(59.4 KiB, 282 DLs)

Revision Of Undisclosed Income In Settlement Application Not Permissible

The assessee filed a settlement application u/s 245C (1) in which it disclosed additional income of Rs. 1.94 crores. This was revised to disclose further undisclosed income of Rs. 11.41 crores. After the s. 245D (1) order, a further disclosure of Rs. 2.76 crores was made. Despite the department’s objection that the assessee had not made a “full & true disclosure”, the Settlement Commission passed a final order u/s 245D (4) determining the total income at Rs. 42.58 crores and imposed token penalty of Rs. 50 lakhs. The department filed a Writ Petition to challenge the Settlement Commission’s order. The High Court held that as the Settlement Commission had not applied its mind to the maintainability of the application u/s 245D (1) for want of full and true disclosure of income, the matter had to be remanded to the Settlement Commission for fresh consideration. That order of the High Court was challenged by the assessee in the Supreme Court. The Supreme Court remanded the matter to the High Court on the ground that a report given by the Commissioner estimating the undisclosed income at Rs. 42.50 crores which approximately coincided with the figure arrived at by the Settlement Commission had not been considered by the High Court. In the second round, the High Court held that in view of the multiple disclosures made by the assessee, the assessee could not be said to have made a full and true disclosure of income. However, it did not set aside the application on that ground but remanded the matter to the Settlement Commission for re-determination of the undisclosed income. The result of the second remand order of the High Court was that the Settlement Commission was not required to go into the question of maintainability of the application but only the question of determination of income. The department did not challenge the High Court’s order though the assessee did. HELD dismissing the appeal:

(i) The disclosure of “full and true” particulars of undisclosed income and “the manner” in which such income has been derived are pre-requisites for a valid application u/s 245C (1) and unless the Settlement Commission records its satisfaction on this aspect, it will not have jurisdiction to pass any order on the settlement application;

(ii) The scheme of settlement does not contemplate revision of the income so disclosed in the application. If an assessee is permitted to revise his disclosure, in essence, he would be making a fresh application in relation to the same case by withdrawing the earlier application. S. 245C (3) prohibits the withdrawal of an application. An assessee cannot be permitted to resile from his stand at any stage during the proceedings. By revising the application, the applicant would be achieving something indirectly what he cannot otherwise achieve directly and in the process rendering s. 245 (3) otiose and meaningless. As there is no stipulation for revision of an application filed u/s 245C(1), the natural corollary is that determination of income by the Settlement Commission has necessarily to be with reference to the income disclosed in the application;

(iii) The High Court, having come to the conclusion that the assessee had not made a full and true disclosure of undisclosed income, was wrong in treating the application as maintainable. The High Court’s order is clearly erroneous as it has not appreciated the object and scope of the scheme of settlement. “However, for reasons best known to the Commissioner, he has chosen not to challenge this part of the impugned order“;

(iv) The argument of the assessee that the scope of judicial review being limited, the High Court should not have interfered with the order of the Settlement Commission is not acceptable. “We have no hesitation in observing that the manner in which assessee’s disclosures of additional income at different stages of proceedings were entertained by the Settlement Commission, rubbishing the objection of the Commissioner that the assessee had not made a full and true disclosure of their income in the application u/s 245C(1), leaves much to be desired“.

(254.6 KiB, 315 DLs)

Voice of citizen who believes that judicial institution is not functioning well cannot be muffled by using the weapon of contempt

Shri. R. K. Jain, Editor of Excise Law Times, wrote a series of editorials making serious complaints against the working of CEGAT. The President of CEGAT wrote a letter to the Chief Justice of India complaining about the editorials pursuant to which the Supreme Court initiated criminal contempt proceedings against Shri. Jain. The proceedings were discharged after Shri. Jain tendered an apology and gave an undertaking that if there were any serious complaints regarding the functioning of CEGAT in future he would first bring those matters to the attention of the concerned authorities before taking any other action. Subsequently, Shri. R. K. Jain wrote a series of letters to the Finance Minister, Revenue Secretary, CBEC & the President, CESTAT, highlighting specific cases of irregularities, malfunctioning and corruption in the GESTAT. In particular, several irregularities by Mr. T. K. Jayaraman, Member, were also highlighted. As no cognizance was taken of the several letters, Shri. R. K. Jain wrote an editorial highlighting the perceived irregularities in the working of CESTAT. The ‘Indirect Tax Practitioners Association’ took up the cause of Shri. T. K. Jayaraman and filed a complaint with the President of CESTAT accusing Shri. R. K. Jain of “trying to scandalize the functioning of CESTAT and lower its esteem in the eyes of the public”. Though the President set up an inquiry committee, the Association chose not to appear before it out of apprehension that the proceedings may result in embarrassment to them and the Members of the CESTAT. So, the Association decided “to adopt a shortcut to silence” Shri. R. K. Jain and filed a contempt petition in the Supreme Court alleging that Shri. R. K. Jain had violated the undertaking given by him in the earlier proccedings. HELD by the Supreme Court dismissing the Petition and imposing costs of Rs. 2 lakhs:

