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TMI Blog2013 (1) TMI 12X X X X Extracts X X X X X X X X Extracts X X X X ..... r, a prerequisite in terms of s. 36(2). The premise of a claim for a bad debt, it may be appreciated, is that the same having already offered as income (for any year), its subsequent non-recovery would warrant a reduction in income (for the year of write off). Further, it could also be that the same (loan and advances) represent a part of the assessee's money lending business, to which the law draws an exception as the same represents a part of the stock-in-trade of such business (s. 36(1)(vii) r/w s. 36(2)(i)). However, there is nothing on record which indicates so, or even if the assessee is in money lending business. That is, there is an apparent non-satisfaction of the essential condition of sec. 36(2), and which clearly impacts not only the assessee's claim u/s. 36(1)(vii), which in any case stands disallowed, but also, concomitantly, the merits of its claim and, thus, that of its explanation in the penalty proceedings. How could then, under such circumstances, one may ask, the assessee's claim be, or considered to be, bona fide, or an explanation in its respect be so'? The matter is restored back to the file of the AO to adjudicate the same afresh per a speaking order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as well as initiated penalty proceedings in its respect. No appeal against the said assessment was preferred by the assessee. 2.2 In the penalty proceedings, the assessee-company explained that the amount under reference was not recoverable from the concerned debtors. The relevant details had been submitted, and there was no intention or attempt to either conceal or to furnish inaccurate particulars of income. A mere difference of opinion, i.e., of the claim being required to be made by way of a write off of the relevant asset/s in its books, as against a provision in its respect, ought not to oust the assessee's case as being not bona fide; all the details being on record. The AO, however, was of the clear view that a provision for bad and doubtful debt in accounts does not amount to its write off and, therefore, there is no basis for a claim u/s. 36(1)(vii) of the Act, much less a valid one. In further appeal, the assessee found favour with the ld. CIT(A), and on the same basis, i.e., that a mere technical error in claiming an irrecoverable amount, i.e. by way of a provision as against a write off of the relevant asset, would not attract penalty. It was only a case of wrong no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he law in the matter, with particular reference to the decision by the apex court in the case of Reliance Petroproducts (P.) Ltd. (supra), relied upon by the assessee in the instant case. 4.3 The issue thus boils down to the assessee's explanation. It is claimed that the 'provision' was made only by way of a technical mistake; the impugned amount being not recoverable, so that it may well have been by way of a write off and, therefore, ought to be considered as so; the amount having not been received subsequently. In fact, if so, i.e., where the assessee is able to exhibit what it states, no disallowance, much less a levy of penalty, even as observed by the ld. CIT(A), ought to rise; it being trite that what is the material is the substance of the transaction and not its form, which may be deficient or technically not correct. However, it is to be, firstly, noted that the difference between a write off of a debt as irrecoverable and a provision against the same on account of or for it being bad and doubtful for recovery, is not technical but factual and, further, real and not imaginary, or only one of form or name, as considered or understood by the ld. CIT(A). This is more so in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by facts, precludes its acceptance as such. It was nevertheless fully open to the assessee to show that the provision is in substance and in fact a write off, as where both the provision account and the corresponding debtor account/s are not carried over in its accounts to the following year, so that there has been in fact a write off. The assessee has toward this end submitted its balance-sheet. The same, however, is again not certified and, thus, cannot be accepted as such. It is only where the assessee's accounts for the following year (i.e., the previous year relevant to the assessment year 2006-07) show that there has been no carry over of the provision as well as. and correspondingly, the relevant debtor's account/s, that it would stand established as a fact that the provision has been written off against the relevant debt and, therefore, though stated to be a provision, the impugned amount actually represents a write off, i.e., in substance, even as held by the apex court in the case of Vijaya Bank v. CIT [2010] 323 ITR 166. Rather as aforestated, in such circumstance(s), if shown, there is no occasion for a disallowance, not to speak of the levy of penalty. The assessee's ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onceal this fact. Put differently, the inference as to the assessee's bona fides flow from its conduct of full disclosure. It is not necessary that the same, i.e., the bona fides of its explanation, which no doubt are to be shown by an assessee, is to be so only on the basis of some materials. 4.6 The only rider, however, would be where the condition(s) of section 36(2) are not satisfied. We say so as would be presently seen, for more than one reason. There was. firstly, no examination of this aspect at any stage, and which is vital to the assessee's claim, whose only explanation has been the irrecoverability of the impugned amount, and on which basis in fact we have held its claim to be bona fide, so that it (explanation) was prima facie valid. The assessee, while divulging the primary facts during the course of assessment proceedings, submitted the details of its claim as under:- 1. Cheque in transit Rs. 54,333/- 2. Suspense A/c Rs. 1,15,373/- 3. Tata Iron Steel Ltd. Rs. 7,25,000/- Further, that while the amount of Rs. 2,69,706/- lacs pertains to earlier year (s), that for Rs. 6.25 lacs relates to the cu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to be, bona fide, or an explanation in its respect be so'? 4.7 In view of the foregoing, we only deemed fit and proper that the matter is restored back to the file of the AO to adjudicate the same afresh per a speaking order in accordance with law, allowing the assessee a proper opportunity to present its case on all aspects thereof, i.e., to show as to how, despite an uncontested disallowance in its respect, the deduction claimed u/s. 36(1)(vii) of the Act does not suffer from lack of any bona fides or does not fall within either Explanation 1(A) or 1(B) of section 271(1)(c) of the Act. We decide accordingly. 4.8 It may appear that we have, in deciding this appeal, and in the manner done, travelled outside its scope. The claim, if levelled, would be misplaced. The scope of the issue arising for our adjudication in the instant case has been as set out at the beginning of this order (refer para 2.1). In so delineating the issue, we have acted well within our powers; the province of the Tribunal being to determine and decide the issue arising by applying the law as explained and expounded by the higher courts of law. If in doing so it finds that the relevant facts require deter ..... X X X X Extracts X X X X X X X X Extracts X X X X
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