CIT vs. Sumangal Overseas Ltd (Delhi High Court)
S. 271(1)(c): Despite conceding "bad debts", assessee can raise new plea of "trading loss"
The assessee gave advances to its suppliers of which Rs. 2.05 crores was written off as "bad debts". The AO disallowed the claim on the ground that as the advances had never been treated as income, the conditions of s. 36(1)(vii) & 36(2) were not satisfied. The assessee accepted the disallowance. Penalty u/s 271(1)(c) was levied by relying on Escort Finance 328 ITR 44 (Del) on the ground that in the case of a corporate assessee whose accounts were duly audited by qualified Chartered Accounts, the claim of bona fide mistake is untenable. However, the Tribunal deleted the penalty on the ground that the write off, though not admissible as "bad debts" was allowable as a "trading loss". On appeal by the department, HELD dismissing the appeal:
In penalty proceedings, it has to be seen whether the claim was bona fide or it was bogus and result of falsehood. On facts, there was no dispute on the genuineness of the advances. A trading loss has a wider connotation than a bad debt. While a bad debt may also be a trading loss, a trading loss need not necessarily be a bad debt. A bad debt may not fall within the purview of s. 36(1)(vii) but may well be regarded as being eligible for deduction as being a "trading loss". Accordingly, the claim was neither mala fide nor false but was bona fide and made after disclosure of facts (CIT vs. Reliance Petroproducts 322 ITR 158 (SC) followed).
For more on "bad debt" vs. "trading loss" see Mohan Meakin (Del) & Edelweiss Capital (ITAT Mum). Also see Penalty u/s 271(1)(c): A Comprehensive Analysis by Shri. K. C. Singhal, VP, ITAT (Retd)
Related Judgements
Vijaya Bank vs. CIT (Supreme Court) Pursuant to the Explanation inserted w.r.e.f. 1.4.1989 a mere provision for bad debt is not entitled to deduction u/s 36(1)(vii). However, in the present case, besides debiting the P&L A/c and creating a provision for bad debts, the assessee had also obliterated the said provision by reducing the corresponding…
CIT vs. DB (India) Securities (Delhi High Court) Share broker is eligible to claim "bad debts" u/s 36 (1) (vii) / 36 (2) The assessee, a broker, purchased shares of the value of Rs.1,06,10,247 on behalf of its sub-broker. The sub-broker made payment of Rs.64 lakhs. As the remaining amount of Rs.41,37,881 was not paid, the…
CIT vs. Bonanza Portfolio (Delhi High Court) Since the brokerage payable by the client to the broker was a part of the debt and that debt had been taken into account in computing the income, the conditions of s. 36 (2) (i) read with s. 36 (1) (viii) were satisfied and the bad debt was allowable…
S. 271(1)(c): Despite conceding "bad debts", assessee can raise new plea of "trading loss"
The assessee gave advances to its suppliers of which Rs. 2.05 crores was written off as "bad debts". The AO disallowed the claim on the ground that as the advances had never been treated as income, the conditions of s. 36(1)(vii) & 36(2) were not satisfied. The assessee accepted the disallowance. Penalty u/s 271(1)(c) was levied by relying on Escort Finance 328 ITR 44 (Del) on the ground that in the case of a corporate assessee whose accounts were duly audited by qualified Chartered Accounts, the claim of bona fide mistake is untenable. However, the Tribunal deleted the penalty on the ground that the write off, though not admissible as "bad debts" was allowable as a "trading loss". On appeal by the department, HELD dismissing the appeal:
In penalty proceedings, it has to be seen whether the claim was bona fide or it was bogus and result of falsehood. On facts, there was no dispute on the genuineness of the advances. A trading loss has a wider connotation than a bad debt. While a bad debt may also be a trading loss, a trading loss need not necessarily be a bad debt. A bad debt may not fall within the purview of s. 36(1)(vii) but may well be regarded as being eligible for deduction as being a "trading loss". Accordingly, the claim was neither mala fide nor false but was bona fide and made after disclosure of facts (CIT vs. Reliance Petroproducts 322 ITR 158 (SC) followed).
For more on "bad debt" vs. "trading loss" see Mohan Meakin (Del) & Edelweiss Capital (ITAT Mum). Also see Penalty u/s 271(1)(c): A Comprehensive Analysis by Shri. K. C. Singhal, VP, ITAT (Retd)
Related Judgements
Vijaya Bank vs. CIT (Supreme Court) Pursuant to the Explanation inserted w.r.e.f. 1.4.1989 a mere provision for bad debt is not entitled to deduction u/s 36(1)(vii). However, in the present case, besides debiting the P&L A/c and creating a provision for bad debts, the assessee had also obliterated the said provision by reducing the corresponding…
CIT vs. DB (India) Securities (Delhi High Court) Share broker is eligible to claim "bad debts" u/s 36 (1) (vii) / 36 (2) The assessee, a broker, purchased shares of the value of Rs.1,06,10,247 on behalf of its sub-broker. The sub-broker made payment of Rs.64 lakhs. As the remaining amount of Rs.41,37,881 was not paid, the…
CIT vs. Bonanza Portfolio (Delhi High Court) Since the brokerage payable by the client to the broker was a part of the debt and that debt had been taken into account in computing the income, the conditions of s. 36 (2) (i) read with s. 36 (1) (viii) were satisfied and the bad debt was allowable…
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