2007 (7) TMI 438 - AT - Income Tax

Summary

Issues Involved:
1. Rectification of Tribunal's Order
2. Claim of Bad Debts and Advances Written Off
3. Applicability of Section 36(1)(vii) and Section 36(2)
4. Applicability of Section 28/37
5. Precedence of Judicial Decisions

Summary:

1. Rectification of Tribunal's Order:
The assessee filed a Miscellaneous Application seeking rectification of the Tribunal's order dated 31-8-2006 in ITA No. 1948/Mum./2003 for the assessment year 1998-99, claiming certain mistakes apparent from the record.

2. Claim of Bad Debts and Advances Written Off:
The assessee had written off Rs. 23,93,882 as bad debts under "Project advances" and written back Rs. 8,75,799, resulting in a net write-off of Rs. 15,18,083. Additionally, the assessee claimed bad debts of Rs. 34,51,801 for advances given for packing materials and raw materials, with a net write-off of Rs. 4,44,088 after writing back Rs. 30,07,313. The Assessing Officer disallowed these claims, stating that the primary condition of section 36(2) was not satisfied and that the advances were not irrecoverable.

3. Applicability of Section 36(1)(vii) and Section 36(2):
The CIT(A) allowed the assessee's claim, treating the write-off as a business loss u/s 28 read with section 37. However, the Tribunal restored the matter to the CIT(A) for fresh decision, emphasizing that a debt can be written off only when it is in the revenue field as per section 36(2). The Tribunal noted that the amounts written off could not be allowed under the general provisions of section 37 when specific provisions in section 36(1)(vii) read with section 36(2) existed.

4. Applicability of Section 28/37:
The assessee argued that the loss could be claimed under sections 28/37, citing the judgment in T.J. Lalvani v. CIT [1970] 78 ITR 176 (Bom.). The Tribunal, however, maintained that section 36(1)(vii)/36(2) being a special provision would apply, not the general provisions of section 37. The Tribunal also highlighted that the loss eligible for allowance under section 28/37 is only a trading loss and not a capital loss.

5. Precedence of Judicial Decisions:
The assessee contended that the Tribunal erred in preferring the judgment of the Hon'ble Madras High Court in South India Surgical Co. Ltd. v. ACIT [2006] 287 ITR 62 (Mad.) over the decision of a Special Bench of the Tribunal in Dy. CIT v. Oman International Bank, SAOG [2006] 100 ITD 285 (Mum.). The Tribunal clarified that in a hierarchical system, the decisions of higher courts like High Courts must be accepted over those of Tribunals.

Conclusion:
The Tribunal dismissed the assessee's Miscellaneous Application, stating that the issues raised were matters of debate requiring elaborate reasoning and could not be addressed u/s 254(2). The matter was already restored to the CIT(A) for a fresh decision, and the CIT(A) was directed to independently examine all relevant aspects of the case uninfluenced by the observations made in this Order.