Assessee mislead by claiming deduction for Bad debts written off when in fact at the same time it treated the same as liabilities under the head ‘provisions’ in the balance sheet.
In a recent judgment, Hon’ble High Court has dismissed a Writ Petition challenging the notice u/s 148 observing that assessee had mislead the Department by claiming deduction for Bad debts written off when in fact it treated the same as provisions in the balance sheet.
ABCAUS Case Law Citation:
ABCAUS 3885 (2024) (02) HC
Important Case Laws relied upon by parties:
T.R.F. Ltd., Vs. Commissioner of Income Tax, [2010] 190 Taxman 391 (SC)
Assistant Commissioner of Income Tax Vs. Seshasayee Paper and Board Ltd., [2023] 148 Taxmann.com 432
Mobis India Ltd. Vs. Deputy Commissioner of Income Tax, [2022] 145 Taxmann.com 131
In the instant case, the assessee had filed a Writ Petition before the Hon’ble High Court praying quashing of notice under Section 148 of the Income Tax Act, 1961 (the Act) seeking to re-open the assessment.
The specific reason for re-opening was with respect to the “Bad debts written off“. The impugned order had also disposed of the objections raised by the assessee by stating that during the scrutiny assessment, this issue was passed without further query on the basis of the court affidavits filed by the assessee against such parties. However, the assessee did not leave any hint that the same debts were retained as “Provisions” also in the Balance Sheet. As the “Bad debts written off” claim was different from the “Balance Sheet” figures, the AO did not make further query on the issue.
The specific case of the petitioner is that the scrutiny assessment was completed under Section 143(3) of the Act which preceded notice issued to the petitioner under Section 143(2) and notice under Section 142(1) which were duly replied by the petitioner.
It was the case of the Petitioner that it had written-off a substantial amount of bad debt in his profit and loss account and this amount was also reflected in the Income Tax Returns filed by the petitioner under Section 139 of the Act. The specific case of the petitioner was that the scrutiny assessment was completed under Section 143(3) of the Act and that re-opening of the assessment was unwarranted and inspired from a change of opinion by the subsequent incumbent.
A reference was made to the balance sheet which was filed along with the return, wherein, in the liability side, the petitioner had shown the amount of bad debts w/o as provisions and the same amount in Trial Balance was debited in the profit and loss account as bad debts written off.
It is submitted that once the assessment was completed under Section 143(3), after issuance of notice and after a proper scrutiny, question of invoking extended period of limitation to the proviso to Section 148 as it stood prior to amendment did not arise and therefore, the impugned order disposing of the objection of the petitioner to re-open of the assessment after expiry of four years is liable to be interfered with.
The assessee placed reliance on the judgment of Hon’ble Supreme Court where it has been held that it is enough if the bad debt is written off as irrecoverable in the accounts of the assessee. It is submitted that in this case, the amount was indeed “written off” in the Profit and Loss Amount and therefore on merits, there is no case made out allthough the petitioner has a right to recover the amount from the debtor. In this regard, a reference was also made to the decision of the Division Bench of the Hon’ble High Court.
Finally, it was submitted that even otherwise as and when the amount is recovered, the petitioner will be paying the tax under Section 36 (i) (vii) of the Act. Therefore, even on this count, there was no case is made out for invoking Section 148. It is submitted that there was no failure on the part of the petitioner to either disclose full or truly all material facts that were necessary for assessment under 143(3) of the Act.
The Department controverted the contentions of the assessee and submitted that impugned order did not have any interference as the petitioner had deliberately mislead the department and taken stand that bad debt was written off in the Profit And Loss Account and at the same time as treated the same amount as liabilities under the head ‘provisions’ in the balance sheet.
It was submitted that merely because the petitioner had enclosed the copies of the Profit and Loss Account and the Balance Sheet did not mean that the petitioner had fully disclosed all the materials that were required for assessment. It was submitted that the impugned order disposing of the objection of the petitioner justifying the re-opening of the assessment was not inspired from either on account of any change of opinion of the incumbent and accordingly the Department prayed for dismissal of the Writ Petition.
The Hon’ble High Court opined that there was no merits in the writ petition as the petitioner had misled the department. Although in the returns, it was stated that the petitioner had written off the debt from its Books of Accounts, namely Profit And Loss Accounts, the fact remains that petitioner had made a “provision” in the Balance Sheet. This ought to have been brought to the knowledge of the Assessing Officer at the time of assessment under section 143 (3) of the Act.
The Hon’ble High Court observed that mere filing of the documents is not sufficient if there was a deliberate attempt to mislead the department in the Returns filed under section 139 of the Act in variance with the Books of Accounts, namely Profit and Loss Accounts.
The Hon’ble High Court opined that amount that had been written off had been provisioned in the Balance Sheet. Window dressing in the Books of Account conveying different meanings cannot be said to be a correct declaration of materials that were required for passing the Assessment Order.
Accordingly, the Writ Petition was dismissed.
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