Jan 3, 2010
Assessee cannot come forward and say that on account of change brought in by way of amendment with effect from 1-4-1989, under section 36(1)(vii) inquiry is not permissible.
CASE LAW DETAILS
Decided by: HIGH COURT OF ALLAHABAD, In The case of: CIT v. Kohli Brothers Color Lab (P) Ltd., Appeal No.: ITA NO. 02 OF 2007, Decided on: NOVEMBER 5, 2009
RELEVANT PARAGRAPH
The intention of legislature is clear that once in assessment year in question debt or part thereof has been written off, as irrecoverable qua the same deductions are to be accorded as per provision of section 36(1)(vii) of the Act, subject to the provisions of 36(2) of the Act. Prior to amendment in the aforementioned section w.e.f. 1.4.1989 the words ‘ any bad debt, or part thereof, which is established to have become, a bad debt in the previous year’ were used and after the amendment w.e.f. 1.4.1989, same has been substituted by “any bad debt or part thereof which is written off as irrecoverable in the account of assessee for the previous year”. Effect of said amendment is that now it is not necessary for the assessee to establish that debt had become bad in the previous year, before getting deductions, and mere writing 9 of as irrecoverable of debt or part thereof is substantial compliance of the same. The question is, is said entry of writing of bad debt or part thereof, made in books of accounts conclusive and Assessing Officer is precluded from making inquiries, before according/refusing deductions. Under the scheme as provided for under Income Tax Act, the entries which have been made, as to whether same are genuine entry and not imaginary and fanciful entry, qua the same Assessing Officer is fully empowered to make inquiry however, wisdom of the respondent-assessee cannot be in such matter questioned and no demonstrative or infallible proof of bad debt having become bad is required, and commercial expediency is to be seen from the point of view of assessee, depending on nature of transaction, capacity of debtor etc. but qua entry, semblance of genuineness has to be there and same should not be mere paper work. All the judgment, which have been cited at the Bar, genuineness of entries, have never been doubted therein, whereas in the case in hand, specific query has been made from respondent-assessee to furnish i.e. (a) Complete names and addresses of the persons (with reference to whom bad debts written off claimed, mentioning against each amount.(b) Copies of ledger account of these persons for the relevant assessment year and three preceding years. (c) Efforts made to realize these dues. Admitted position is that said queries have not at all been replied and requisite information has not at all been furnished, rather stand has been taken, that entry has been made , no proof is required. Under Section 143(2) of the Act, Assessing Officer is empowered to require the assessee to produce the evidence in support of the return, as such where respondent-assessee has claimed as bad debt or part thereof, written off as irrecoverable in the accounts of the assessee under the provision of section 36(1)(vii) of the Income Tax Act, 1961, then on the strength of the amendment made on 1.4.1989 it cannot be said, that an inquiry is not permissible under the provision of Income Tax Act to see and satisfy that there is some semblance of the genuineness in the entry, which had been made, same is not at all totally fake entry as respondent- assessee would be entitled for deduction only if its bad debt, or part thereof. Hon’ble Apex Court in the case of Travancore Tea Estates Co. Ltd. Vs. CIT (1999) 151 CTR (SC) 231; (1998) 233 ITR 203 (SC) has taken the view, that as to whether a debt has become bad or at what point of time it became bad, are pure question of fact. Though standard of proof of proving the same is bad debt, is not required to be adopted and is to be decided on the wisdom of the respondent10 assessee and not on the wisdom of Assessing Officer, but to show that entry which had been made as bad debt there has to be some material in support of the same, giving some semblance of genuineness and truthfulness to the same in the direction of forming opinion, that said debt was arising out of trading activity, there was relationship of debtor or creditor, same was irrecoverable. Merely because entries have been made, in respect of bad debt or part thereof, writing it off, claiming deduction, the said entries can always be examined by the Assessing Officer, before proceeding to award deductions, and not by merely blindly following the same, but stand of the assessee has to be tested from the point of view of assessee, and assessee cannot come forward and say that on account of change brought in by way of amendment w.e.f. 1.4.1989, under Section 36(1)(vii) inquiry is not permissible.
Thus in the present case, on the substantial question of law, posed, provision of Section 143 (2) of Income Act viz-aviz section 36(1)(vii) of the Income Tax Act, 1961 read with section 36(1) both would be harmonized to give purposeful meaning to both the statutory provisions, as one extends benefit to the respondent-assessee of deduction for their debt or part thereof becoming bad and other authorizes Assessing Officer to see that provision of Income Tax Act are not flouted by any means.
By bank finance 555
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