TMI Blog2008 (4) TMI 537X X X X Extracts X X X X X X X X Extracts X X X X ..... d 1987-88 to 1998-99. According to the Assessing Officer, the debts had become bad only on 30-3-2005 i.e., relevant for the financial year 2004-05 and therefore, does not fall for consideration in the return revised for the assessment year 2004-05. It was replied to the Assessing Officer that return filed on 1-11-2004 was un-audited and it did not accompany auditors report under the Companies Act, 1956. The final accounts had not been adopted by the Board of Directors. They were not finalized and signed by the auditors till 31-3-2004. It was, after compiling the accounts on the basis of books of account which were under audit, the claim was made and thereafter return was revised. In this regard, the relevant part of the reply of the assessee before the Assessing Officer dated 11-12-2006 is quoted below : "( i )That the financial year ended on 31-3-2004. ( ii )That the audit for the period 1-4-2003 up to 31-3-2004, could only finalized after the closure of financial year that is after the midnight of 31-3-2004. ( iii )That when the audit is to be taken up for finalization by the auditors after the closure of the financial year i.e., after the midnight of 31-3-2004, any dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Officer disallowed the claim. 4. The ld. CIT(A) accepted the contentions of the Assessing Officer in following words : "4. I took a deep and careful study of the facts of the case keeping in view what has been stated by both, the Assessing Officer and the appellant. The benefit of bad debts can be claimed only in the year in which it is decided that a debt has become a bad debts. In the instant case, the appellant has claimed bad debts for financial year 2003-04 relevant to assessment year 2004-05, but the approval to write off bad debts was given by the Board of Directors on 30-3-2005 which pertains to financial year 2004-05 relevant to assessment year 2005-06. It is seen that the Assessing Officer has passed a speaking order by bringing material on record to prove that the appellant is not entitled to benefit of bad debts in the impugned assessment year since the debt became bad only on 30-3-2005 i.e., relevant to financial year 2004-05 and thus same can be claimed in assessment year 2005-06. Further, the case laws quoted by the Assessing Officer give favour to his stand. On the other hand, the appellant is not able to come with any fruitful explanation corroborated by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adjustments can be made. As the claim of bad debt depends upon actual writing it off in the books of account and this writing off has been done in the financial year 2004-05, therefore, claim could only be allowed in subsequent financial year and not in the financial year 2003-04 relevant to the assessment year 2004-05 which is before us. In brief, the ld. DR strongly supported the orders of the Assessing Officer and ld. CIT(A). 7. We have considered the rival submissions and perused the material on record. The undisputed facts are that assessee has filed the return on the basis of unaudited accounts in which claim of bad debt was admittedly not made. The debt was also not written off in the books on or before 31-3-2004. It was, admittedly, considered for writing off in the books as on 31-3-2005. Therefore, short question for consideration is whether claim of the assessee could be allowed in the assessment year 2004-05 or could only be allowed in assessment year 2005-06. So far as the question of debt becoming bad is concerned, it is not in dispute. The Department also accepts the claim of the assessee that debts to the extent of Rs. 2,13,50,967.28 had become bad as per the dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or treating the debt as bad or irrecoverable should be taken in the previous year itself. It will amount to writing a new legislation which is not permissible. In other words, if it is possible for the assessee legally and otherwise to make entries in the books of a particular previous year then the claim of bad debt can be made in the books for that previous year. In other words, where books of account are not closed and complete, not signed by the Board of Directors and not adopted by the shareholders as per the Companies Act, it is legally permissible to make adjustments before they are finally adopted. In the present case, even though assessee had filed return of income with the Department but they were based on unaudited books of account and the accounts were not signed by the Board of Directors. Therefore, in our considered view, it is open for the assessee to write off the irrecoverable bad debts in such books of account. It is because there is no condition provided in the Act that decision for writing off the bad debt should be taken only in the relevant previous year or that such writing off of the bad debt in the books should be physically and actually done in the previou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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