawing claim of bad debt allowed in the original assessmentunder Section 36(1)(vii) of the Income Tax Act. We have heard Seniorcounsel Dr.Mohammedkutty appearing for the appellant and StandingCounsel for the respondent. 2. The appellant is engaged in kurry business and the assessmentinvolved is for the year 1995-96. The assessee returned a net incomeof Rs.1,00,550/- after claiming deduction of Rs.3,69,550/- towards baddebt written off. Though the Assessing Officer allowed the claim, theCommissioner of Income Tax perused the records and noticed that the bad debt did not represent debts which had become irrecoverable orwritten off as bad debt in the accounts for the previous year relevant forthe assessment year. He, therefore, declared the assessment asprejudicial to the interest of the Revenue and directed revision of thesame. It is against this order of the Commissioner assessee filed appealbefore the Tribunal. The Tribunal through a detailed order held that theassessee had neither written off the debt by debiting the Profit and LossAccount nor is there anything to indicate that the debts had becomeirrecoverable which were still shown as payable by the debtors in theaccounts of the assessee. What is clear from the finding of all theauthorities is that the amounts remaining as debt due from the varioussubscribers who have got the chitty price amount, is claimed by theassessee as bad debt. Since on facts the Tribunal found that there is nowrite off of bad debt while finalising the accounts for the relevantprevious years, the Tribunal did not go into the question as to whetherthe debts had become irrecoverable. It is against this order of theTribunal assessee has come up in appeal before us. 3. Before us Senior counsel has relied on the decision of the ITA 38/2003 3. Before us Senior counsel has relied on the decision of the ITA 38/2003 Delhi High Court in COMMISSIONER OF INCOME TAX Vs.GLOBAL CAPITAL LTD. reported in (2008) 306 ITR 335 and that ofthe Patna High Court in LAWLYS ENTERPRISES P. LTD. Vs.COMMISSIONER OF INCOME TAX reported in (2009) 314 ITR 297wherein both the High Courts have held that in order to claimdeduction under Section 36(1)(vii) under the amended provisions after1st April, 1989, the assessee need not prove debt as irrecoverable orbad, but it is enough the assessee writes off the debt. Section 36(1)(vii)provides for write off of bad debt that has become irrecoverable. In ourview, the qualifying terms of debt, both bad and doubtful have gotdefinite meaning and content, the scope of which is not considered inthe above decisions. The High Courts of Delhi and Patna seem tohave been influenced by the deletion of the words “established to havebecome bad debt in the previous year” from the Section. In our view,even after deletion of these words, the Section makes it clear that thedebt to be written off should be irrecoverable. We do not know how adebt that is recoverable, particularly debts of chitty companies whichare covered by adequate security, can be written off when debt could be ITA 38/2003 easily recovered by resort to legal process. In any case we do not thinkthere is any need to consider whether we agree with the view expressedby the two High Courts in the above two decisions in this case becauseon facts the Tribunal has found that the appellant has not written off thebad debts by debiting the Profit and Loss Account. On the other handthe finding of the lower authorities including the Commissioner is thatthe amounts claimed as bad debt are still shown in the accounts of thedebtors and so much so, the appellant-assessee has not written off baddebt entitling him to claim deduction. 4. Assessee's counsel contended before us that writing off of baddebt in the Profit and Loss Account is not a mandatory requirement forclaiming deduction of bad debt. We are unable to accept thisproposition because Profit and Loss Account is the final computationof profit made by the assessee based on which assessment has to bemade. Unless bad debt is written off by debiting the Profit and LossAccount which necessarily means that the debtors' account should becredited or so much of the amount debited in the Profit and LossAccount should be written off from amount due from the debtors, the ITA 38/2003 writing off as contemplated under Section 36(1)(vii) is not satisfied.Even though counsel for the appellant-assessee contended that whenbad debt is recovered, there is provision for assessment of the sameunder Section 41, we do not think such a safety provision will entitlethe assessee to claim bad debt as a deduction without satisfying theconditions contained in Section 36(1)(vii) of the Act. We, therefore,dismiss the appeal as devoid of any merit. Sd/-C.N.RAMACHANDRAN NAIRJudge pms Sd/-K.VINOD CHANDRANJudgeTrue copy P.S. to Judge