1982 (2) TMI 100 - AT - Income Tax

Summary

Issues:
1. Disallowance of bad debts by the ITO upheld by CIT (Appeals).
2. Levy of interest under s. 139(8) on the assessee-firm.
3. Consideration of waiver or reduction of interest under s. 139(8) by the ITO.

Analysis:

1. The first issue pertains to the disallowance of bad debts amounting to Rs. 2,664 by the ITO, which was sustained by the CIT (Appeals). The assessee contended that the debts had become bad during the same year, but the Revenue authorities objected, stating the write-off was premature. The Tribunal found it unnecessary to determine when the debts turned bad, emphasizing that the debts were trade debts and had indeed become bad. In the interest of justice, the matter was remanded to the ITO to ascertain the actual year the debts became bad and allow them as required under s. 36(2)(iv) of the IT Act.

2. The second issue revolves around the levy of interest of Rs. 10,028 under s. 139(8) on the assessee-firm, treated as an unregistered firm by the ITO. The assessee argued that treating a registered firm as unregistered for interest levy violated Art. 14 of the Constitution, citing a Karnataka High Court decision. However, the Tribunal followed a Punjab & Haryana High Court decision, upholding the interest levy under s. 139(8) as if the assessee was unregistered, given conflicting legal interpretations. The Tribunal reasoned that when views on constitutional validity conflict, the interpretation upholding the provision's validity should prevail.

3. The final issue raised by the assessee was that the ITO should have considered waiving or reducing the interest under s. 139(8) based on the circumstances of the case. Citing a Calcutta High Court decision, the assessee argued for the ITO's examination of interest waiver or reduction. The Tribunal agreed with the assessee, directing the ITO to reevaluate whether the circumstances warranted waiving or reducing the interest.

In conclusion, the Tribunal partially allowed the appeal, remanding the matter of bad debts disallowance for proper assessment of the year debts turned bad, upholding the interest levy under s. 139(8) as if the firm was unregistered based on conflicting legal precedents, and directing the ITO to reconsider the interest waiver or reduction based on the case's circumstances.