2008 (4) TMI 385 - AT - Income Tax

Rectification of mistakes u/s 154 - Mistake apparent from record - Assessing Officer to granted deduction in respect of bad debts which were written off in the relevant previous year - HELD THAT - A mistake apparent from record is not only a mistake in the acts of an authority; even a wrongful inertia of a public authority is also a mistake apparent from record. All the powers of someone holding a public office are powers held in trust for the good of public at large. There is, therefore, no question of discretion to use or not to use these powers. It is so for the reason that when a public authority has the powers to do something, he has a corresponding duty to exercise these powers when circumstances so warrant or justify. The nature of finding or direction under section 153(3), Hon ble Supreme Court s following observations in the case of Rajinder Nath v. CIT 1979 (8) TMI 3 - SUPREME COURT . It is thus clear that the CIT(A) s finding that bad debts are not allowable in the assessment year 2001-02 because the same is allowable in the assessment year 2002-03, which is the assessment year of actual write off, is the kind of finding which is covered by the provisions of section 153(3) of the Act. In view of the fact that the CIT(A) has admittedly given a finding to the effect that the bad debt claim is admissible in the year of actual write off, which is previous year relevant to the AY 2002-03, coupled with the fact that the AO has the powers to do assessment, reassessment or recomputation on the assessee in consequence of, or to give effect to such a finding contained in an order passed by the CIT(A), the AO should have passed the order recomputing and correctly assessing the taxable income of the assessee for the AY 2002-03. By not doing so, the AO has not given effect to the finding contained in the CIT(A) s order for the AY 2001-02, and, to that extent, the AO s inertia is clearly a mistake apparent from record. This inaction is clearly contrary to the scheme of the Act which permits any assessment, reassessments and recomputation orders to give effect to, or in consequence of, any findings or directions not only in the CIT(A) s order but also orders of the Tribunal, Hon ble High Courts, Hon ble Supreme Court as well as of any Court in a proceeding otherwise than in appeal. AO, as indeed any other authority in the IT Act, cannot turn to the assessee and say that although he has authority to do something for the good of the assessee, it is not necessary that he must exercise that authority. The inaction of the AO, therefore, is a mistake apparent from the record, and there cannot be any two reasonable opinions on whether or not the AO should give effect to the finding of the CIT(A). It is also important to bear in mind that any other view of the matter will result in a double jeopardy to the assessee which will constitute absurdity besides being grossly inequitable and patently unfair. An interpretation which leads to such absurdities, as is the settled law, is to be avoided. Therefore, we uphold the grievance of the assessee and direct the AO to give proper effect to the findings of the CIT(A) for the AY 2001-02 by recomputing the taxable income for the AY 2002-03 and allowing the bad debt in the year in which it is actually written off, i.e., 2002-03. The assessee gets the relief accordingly. In the result, the appeal is allowed. It was so pronounced in the open Court upon conclusion of hearing.

Summary

Issues:
Rectification of mistakes under section 154 read with section 250 of the Income-tax Act, 1961 for the assessment year 2002-03 regarding deduction of bad debts.

Analysis:
The appeal concerns the rejection of a deduction claim for bad debts by the Assessing Officer in the assessment year 2001-02, as the bad debt was not actually written off. The CIT(A) upheld this decision, stating that the entry made was a provision for bad debts and not an actual write-off. The assessee, in the assessment year 2002-03, did not claim the bad debt again but mentioned it as written off in the previous year. The CIT(A) held that no rectifiable mistake existed under section 154 and rejected the claim, leading to the current appeal.

The key legal point addressed is the interpretation of section 153(3) of the Act, which allows assessments, reassessments, or recomputations to be made at any time to give effect to findings or directions in orders under section 250. The tribunal emphasized that a finding necessary for the disposal of a case, as in the present scenario where bad debts are allowable in the year of actual write-off, falls within the ambit of section 153(3). The Assessing Officer's failure to act on the CIT(A)'s finding constitutes a mistake apparent from the record, as per the legal duty to exercise powers for the benefit of the public.

The tribunal concluded that the Assessing Officer should have recomputed the taxable income for the assessment year 2002-03 by allowing the bad debt written off in the previous year, as directed by the CIT(A). Failure to do so was deemed a clear mistake apparent from the record, contrary to the Act's scheme. Upholding the assessee's grievance, the tribunal directed the Assessing Officer to give effect to the CIT(A)'s findings and allow the bad debt in the year of actual write-off, ensuring relief for the assessee and highlighting the importance of equitable and fair tax administration.

In summary, the tribunal allowed the appeal, emphasizing the legal duty of public authorities to act on findings and directions in orders under section 250, rectifying the mistake apparent from the record and granting relief to the assessee by allowing the bad debt deduction in the appropriate assessment year.