2011 (7) TMI 234 - AT - Income Tax

Revision u/s 263 - bad debt having been written off - it is manifest from the evidence available before us that the provisions of the Act contained in section 36 have not been complied with - it becomes manifestly clear that the assessment order is not framed in consonance with the express provisions of the Act and the interpretation given by the Hon ble Jurisdictional High Court has a binding effect on him - The appeal of the assessee is dismissed

Summary

Issues:
1. Revision under section 263 of the Income Tax Act regarding the treatment of bad debt.
2. Compliance with the provisions of section 36 of the Act in relation to bad debt write-off.
3. Application of legal principles in assessing whether the debt written off was bad debt.
4. Interpretation of the decision of the Hon'ble Jurisdictional High Court in a similar case.

Issue 1: Revision under section 263 of the Income Tax Act regarding the treatment of bad debt:
The appeal concerns the revision under section 263 of the Income Tax Act for the assessment year 2006-07. The ld. CIT considered the bad debt of Rs. 7,39,52,514 written off by the assessee as erroneous and prejudicial to the revenue's interests based on the decision of the Hon'ble Jurisdictional High Court. The CIT issued a show cause notice and set aside the assessment order, directing the Assessing Officer to pass a fresh order after providing an opportunity for a hearing. The appellant challenged this revision on various grounds, including the contention that the issue arose due to a change of opinion and lacked jurisdiction.

Issue 2: Compliance with the provisions of section 36 of the Act in relation to bad debt write-off:
The assessment order did not mention the bad debts written off, and there was no evidence that the assessee had treated the amount as bad debt in its books of account as required by section 36 of the Act. The argument was raised that the organization from which the debt was written off was a commercial organization, not a government entity, and therefore, government guarantee was not applicable.

Issue 3: Application of legal principles in assessing whether the debt written off was bad debt:
The Tribunal discussed the law on revision under section 263, emphasizing that the CIT must have material to form a prima facie opinion that the order is erroneous and prejudicial to the revenue. The decision highlighted that an order can be erroneous if passed in ignorance or violation of the law. The Tribunal clarified that the CIT's power to revise is not unfettered and must be exercised within the bounds of the law and principles of fairness.

Issue 4: Interpretation of the decision of the Hon'ble Jurisdictional High Court in a similar case:
The Tribunal found that the decision of the Hon'ble Jurisdictional High Court in a similar case was applicable to the facts of the present case. The Court held that the organization in question was controlled by the government, making the decision regarding bad debt treatment relevant. The Tribunal upheld the CIT's order under section 263, concluding that the assessment order did not comply with the Act's provisions and the High Court's interpretation had a binding effect.

In conclusion, the Tribunal dismissed the appeal of the assessee, upholding the CIT's order under section 263 of the Income Tax Act.