2009 (9) TMI 965 - AT - Income Tax

Summary

Issues Involved:
1. Deletion of penalty imposed u/s 271(1)(c) of the IT Act, 1961.
2. Justification of disallowance of bad debts claimed by the assessee.

Summary:

Issue 1: Deletion of Penalty Imposed u/s 271(1)(c) of the IT Act, 1961

The Revenue appealed against the CIT(A)'s decision to delete the penalty of Rs. 5,79,673 imposed by the AO u/s 271(1)(c) of the IT Act, 1961. The penalty was originally levied because the AO held that the assessee understated its income by claiming a write-off of bad debts without valid justification. The CIT(A) deleted the penalty, stating that the assessee had written off the bad debt in its books of account, satisfying the requirement of s. 36(1)(vii) of the Act. The CIT(A) relied on decisions such as CIT vs. Star Chemicals (Bombay) (P) Ltd. and Dy. CIT vs. Oman International Bank SAOG, which supported the view that once a debt is written off in the books, it satisfies the requirement for claiming a bad debt deduction. The CIT(A) also noted that the assessee disclosed full particulars of the bad debt and acted under a bona fide belief that the claim was allowable.

Issue 2: Justification of Disallowance of Bad Debts Claimed by the Assessee

The AO disallowed the bad debt claim of Rs. 15,84,131 on the grounds that the assessee did not provide evidence of efforts made to recover the amount. The assessee argued that the claim was made in good faith as the party to whom goods were supplied could not be traced. The CIT(A) found that the assessee's claim was bona fide and supported by relevant case law, which indicated that once a debt is written off, it is allowable as a deduction. The Tribunal upheld the CIT(A)'s decision, noting that the assessee's claim was not patently erroneous and was made in compliance with the statutory requirement of writing off the debt in the books of account. The Tribunal also rejected the Revenue's argument that the penalty should automatically follow the disallowance, emphasizing that the imposition of penalty requires a determination of concealment or furnishing of inaccurate particulars, which was not evident in this case.

Conclusion:

The Tribunal affirmed the CIT(A)'s decision to delete the penalty u/s 271(1)(c) of the IT Act, 1961, and dismissed the Revenue's appeal. The Tribunal concluded that the assessee's claim for bad debt was made in good faith, with full disclosure of particulars, and was supported by relevant legal provisions and case law.