(i) On the issue whether the undertaking was violated, Shri. R. K. Jain is not a novice and for decades, he has been fearlessly using his pen to highlight malfunctioning of CEGAT and its successor CESTAT. Based on his earlier letters, the Supreme Court had made suggestions for the working of the Tribunal. Before writing the present editorial, Shri. Jain had written several letters to the authorities pointing out serious irregularities in the functioning of the Tribunal but nothing was done by them to stem the rot. Consequently, Shri. Jain is not guilty of violating the undertaking given to the Court;

(ii) On the larger issue of whether criticism of a judicial body amount to contempt, fair criticism of the system of administration of justice or functioning of institutions or authorities entrusted with the task of deciding rights of the parties gives an opportunity to the operators of the system/institution to remedy the wrong and also bring about improvements. Such criticism cannot be castigated as an attempt to scandalize or lower the authority of the Court or other judicial institutions or as an attempt to interfere with the administration of justice except when such criticism is ill motivated or is construed as a deliberate attempt to run down the institution or an individual Judge is targeted for extraneous reasons. Ordinarily, the Court would not use the power to punish for contempt for curbing the right of freedom of speech and expression, which is guaranteed under Article 19(1)(a) of the Constitution. Only when the criticism of judicial institutions transgresses all limits of decency and fairness or there is total lack of objectivity or there is deliberate attempt to denigrate the institution then the Court would use this power;

(iii) On merits, the editorial cannot be regarded as intended to demean CESTAT as an institution and scandalize its functioning nor is there any attempt in it to lower the authority of CESTAT or ridicule it in the eyes of the public. The object of the editorial was to highlight the irregularities in the appointment, posting and transfer of the members of CESTAT and instances of the abuse of the quasi judicial powers. What was incorporated in the editorial was nothing except the facts relating to manipulative transfer and posting of some members of CESTAT and substance of the orders passed by the particular Bench of CESTAT, which were set aside by the High Courts of Karnataka and Kerala. By doing so, he had merely discharged the constitutional duty of a citizen enshrined in Article 51A(h);

(iv) S. 13 of the Contempt of Courts Act legislatively recognizes one fundamental of our value system i.e. truth. If a speech or article, editorial, etc. contains something which appears to be contemptuous and the Court initiates proceedings, truth should ordinarily be allowed as a defence unless the Court finds that it is only a camouflage to escape the consequences of deliberate or malicious attempt to scandalize the court or is an interference with the administration of justice. On facts, as it is not even suggested that what has been mentioned in the editorial is incorrect or distorted, there is no warrant for discarding Jain’s assertion that what was written is based on true facts;

(v) There is a growing acceptance of the phenomenon of whistleblower. A whistleblower is a person who raises a concern about wrongdoing occurring in an organization or body of people. Shri. Jain can appropriately be described as a whistleblower for the system who has tried to highlight the malfunctioning of an important institution established for dealing with cases involving revenue of the State and there is no reason to silence such person;

(vi) The Petition lacks bona fide and is an abuse of the process of the Court. The Petitioner, a body of professionals, are expected to be vigilant and interested in transparent functioning of CESTAT. However, instead of doing that, they have come forward to denounce the editorial. “We are sorry to observe that a professional body like the petitioner has chosen wrong side of the law”;

(vii) For filing a frivolous petition, the Petitioner is saddled with cost of Rs.2,00,000/-, of which Rs.1,00,000 to be paid to Shri. Jain.

