The Commissioner Of Income Tax v. M/S Punjab Tractors Ltd

IN THE HIGH COURT OF PUNJAB AND HARYANA ATCHANDIGARH. I.T.R. No.85 of 1998Date of decision: 14.9.2009 The Commissioner of Income Tax. Vs. M/s Punjab Tractors Ltd. -----Applicant -----Respondent CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOELHON'BLE MRS. JUSTICE DAYA CHAUDHARY Present:-Mr. Rajesh Katoch, Standing Counselfor the revenue. for the revenue. Mr. Pankaj Jain, Advocatefor the assessee. ORDER: ----- 1. The Income Tax Appellate Tribunal, Chandigarh hasreferred following question of law for opinion of this Court underSection 256(1) of the Income Tax Act, 1961 (for short, “the Act”),arising out of its order dated 29.11.1994 in I.T.A. Nos.338 &454/Chandi/1989 relating to assessment year 1984-85:- “Whether, on the facts and in the circumstances of thecase, the ITAT was right in law in deleting the additionof Rs.2,62,326/- made by the Assessing Officer onaccount of bad debts written off because no efforts forrecovery were made at all and the court decree wasobtained in the year 1988?” 2. The assessee claimed bad debt in respect ofpayments for supply of tractors to M/s Aneja Traders. TheAssessing Officer did not allow the deduction on that account onthe ground that the assessee did not show that any seriousefforts were made for the recovery. The CIT(A) upheld the saidview. However, the Tribunal held that the assessee waited forsome time and was fully conversant with the fact that debt wasirrecoverable. The decision of the assessee to declare theamount as bad debt was genuine. 3. The finding of the Tribunal is as under:- “After carefully considering the rival submissions, weare of the opinion that the assessee is the best judgeto decide as to when a particular debt has to betreated as bad and irrecoverable. In the instant case,the goods had been supplied in June, 1982 but thecheques issued by the purchaser had beendishonoured in December, 1982. The assesseewaited for some more time to write off the debt as badand irrecoverable in the balance sheet as on30.6.1983 relevant to assessment year 1984-85. Aspointed out by the learned counsel for the assessee,the Assessee’s books of account are not only subjectto statutory audit but are also under the control of theComptroller and Auditor General of India and a suchthe write off of the amount of Rs.2,62,326/- must betreated to be based on the honest judgment. It is truethat the assessee filed a suit against the purchaserand obtained an ex-parte decree also and the debtorappeal against the decree was also dismissed by theDistrict Judge, Ropar in 1992, but that decree was however, a paper decree because nothing in fact wasreceived by the assessee till date. We, therefore,hold that the assessee was justified in writing off theamount as bad and irrecoverable in the year underconsideration and that write off was based on anhonest judgment and conviction of the assessee. Wealso accept the alternative plea of the learned counselfor the assessee that in view of the decision ofTribunal in the case of Gokaldas Pragji (Supra) theamount in question was allowable as a business lossu/s 28(1) of the Act. Thus viewed from any angle, theassessee was entitled to a deduction of Rs.2,62,326/-.We hold and direct accordingly.” 4. We have heard learned counsel for the parties. 5. Learned counsel for the revenue submits that theTribunal was not justified in holding that the opinion of theassessee was genuine for declaring the amount as bad debt. Hesubmits that even though after 1.4.1989, there is an amendmentto Section 36 (1)(vii), for the period prior thereto, the assesseewas required to show that there was justification for writing off thebad debt. He also submitted that claim for bad debt can bepermitted only if it was established that the debt became bad debtin the previous year concerned, as held inChettinad Co.P.Ltdv.CIT(1984) 147 ITR 724 (Mad.) and CITv. AnnapuraniVeerappan(1991)193 ITR 426 (Mad.). 4. We have heard learned counsel for the parties. 5. Learned counsel for the revenue submits that theTribunal was not justified in holding that the opinion of theassessee was genuine for declaring the amount as bad debt. Hesubmits that even though after 1.4.1989, there is an amendmentto Section 36 (1)(vii), for the period prior thereto, the assesseewas required to show that there was justification for writing off thebad debt. He also submitted that claim for bad debt can bepermitted only if it was established that the debt became bad debtin the previous year concerned, as held inChettinad Co.P.Ltdv.CIT(1984) 147 ITR 724 (Mad.) and CITv. AnnapuraniVeerappan(1991)193 ITR 426 (Mad.). 6. Learned counsel for the assessee submitted that theassessee had genuinely thought that the debt was not recoverable. The same could be claimed as bad debt for theperiod prior to 1.4.1989 also. Alternatively, the amount could beclaimed to be business loss in the year in question. In the presentcase, the Tribunal, for valid reasons held that the opinion of theassessee was genuine. In such circumstances, the Tribunal wasjustified in deleting the additions on that account. 7. Learned counsel for the assessee relies on judgmentsof the Bombay High Court in Jethabhai Hirji and JethabhaiRamdasv. CIT(1979) 120 ITR 792 (Bom.) andJhunjhunwalaCompanyv. Assistant Commissioner of Income Tax(2003)259 ITR 178 (Bom), holding that a prudent businessman had toact on the basis of the material before him and if there is no basisfor recovering the amount, he could certainly write off the debt asbad debt. 8. We are of the view that it is not the case of therevenue that the debt was ever recovered or had ever becomerecoverable. Before the Tribunal, the contention on behalf of therevenue was that the amount may be treated as bad debt insubsequent year. While the debt has to be allowed as bad debtin the year in which the same became bad debt, it will depend onfacts of each case as to the year in which the same became baddebt, depending upon judgment of the assessee unless such ajudgment was not genuine. In the present case, the judgment ofthe assessee that the amount became bad debt in the yearrelevant for assessment i.e. 1984-85 itself, could not be rejected. Mere fact that assessee continued efforts by obtaining decreewhich could not be executed in subsequent year is not enough toreject the opinion of the assessee that the amount had alreadybecome bad debt. The assessee had valid reasons for itsjudgment that the amount was not recoverable, as held by theTribunal. 9. In view of above, the question referred is answeredagainst the revenue and in favour of the assessee. (ADARSH KUMAR GOEL) JUDGE September 14, 2009ashwani ( DAYA CHAUDHARY ) JUDGE