2002 (11) TMI 260 - AT - Income Tax

Summary

Issues Involved:
1. Validity of the CIT's order as bad in law, void ab initio, and without jurisdiction.
2. Error in the CIT's holding that the AO's order was erroneous and prejudicial to the interest of Revenue.
3. Error in the CIT's observation regarding the write-off of bad debts and compliance with Section 36(1)(vii) of the IT Act.

Issue-wise Detailed Analysis:

1. Validity of the CIT's Order:
The assessee contended that the CIT's order was bad in law, void ab initio, and without jurisdiction. The argument was based on the premise that the CIT wrongly invoked the provisions of Section 263 of the IT Act, as the AO's order was neither erroneous nor prejudicial to the interest of the Revenue. The Tribunal noted that the CIT issued the notice under Section 263 because the AO allowed the claim under Section 80-I without reducing it by the amount of deduction under Section 80HH and failed to disallow and add back Rs. 11,98,000 being a provision for doubtful debts. The Tribunal found that the CIT was justified in invoking Section 263 as the AO's order was prejudicial to the interest of the Revenue.

2. Error in CIT's Holding on AO's Order:
The assessee argued that the deduction under Section 80-I should be computed without reducing it by the amount of deduction under Section 80HH. The Tribunal referred to previous decisions, including ITA No. 2552 and 2553/Del/2000 and ITA No. 3569/Del/91, which supported the assessee's contention that the deduction under Section 80-I is allowable without reducing the deduction under Section 80HH. The Tribunal concluded that the CIT was not justified in interfering with the AO's order on this score, as the settled legal proposition supports the assessee's claim.

3. Write-off of Bad Debts and Compliance with Section 36(1)(vii):
The CIT observed that the assessee did not write off bad debts of Rs. 11,98,000 by debiting the P&L account and instead credited the provision for bad and doubtful debts. The CIT held that this did not satisfy the conditions under Section 36(1)(vii) of the Act. The assessee argued that there was sufficient compliance with the provisions of Section 36(1)(vii) as the requisite amount was debited to the P&L account. However, the Tribunal noted that an explanation was inserted to Section 36(1)(vii) by the Finance Act of 2001 with retrospective effect from 1st April 1989, which clarified that any bad debt written off must not include any provision for bad and doubtful debts made in the accounts. The Tribunal held that the CIT was justified in disturbing the AO's order as there was non-compliance with the amended provisions of Section 36(1)(vii).

Conclusion:
The Tribunal dismissed the appeal of the assessee, concluding that:
- The CIT was justified in invoking the provisions of Section 263.
- The AO's order was prejudicial to the interest of the Revenue regarding the deduction under Section 80-I.
- The assessee did not comply with the provisions of Section 36(1)(vii) as amended by the Finance Act of 2001 with retrospective effect from 1st April 1989.