(54.6 KiB, 434 DLs)

Unless mala fides are writ large, delay should be condoned. Matters should be disposed of on merits and not technicalities

The Appellant, a local authority, acquired land belonging to one of the Respondents for a development scheme in 1988. As the Appellant did not pay the compensation amount despite notice, the property was auctioned and sale confirmed in favour of the highest bidder in 1992. The bidder deposited the sale proceeds. The Appellant then “woke up from its slumber” and filed objections before the Single Judge for setting aside the auction sale. Even in these proceedings, the Appellant did not appear and the same were dismissed for non-appearance. The sale deed was executed in favour of the highest bidder. The Appellant then filed an appeal before the District Judge which was barred by limitation by a couple of months. This appeal was dismissed on the ground that there was not sufficient ground for condonation of delay. On mistaken advice, the Appellant filed a second appeal to the High Court which was thereafter treated by the Court as a revision application. This was also dismissed. The Appellant then filed a review petition which was also dismissed. Against that the Appellant filed a SLP which was also delayed. The delay in filing the SLP was condoned and the question before the Supreme Court was whether the District Judge was justified in dismissing the first appeal on the ground of delay. HELD allowing the appeal:

(i) While considering an application for condonation of delay no strait-jacket formula is prescribed to come to the conclusion if sufficient and good grounds have been made out or not. Each case has to be weighed from its facts and the circumstances in which the party acts and behaves. From the conduct, behaviour and attitude of the appellant it cannot be said that it had been absolutely callous and negligent in prosecuting the matter;

(ii) Justice can be done only when the matter is fought on merits and in accordance with law rather than to dispose it of on such technicalities and that too at the threshold;

(iii) Unless malafides are writ large on the conduct of the party, generally as a normal rule, delay should be condoned. In the legal arena, an attempt should always be made to allow the matter to be contested on merits rather than to throw it on such technicalities. Apart from the above, the appellant would not have gained in any manner whatsoever, by not filing the appeal within the period of limitation. It is also worth noticing that delay was also not that huge, which could not have been condoned, without putting the respondents to harm or prejudice. It is the duty of the Court to see to it that justice should be done between the parties;

(iv) Also observed that as the auction purchaser had been put to “inconvenience and harassment” and had not got any fruits for the sale proceeds paid in 1992, it should be paid costs of Rs. 50,000.

(19.2 KiB, 235 DLs)

Tech-savvy Supreme Court directs Service by E-Mail to avoid delay

HELD vide order dated 26th July 2010:

In various Courts, the statistical data indicates that, on account of delay in process serving, arrears keep on mounting. In Delhi itself, the input indicates that fifty per cent of the arrears in Courts particularly in commercial cases is on account of delay in process serving.

 

For the above reasons, the following directions, as mentioned hereinbelow, are given:

 

[i] In addition to normal mode of service, service of Notice(s) may be effected by E-Mail for which the advocate(s) on-record will, at the time of filing of petition/appeal, furnish to the filing counter a soft copy of the entire petition/appeal in PDF format;

 

[ii] The advocate(s) on-record shall also simultaneously submit E-Mail addresses of the respondent(s) Companies/Corporation(s) to the filing counter of the Registry. This will be in addition to the hard copy of the petition/appeal;

 

[iii] If the Court issues notice, then, in that event alone, the Registry will send such an additional notice at the E-Mail addresses of the respondent(s) Companies/Corporation(s) via E-Mail;

 

[iv] The Registry will also send Notice at the E-Mail address of the advocate(s) for respondent(s) Companies/Corporation(s), who have filed caveat. Advocate(s) on-record filing caveat shall provide his/her E-Mail address for effecting service; and

 

[v] Within two weeks from today, Cabinet Secretariat shall also provide centralized E-Mail addresses of various Ministries/Departments/ Regulatory Authorities along with the names of the Nodal Officers, if already appointed, for the purposes of service.

 

Clarification: The above facility is being extended in addition to the modes of service mentioned in the existing Supreme Court Rules. This facility, for the time being, is extended to commercial litigation and to those cases where the advocate(s) on-record seeks urgent interim reliefs.

(180.3 KiB, 961 DLs)

Pre S. 94(7) dividend stripping loss cannot be disallowed. Transaction cannot be ignored on ground that it is for tax-planning

In respect of AY 2000-01, the assessee bought units of a mutual fund on 24.3.2000 (the record date) for Rs. 17.23 each and immediately became entitled to receive dividend of Rs. 4 per unit. After the dividend payout, the NAV of the unit fell by Rs. 4 to Rs. 13.23. The assessee redeemed the units on 27.3.2000 at Rs. 13.23 per unit and claimed a loss of Rs. 4. The dividend of Rs. 4 was claimed exempt u/s 10(33). The AO & CIT (A) rejected the claim of loss on the ground that the loss was “artificial” and could not be allowed. On appeal by the assessee, a Five Member Special Bench of the Tribunal 96 ITD 1 (Mum) (SB) upheld the claim and this was confirmed by the Bombay High Court 310 ITR 421 (Bom). On appeal to the Supreme Court, HELD, dismissing the appeal:

(i) The argument of the department that the loss (the difference between the purchase and sale price of the units) constitutes “expenditure incurred” for earning tax-free income and was liable to be disallowed u/s 14A is not acceptable. The difference arose as a result of the dividend payout. The said “pay-out” is not “expenditure” to fall within s. 14A. For attracting s. 14A, there has to be a proximate cause for disallowance, which is its relationship with the tax exempt income, which is absent in the present case.

