9911796707
TMI Blog2001 (11) TMI 68X X X X Extracts X X X X X X X X Extracts X X X X ..... y, I.T. R. No. 21 of 1998, arises out of the order of the Tribunal dismissing the assessment appeal of the assessee for the assessment year 1986-87. The assessee is a partnership firm, running a bar hotel at Kottayam. The business premises of the assessee and the residential premises of the partners were searched by the Income-tax Department on April 9, 1986, and the records relevant for the assessment years 1982-83 to 1986-87 were recovered. Prior to the issue of notice on January 13, 1987, proposing income escaped assessments under section 148 of the Income-tax Act, 1961, the assessee filed revised returns on September 30, 1986, for the assessment years 1981-82 and 1982-83, claiming to be returns under the amnesty scheme. However, assessments were completed under section 147 for the assessment years 1981-82 and 1982-83 and under section 143(3) for the assessment years 1984-85 and 1986-87 by making further additions to the income returned by the assessee and penalty under section 271(1)(c) was also levied after rejecting the assessee's claim for immunity under the amnesty scheme for all the years except for the year 1986-87. The first appeals filed against assessments completed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ibunal on these issues in favour of the assessee, whereunder bad debts were ordered to be allowed, and penalties were cancelled by the Tribunal for all these assessment years. Though the assessment for the assessment year 1986-87 was also completed pursuant to the data gathered on the same inspection, the Tribunal declined to allow write-off of bad debts claimed by the assessee, for the reason that the assessee has not in fact written off the bad debts, nor did it file details of bad debts either before the Assessing Officer or before the Tribunal. According to the assessee, it was entitled to the same opportunity granted by the Tribunal for the earlier assessment years 1982-83 and 1984-85, and so much so the assessee questions the legality and propriety of the order of the Tribunal in declining to grant an opportunity to them to write off the bad debts for the assessment year 1986-87. Accordingly, the question referred at the instance of the assessee in I. T. R. No. 21 of 1998 is for the purpose of getting bad debts written off. We have heard Sri P. K. R. Menon, senior counsel for the Revenue, and Sri Pathrose Mathai, learned counsel for the assessee. For the sake of completen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase, the Tribunal is right in holding that the disclosure made by the assessee in the, amnesty returns' could be considered as having been made voluntarily and in good faith and are not the findings, such as 'amnesty returns'; 'voluntarily'; 'good faith', wrong, unreasonable and against law and logic? (4) Whether, on the facts and in the circumstances of the case, the Tribunal is right in law and fact in confirming the cancellation of penalty levied under section 271(1)(c)?" I. T. R. No. 21 of 1998 (at the instance of the assessee): "Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in law in not giving the assessee the benefit of write off of bad debts in the books of account even though the Tribunal had given the benefit of such write off in the assessee's own case for the assessment years 1985-86 and earlier years?" Broadly speaking, the issues can be summarised as follows: "(1) Whether the assessee is entitled to write off of bad debts in reassessment proceedings initiated under section 147 of the Income-tax Act pursuant to search conducted by the Department? (2) If the answer to the above question is in the affirmati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in reassessment proceedings is against the scheme contemplated in the Act. However, the Tribunal accepted the assessee's case stating that the write off of bad debts in the personal account of the debtors is sufficient for claiming deduction under section 36(1)(vii) of the Income-tax Act. The assessee has placed reliance on the decision of the Andhra Pradesh High Court in State Bank of Hyderabad v. CIT [1988] 171 ITR 232. This, of course, is not a case of claim of bad debt after finalisation of the accounts. Apart from this, the Supreme Court in CIT v. Sun Engineering Works Pvt. Ltd. [1992] 198 ITR 297, disapproved the view expressed in the decision of the Andhra Pradesh High Court. We feel that writing off of bad debts, without charging the same in the profit and loss account is not a write off at all because assessment is made based on the audited accounts and the profit and loss account and balance sheet filed along with the returns. It is not enough if the assessee writes off the same in some of the books maintained by it, which do not form part of the audited accounts including the profit and loss account based on which assessment is made. Unless the write off took place at th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bunal has pointed out that there is no time limit for writing off of bad debts. We cannot agree with this proposition. We have already held that the writing off of bad debts should be done at the time of finalisation of the accounts for the previous year in which the debt had become bad and there cannot be finalisation of the accounts several times. This is a case of detection of suppressed income and consequently reassessment proceedings were initiated for assessment of escaped income. At this stage, the assessee is not entitled to conduct an investigation about the debts, declare them bad, and decide to write them off, years after the end of the relevant previous year. In fact, the debts that had become bad in the relevant previous year only can be written off at the time of finalisation of the accounts for that year. Therefore, the Tribunal"s observation that there is no time limit for writing off of bad debts cannot be accepted, and is against the scheme of accounting relevant for the income-tax assessment. Obviously, if the assessee is allowed to write off the bad debts after the close of the accounts for the relevant year, it is as if the debt has become bad at a later time a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8,810 1982-83 98,750 2,58,750 3,82,653 7,37,440 1984-85 62,120 62,150 By letter dated 26-11- 2,06,560 (return on 30-3- 1987 denied suppres- 1987) sion ------------------------------------------------------------------------------------------------------------------------------- The assessee did not file any serious objection before the Assessing Officer against the proposal for penalty, but only tried to protract the matter by requesting for time again and again. The assessing authority, however, considered the entire facts and circumstances and held that income assessed is based on material gathered on search and the assessee is not entitled to the benefit of immunity claimed because the assessee did not make a true and full disclosure. Accordingly, he levied penalty under section 271(1)(c) of the Act for the years 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fter search for the assessment years 1981-82 and 1982-83 on September 30, 1986, the disclosure made therein was not full and complete is evident from the figures furnished in paragraph 8 above. The assessee has put up a belated claim of write off of bad debt to depress the concealment noticed after search and besides all this, as against the income of Rs.2,16,633 declared by the assessee as coming under the amnesty scheme, the assessment sustained was at Rs.4,98,810 for the assessment year 1981-82. Similarly, for the assessment year 1982-83, the assessee filed an amnesty return disclosing Rs.2,58,750 as against the assessment sustained at Rs.7,37,440. The amnesty scheme introduced by the above circular though extended ended on March 31, 1987. Therefore, the letter filed by the assessee on May 21, 1987, agreeing for further additions over and above the income stated to have been declared voluntarily on September 30, 1986, is after the last date prescribed for declaration under the amnesty scheme. Therefore, the offer of additional income for assessment vide letter dated May 21, 1987, is not covered by the amnesty scheme. Apart from this, it is evident from the penalty orders that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... revised returns on September 30, 1986, disclosing the additional income. This was done before notice under section 147 was issued on January 13, 1987, for these two years. We feel that the additional amounts offered under these two revised returns filed on September 30, 1986, are entitled to immunity under the amnesty scheme under Circular No. 453, dated 4th April, 1986. But we make it clear that the income assessed over and above the income originally assessed and returned on September 30, 1986, is concealed income on which penalty is payable under section 271(1)(c) of the Income-tax Act. It is a fact that the assessee has not made true and full disclosure even for these two years also. However, we feel that at least to the extent of income voluntarily disclosed by the assessee, the assessee should get immunity from penalty. Therefore, penalty for 1981-82 and 1982-83 has to be recomputed after excluding from the concealed income originally fixed, the income additionally offered by the assessee vide its revised returns filed on September 30, 1986. The assessee is not entitled to any relief against the penalty levied for 1984-85 because on the facts, concealment is proved and only ..... X X X X Extracts X X X X X X X X Extracts X X X X
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