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2014 (2) TMI 565 - HC - Income TaxAllowability of bad debt claim Applicability of TRF Limited v. CIT 2010 (2) TMI 211 - SUPREME COURT Validity of Review u/s 254(2) of the Act Held that - The debts have been written off in the accounts have not been controverted by Revenue thus, there is no reason to interfere with the Order of the CIT A - The Tribunal, in the first round of its judgment, lost sight of the decision of the Supreme Court in case of TRF Limited, which was a binding decision directly on the point thus, it will surely give rise to rectification of the order - The Tribunal correctly recorded that the Department did not controvert that the debt was written off as bad debts the order of the CIT(A) upheld Decided against Revenue.
Issues:
1. Whether the Tribunal erred in allowing the bad debts claim without fulfilling the conditions laid down in the Act? 2. Whether the Tribunal erred in applying the decision of the Supreme Court on bad debts to alleged 'good debts'? 3. Whether the Tribunal erred in reviewing its earlier order under the IT Act? Analysis: Issue 1: The case involved an appeal by the Revenue against the Tribunal's order allowing a bad debts claim of Rs. 1,27,54,092. The Tribunal, in the initial order, partially allowed the Revenue's appeal, stating that the assessee did not fulfill the conditions laid down in the Act for claiming bad debts. The Tribunal observed that the assessee had a good relationship with the debtor and did not meet the conditions under Section 36(1)(vii). The Tribunal confirmed an addition of Rs. 1,07,67,742 as not meeting the criteria, while allowing the balance as bad debts. The assessee then sought rectification based on the TRF Limited case, where it was held that after April 1, 1989, it is not necessary to establish irrecoverability. The Tribunal rectified the error and upheld the CIT [A]'s order, as the debt was written off as bad debts in the accounts. Issue 2: The second issue raised was whether the Tribunal erred in applying the Supreme Court's decision on bad debts to alleged 'good debts.' The Tribunal, in its rectified order, noted that the debts were written off in the accounts and the Revenue did not contest this fact. Citing the TRF Limited case, the Tribunal upheld the CIT [A]'s decision based on the Supreme Court's ruling that after April 1, 1989, it is sufficient if the bad debt is written off in the accounts. The Tribunal found no reason to interfere with the order and dismissed the Revenue's appeal. Issue 3: Regarding the third issue of the Tribunal reviewing its earlier order, it was noted that the Tribunal had already passed an order recalling the previous adverse order before issuing the fresh order on the rectification application. The High Court questioned whether the Department could challenge the fresh order merely on the ground of rectification powers. The Court found that the Tribunal correctly applied the law laid down by the Supreme Court in the TRF Limited case and upheld the CIT [A]'s order. The Court dismissed the Tax Appeal, stating that no question of law was made out. In conclusion, the High Court upheld the Tribunal's decision based on the TRF Limited case law and found no merit in the Revenue's appeal.
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