(ii) The argument of the department that the transaction was entered into in a pre-meditated manner and that the loss is not genuine is not acceptable because the transaction was a “sale”, the sale-price and dividend was received by the assessee. The assessee made use of the provisions of s. 10(33), which cannot be called an “abuse of law”. Even assuming that the transaction was pre-planned, there is nothing to impeach the genuineness of the transaction. With regard to McDowell & Co 154 ITR 148(SC), in the later decision in Azadi Bachao Andolan 263 ITR 706(SC) it has been held that a citizen is free to carry on its business within the four corners of the law. Mere tax planning, without any motive to evade taxes through colourable devices is not frowned upon even in McDowell & Co. Accordingly, the losses pertaining to exempted income cannot be disallowed prior to s. 94(7).

(iii) S. 94(7) was inserted w.e.f. 1.4.2002 to curb claim of such loss. However, the effect of s. 94(7) is that only losses to extent of dividend have to be ignored by the AO and not the entire loss. Losses over and above the dividend are still allowable even after s. 94(7). This shows that Parliament has not treated the dividend stripping transaction as sham or bogus or the entire loss as a fictitious or fiscal loss. If the argument of the Department is to be accepted, it would mean that before 1.4.2002 the entire loss would be disallowed as not genuine but, after 1.4.2002, a part of it would be allowable u/s 94(7) which can never be the object of s. 94(7).

(iv) As regards the reconciliation of ss. 14A and 94(7), the two operate in different fields. S. 14A deals with disallowance of expenditure incurred in earning tax-free income while S. 94(7) refers to disallowance of loss on acquisition of an asset. S. 14A applies to cases where an assessee incurs expenditure to earn tax free income but where there is no acquisition of an asset. In cases falling u/s 94(7), there is acquisition of an asset and existence of the loss which arises at a point of time subsequent to the purchase of units and receipt of exempt income. It occurs only when the sale takes place. S. 14A comes in when there is claim for deduction of an expenditure whereas s. 94(7) comes in when there is claim for allowance for the business loss. One must keep in mind the conceptual difference between loss, expenditure, cost of acquisition, etc. while interpreting the scheme of the Act. Also, though ss. 14A and 94(7) were inserted by the Finance Act, 2001, s. 14A was inserted w.r.e.f. 1.4.1962 while s. 94(7) was inserted w.e.f. 1.4.2002.

(v) The argument of the department that by virtue of Para 12 of AS 13, the dividend should be regarded as a “return of investment” and go to reduce the cost of the unit is not acceptable. As 13 provides that interest/ dividends received on investments are generally regarded as return on investment and not return of investment and it is only in certain circumstances where the purchase price includes the right to receive crystallized and accrued dividends/ interest, that have already accrued and become due for payment before the date of purchase of the units, that the same has got to be reduced from the purchase cost of the investment. A mere receipt of dividend subsequent to purchase of units, on the basis of a person holding units at the time of declaration of dividend on the record date, cannot go to offset the cost of acquisition of the units. (Reference made to Vijaya Bank 187 ITR 541 (SC) where it was held that where the assessee buys securities at a price determined with reference to their actual value as well as interest accrued thereon till the date of purchase the entire price paid would be in the nature of capital outlay and no part of it can be set off as expenditure against income accruing on those securities).

(104.0 KiB, 375 DLs)

ITAT subject to RTI though case details cannot be disclosed without applicant showing public interest

The Applicant sought from the CPIO, ITAT, inspection of records relating to appeals of Escorts Limited & another and information on how third parties can become interveners and inspection of records relating to s. 4 RTI compliance. Information on the procedure to make vigilance complaints was also sought. The application was rejected by the CPIO on the ground that ‘larger public interest’ had not been established. The appeal was rejected by the appellate authority on the ground that the Applicant was “misusing the provisions of the RTI Act to create unnecessary proceedings before the authorities who are expected to do the important government work”. It was held that the Applicant was “harassing the authorities under the said Act in the name of doing certain public good work, which is known only to his imaginations”. It was also alleged that the Applicant was not a ‘whistle-blower’ but a ‘nuisance maker’ and that he may be using the RTI Act as a ‘black-mailing or arms twisting tactics’. It was also held that judicial records were not liable for disclosure. On second appeal, HELD by the CIC:

(i) The argument that because the information held by ITAT is in the form of only judicial record, such record is outside the purview of the RTI Act is not acceptable. Even the Supreme Court and High Courts have rules for disclosure of judicial information. The only requirement is that applicant must adhere to the particular rules in making an application under the RTI Act.

