Bajaj Auto Finance Ltd vs. CIT (Bombay High Court)- 8 March 2018
1- The issue referred to us is in respect of applicability of Section 143(1)(a) of the Act to disallow a claim for provision for bad debt by intimation i.e. without calling upon the assessee to explain its claim. On this issue, the written submission proceeds on the basis that a plain reading of Section 36(1)(vii) of the Act would only mean an assured and / or certain irrecoverability of debt. Therefore, it is submitted that the intimation under Section 143(1)(a) of the Act cannot in the present facts be faulted,
2- It was further stated that "The above submission that decision of the Court and / or Tribunal interpreting a provision is to be ignored by the Assessing Officer, if accepted will ring the death knell of Rule of law in the country. The Assessing Officer is bound by the views of the Court. The above submission ignores the hierarchal system of jurisprudence in our country"",
3- The issue that arises for our consideration is whether an adjustment by intimation under Section 143(1)(a) of the Act can be made where the issue which arises for consideration is a debatable issue. In the present facts, the computation of total income submitted along with return indicates that claim for bad debts has been made by relying upon the decision of Gujarat High Court in the case of "Vithaldas H.Dhanjibhai Bardanwala (supra),
4- In the above case, even a provision debited to the profit and loss account was allowed as bad debts, where corresponding credit entires are posted in the bad debts reserve account. It held that is was not necessary to post credit entries in the ledger account of the concerned parties. It was on the basis of the aforesaid decision of the Gujarat High Court that the claim in respect of the provision for bad debts was made by the applicant assessee. Once, reliance is placed upon a decision of a Court and / or Tribunal to make a claim, then even if the Assessing Officer has a different view and does not accept the view, yet the claim itself becomes debatable,
5- where a claim for deduction has been made on the basis of a decision of a High Court / Tribunal, then, even if there is contrary view expressed by another High Court and / or Tribunal or an appellate Authority, the issue itself becomes debatable. In such cases, no adjustment under Section 143(1)(a) of the Act is permissible,
6- Further, our Court in Khatau Junkar Ltd. (supra) had while dealing with the word “prima facie inadmissible” in clause (iii) of Section 143(1)(a) of the Act has held that the word “prima facie” means on the face of it the claim is not admissible. It means the claim does not require any further inquiry before disallowing the claim. The Court observed that where a claim has been made which requires further inquiry, it cannot be disallowed without hearing the parties and / or giving the party an opportunity to submit proof in support of its claim,
7- An amendment by addition of Explanation to Section 36(1)(vii) of the Act was a subject matter of consideration by the Supreme Court in Vijaya Bank (supra). In the above decision, the Court while applying the amended law, held that mere debit of a provision to the profit and loss account will not by itself be sufficient to constitute bad debts (write off). This must be accompanied by simultaneously also reducing the loans and advances from the asset side of the Balance Sheet. This would ensure that the amount shown as loans and advances (debtors) is net of the provisions made for bad debts,
Therefore, the disallowance cannot be made by intimation under section 143(1)(a) of the Act, as it requires that a party be given an opportunity to establish its claim before disallowing it.
Some of the major discussions of the case for easy reference :
1- The issue referred to us is in respect of applicability of Section 143(1)(a) of the Act to disallow a claim for provision for bad debt by intimation i.e. without calling upon the assessee to explain its claim. On this issue, the written submission proceeds on the basis that a plain reading of Section 36(1)(vii) of the Act would only mean an assured and / or certain irrecoverability of debt. Therefore, it is submitted that the intimation under Section 143(1)(a) of the Act cannot in the present facts be faulted,
2- It was further stated that "The above submission that decision of the Court and / or Tribunal interpreting a provision is to be ignored by the Assessing Officer, if accepted will ring the death knell of Rule of law in the country. The Assessing Officer is bound by the views of the Court. The above submission ignores the hierarchal system of jurisprudence in our country"",
3- The issue that arises for our consideration is whether an adjustment by intimation under Section 143(1)(a) of the Act can be made where the issue which arises for consideration is a debatable issue. In the present facts, the computation of total income submitted along with return indicates that claim for bad debts has been made by relying upon the decision of Gujarat High Court in the case of "Vithaldas H.Dhanjibhai Bardanwala (supra),
4- In the above case, even a provision debited to the profit and loss account was allowed as bad debts, where corresponding credit entires are posted in the bad debts reserve account. It held that is was not necessary to post credit entries in the ledger account of the concerned parties. It was on the basis of the aforesaid decision of the Gujarat High Court that the claim in respect of the provision for bad debts was made by the applicant assessee. Once, reliance is placed upon a decision of a Court and / or Tribunal to make a claim, then even if the Assessing Officer has a different view and does not accept the view, yet the claim itself becomes debatable,
5- where a claim for deduction has been made on the basis of a decision of a High Court / Tribunal, then, even if there is contrary view expressed by another High Court and / or Tribunal or an appellate Authority, the issue itself becomes debatable. In such cases, no adjustment under Section 143(1)(a) of the Act is permissible,
6- Further, our Court in Khatau Junkar Ltd. (supra) had while dealing with the word “prima facie inadmissible” in clause (iii) of Section 143(1)(a) of the Act has held that the word “prima facie” means on the face of it the claim is not admissible. It means the claim does not require any further inquiry before disallowing the claim. The Court observed that where a claim has been made which requires further inquiry, it cannot be disallowed without hearing the parties and / or giving the party an opportunity to submit proof in support of its claim,
7- An amendment by addition of Explanation to Section 36(1)(vii) of the Act was a subject matter of consideration by the Supreme Court in Vijaya Bank (supra). In the above decision, the Court while applying the amended law, held that mere debit of a provision to the profit and loss account will not by itself be sufficient to constitute bad debts (write off). This must be accompanied by simultaneously also reducing the loans and advances from the asset side of the Balance Sheet. This would ensure that the amount shown as loans and advances (debtors) is net of the provisions made for bad debts,
Therefore, the disallowance cannot be made by intimation under section 143(1)(a) of the Act, as it requires that a party be given an opportunity to establish its claim before disallowing it.
For reading full text of the case please refer link- http://itatonline.org/archives/bajaj-auto-finance-ltd-vs-cit-bombay-high-court-s-1431a-submission-of-dept-that-decisions-of-courts-and-tribunals-interpreting-a-provision-is-to-be-ignored-by-the-ao-will-ring-the-death-knell-of/bajaj-auto-143-36-1-viii-bad-debts/
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