Penalty u/s. 271(1)(c) - disallowance of provision for bad and doubtful debts - Held that:- The only rider would be where the condition(s) of section 36(2) are not satisfied.
The assessee, while divulging the primary facts during the course of assessment proceedings, submitted the details of its claim that while the amount of Rs. 2,69,706/- lacs pertains to earlier year (s), that for Rs. 6.25 lacs relates to the current year.
The assessee's only income (Rs. 2.40 lacs, P.Y. Rs. 3.60 lacs) is by way of rent received, besides a negligible amount as interest on FDR/s. A few questions spring immediately in the mind, and which would require being answered as to how could be the amount of 'suspense' and 'cheque in transit' qualify for inclusion as income, as required u/s, 36(2)(i)? How could Rs. 6.25 lacs pertain to the current year when its' gross income for the year is at Rs. 2.40 lacs only? The entire amount of provision forms part of the assessee's loans and advances portfolio and, thus, it is not clear as to how the same forms part of its income for any year, a prerequisite in terms of s. 36(2).
The premise of a claim for a bad debt, it may be appreciated, is that the same having already offered as income (for any year), its subsequent non-recovery would warrant a reduction in income (for the year of write off). Further, it could also be that the same (loan and advances) represent a part of the assessee's money lending business, to which the law draws an exception as the same represents a part of the stock-in-trade of such business (s. 36(1)(vii) r/w s. 36(2)(i)). However, there is nothing on record which indicates so, or even if the assessee is in money lending business. That is, there is an apparent non-satisfaction of the essential condition of sec. 36(2), and which clearly impacts not only the assessee's claim u/s. 36(1)(vii), which in any case stands disallowed, but also, concomitantly, the merits of its claim and, thus, that of its explanation in the penalty proceedings. How could then, under such circumstances, one may ask, the assessee's claim be, or considered to be, bona fide, or an explanation in its respect be so'?
The matter is restored back to the file of the AO to adjudicate the same afresh per a speaking order in accordance with law, allowing the assessee a proper opportunity to present its case as to how, despite an uncontested disallowance in its respect, the deduction claimed u/s. 36(1)(vii) does not suffer from lack of any bona fides or does not fall within either Explanation 1(A) or 1(B) of section 271(1)(c).
Whether ITAT in deciding this appeal has travelled outside its scope - Held that:- As decided in in the case of Kapurchand Shrimal v. CIT [1981 (8) TMI 2 - SUPREME COURT] it is well-known that an appellate authority has the jurisdiction as well as the duty to correct all errors in the proceedings under appeal and to issue, if necessary, appropriate directions to the authority against whose decision the appeal is preferred to dispose of the whole or any part of the matter afresh, unless forbidden from doing so by statute - Revenue's appeal is allowed for statistical purposes.
