2010 (1) TMI 628 - AT - Income Tax

Revision On the issue of allowability of bad debts - Third member view - after the amendment there is no requirement in law to prove that the debt has actually beome bad. It is enough if an honest judgment has been exercised by the assessee to write off the debt In the instant case, the debt is overdue for more than five years and therefore, it can be said that the assessee has exercised an honest judgment. Thus, when there is no need to enquire whether the debt has become actually bad or not, title allowance thereof by the AO cannot be said to be prejudicial to be interests of Revenue. Since both the conditions under s. 263 are not fulfilled, the CIT iSTTot justified in setting aside the order of the AO. Change in the order of the tribunal - till the order is not communicated to the parties, it remains a proposed order and before communicating it to the parties, the Members can change it as many times as they want to. - Moreover, in a Third Member case, the original Members who differ on certain points, they do not become Junctus officio till the Third Member decides the issue and till effect has been given to the majority view and the same has been communicated to the parties. - Members do not become functus officio till the order is communicated to the parties. Regarding private communication between members of ITAT - since the internal communication extracted by the learned JM has no relevancy at all to resolve the real difference, the same should not have been made a part of the order. - Suffice it to say that the private spat made public in the order has placed the Tribunal in the position of Draupady who was stripped in public gaze, with the difference that for Tribunal there is no Krishna to protect her. My head hangs in shame to see the bare body of the mother that feeds me.

Summary

Issues:
1. Whether the order passed under section 263 of the IT Act regarding the claim of bad debt could be confirmed or quashed.
2. Whether initialled orders should be considered as Tribunal orders or proposed orders.
3. Whether internal notes and private discussions exchanged between Members should be part of the judicial order.

Analysis:

Issue 1:
The primary issue is whether the assessment order can be deemed erroneous and prejudicial to Revenue's interests concerning the allowability of bad debts. One Member opined that the lack of proper inquiry rendered the assessment order erroneous, while the other Member held that post-amendment, no requirement exists to prove the debt's actual bad status for it to be allowable. The argument presented was that the debt was written off after exhaustive recovery efforts, meeting the criteria for a bona fide commercial decision. Legal precedents were cited to support this position.

Issue 2:
Regarding the first additional question raised by the other Member, it was debated whether initialled orders constitute Tribunal orders or proposed orders. The opinion was that until communicated to the parties, such orders remain proposed and subject to change by Members. The decision aligned with a previous case's ruling on the matter.

Issue 3:
The last two questions raised by the same Member pertained to the relevance of internal notes and private discussions in the judicial order. It was emphasized that the core issue revolved around the allowability of bad debt, and the internal communication between Members was deemed irrelevant to the resolution of the primary dispute. The judgment highlighted the inappropriateness of including private exchanges in the public order, drawing a metaphorical comparison to a shameful public exposure without protection.

In conclusion, the judgment found that the assessment order, while potentially erroneous, did not meet the threshold of being prejudicial to Revenue's interests. The decision was based on the understanding that post-amendment, the mere writing off of a debt is sufficient for deduction claims, without the need to prove its actual bad status. The Tribunal directed the matter to the regular Bench for implementation of the majority view.