The Bombay High Court recently ruled that write-off of bad debt is not asset and clause – (a) of 4th proviso to Section 153A(1) of Income Tax Act, 1961 bars assessment.
The petitioner, Ashok Commercial Enterprises, is a partnership firm engaged in the business of financing, i.e., giving loans to parties on interest against cheques and bills of exchange. Petitioner is also engaged, in the business of trading in shares, property and broking.
During the course of assessment proceedings for Assessment Year 2017-2018, the Assessing Officer issued a notice under Section 142(1) of the Income Tax Act requiring petitioner to furnish details regarding the write-off of bad debts. The petitioner replied to the notice providing details of the amounts of loan to Hubtown Limited that had been written off during the year along with reasons in support of the claim for deduction thereto when computing its income chargeable to tax.
The Counsel for the appellant, J. D. Mistri, Senior Advocate, submitted that clause – (a) of the 4th proviso requires that the Assessing Officer must have in his possession books, documents or evidence which reveal that income represented in the form of an asset which has escaped assessment amounts to or is likely to amount to rupees fifty lakhs or more. In the case at hand, the satisfaction note refers only to the loan account between petitioner and Hubtown Limited and the alleged escapement is only in respect of the part thereof which is written off during the year.
It was further submitted that this write off has been allowed in the original assessment proceedings and hence, the same cannot be said to be income which has escaped assessment.
The counsel for the respondent, Suresh Kumar appeared for the Revenue.
A Division Bench of Justices Firdosh P Pooniwalla and K Shriram observed that “In the instant case, the satisfaction note refers to two items. First, the loan account between petitioner and Hubtown Limited and the alleged escapement is only in respect of the part thereof which is written off during the year. That clearly, i.e., the writing-off of a bad debt cannot fall within the ambit of income, represented in the form of an asset.”
It was further observed that the other item referred to in the satisfaction note, that is to say, trading in shares of Hubtown Limited has been undertaken on the stock exchange, recorded in the books of account of petitioner, and the resulting gain offered for tax and the amounts taxed in the hands of petitioner.
“Since the write-off of a bad debt cannot be held to be an asset, clause – (a) of the 4th proviso to Section 153A(1) of the Income Tax Act would bar any assessment that is proposed to be made for the relevant assessment year/years, i.e., Assessment Year 2011-2012, 2012-2013 and 2013-2014” the Bench concluded.
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