2014 (5) TMI 224 - HC - Income Tax

Deletion of disallowance of sundry debtors Debtors not disclosed during the search Bogus transactions books/ accounts not maintained u/s 36(1)(vii) of the Act T.R.F. Ltd., v. CIT 2010 (2) TMI 211 - SUPREME COURT not considered - Held that - It is not necessary for the assessee to establish that the debt, in fact, has become irrecoverable - It is enough if the bad debt is written off as irrecoverable in the accounts of the assessee - the AO has not examined whether the debt has, in fact, been written off in the accounts of the assessee thus, the order of the Tribunal is set aside and the matter is remanded to the Appellate Authority for fresh adjudication Decided in favour of Revenue. Point of levy of surcharge u/s 113 of the Act - Deletion of levy of surcharge by the AO Held that - Following CIT v. K.C. Puttaswamy Gowda 2011 (7) TMI 572 - KARNATAKA HIGH COURT the proviso to section 113 of the Act is curative in nature and it merely clarifies that for a relevant date for applicability of the financial year would be the year in which the search is initiated u/s 158BC - surcharge is payable by the assessee Decided in favour of Revenue. Condonation of delay of three months Charging of interest u/s 158BFA(1) of the Act Held that - Following CIT v. K.L. Srihari 2009 (7) TMI 858 - KARNATAKA HIGH COURT - the Tribunal is clearly in error in directing the deletion of the interest part on the tax amount as ultimately determined but for the period during which there is a delay in filing the return Decided in favour of Revenue.

Summary

Issues involved:
1. Disallowance of sundry debtors claim by the assessee
2. Levy of surcharge by the Assessing Officer
3. Condoning delay in charging interest under the Income Tax Act

Detailed Analysis:
1. Disallowance of Sundry Debtors Claim:
The High Court considered whether the Appellate Authorities were correct in setting aside the disallowance of sundry debtors claim by the assessee. The Revenue argued that the claim was not disclosed during the search, lacked bill support, and the alleged debtors had only dealt with the assessee. The Court referred to the judgment in T.R.F. Ltd. v. CIT, stating that post-April 1, 1989, it is sufficient for the bad debt to be written off in the accounts of the assessee. The Assessing Officer failed to verify this aspect, leading to a remand for reconsideration by the Appellate Authority in light of the Supreme Court's ruling.

2. Levy of Surcharge by the Assessing Officer:
The Court addressed the correctness of deleting the levy of surcharge by the Assessing Officer based on the Finance Act. Referring to CIT v. K.C. Puttaswamy Gowda, the Court noted that the issue was recurring and pending before a larger Bench of the Supreme Court. It cited the Apex Court's judgment in CIT v. Suresh N. Gupta to clarify that the proviso to Section 113 was curative in nature and applicable from the year of search initiation. The Court directed the Assessing Officer to await the Supreme Court's decision before proceeding on the surcharge matter.

3. Condoning Delay in Charging Interest:
The Court examined whether the Appellate Authorities were correct in condoning a 3-month delay in charging interest under the Income Tax Act. Referring to CIT v. K.L. Srihari, the Court emphasized that block assessment under Chapter XIV-B is a self-contained code, and interest should not be deleted for delays in filing returns. The Court ruled in favor of the Revenue, stating that interest under Section 158BFA(1) is applicable, and the Tribunal's decision to delete interest was erroneous.

In conclusion, the High Court set aside the Tribunal's findings on the first issue, remanding it for fresh consideration in line with the Supreme Court's ruling. The Court directed the Assessing Officer to await the Supreme Court's decision on the surcharge matter and upheld the applicability of interest under Section 158BFA(1). All contentions related to the first issue were kept open, and the appeals were disposed of without costs.