(ii) On the question whether the information sought by the Applicant can be regarded as “information, the disclosure of which would amount to invasion of privacy” and exempt from disclosure u/s 8(1) (j), in Rakesh Kumar Gupta vs. PIO it was held that s. 8(1)(j) would not apply. However, as that order has been stated by the Delhi High Court, the earlier order of the CIC in Raj Kumari vs. CCIT would apply where it was held that personal information given to a public authority was not liable for disclosure. Disclosure of personal information will amount to invasion of privacy unless public interest is disclosed. Accordingly, inspection of the case files of third parties cannot be granted. However, the ITAT is liable to disclose the other information sought.

(iii) The decision of the Appellate Authority seems moved more by animosity than in reliance upon the law. The Applicant represents a class of persons created by the ITAT itself to generate information regarding delinquent activities of tax payers. In doing this, it cannot treat such a resource as a mere pest but must accept responsibility for this requirement. It may be kept in mind that this resource is sustained only by financial returns promised by disclosure about delinquent tax payers to the Department. While encouraging such an activity, the Income Tax Department cannot then seek to keep itself aloof from the consequences.

(17.2 KiB, 478 DLs)

Supreme Court doubts law requiring PSUs to obtain COD approval; directs review

In ONGC vs. CCE 104 CTR (SC) 31, the Supreme Court directed the Central Government to set up a ‘Committee on Disputes’ to monitor disputes between the Government and Public Sector Enterprises and give clearance for litigation. It was held the no litigation could be proceeded with in the absence of COD approval. This was followed in ONGC vs. CIDCO (2007) 7 SCC 39 and it was held that even disputes between PSUs and State Governments would require COD approval. HELD doubting the correctness of this law and referring the matter to a larger bench for reconsideration:

“In our experience, the working of the COD has failed. Numerous difficulties are experienced by the COD which are expressed in the letter of the Cabinet Secretary, dated 9th March, 2010. Apart from the said letter, we find in numerous matters concerning public sector companies that different views are expressed by COD which results not only in delay in filing of matters but also results into further litigation.

 

In the circumstances, we find merit in the submission advanced before us by learned Attorney General that time has come to revisit the orders passed by the three Judge Bench of this Court in the case of Oil & Natural Gas Commission vs. Collector of Central Excise (supra)”.

(377.3 KiB, 389 DLs)

Parliament is competent to constitute Tribunals for special Acts. However, the failure to ensure independence of judiciary and separation of judicial and executive power renders the Company Law Tribunal unconstitutional. Suggestions given on how to remedy the defects

The Companies (Second Amendment) Act 2002 provides for the constitution of the National Company Law Tribunal (‘NCLT’) and National Company Law Appellate Tribunal (‘NCLAT’) to take-over the functions which are being performed by the CLB, BIFR, AAIFR and the High Court. The constitutional validity of the said amendment was challenged before the Madras High Court. The High Court upheld the creation of the NCLT and the vesting the powers thereto as being constitutional though it took the view that certain provisions were violative of the basic constitutional scheme of (i) separation of judicial power from the Executive and Legislative power and (ii) independence of judiciary enabling impartial exercise of judicial power. In an appeal to the Supreme Court, the UOI accepted to rectify some of the defects pointed out by the High Court though it challenged the other findings. HELD by the Supreme Court:

(i) The fundamental right to equality before law under Article 14 of the Constitution includes a right to have the person’s rights adjudicated by a forum which exercises judicial power in an impartial and independent manner. When access to courts to enforce such rights is sought to be abridged etc by directing him to approach an alternative forum, such legislative act is open to challenge if it violates the right to adjudication by an independent forum;

(ii) Parliament has the legislative competence to make a law providing for constitution of Tribunals to deal with disputes and matters arising out of special enactments like the Companies Act by taking away the jurisdiction vested in the High Courts. However, this power is subject to constitutional limitations and cannot encroach upon the independence of the judiciary and must keep in view the principles of Rule of Law and separation of powers. If Tribunals are to be vested with judicial power hitherto vested in or exercised by courts, such Tribunals should possess the independence, security and capacity associated with courts;

(iii) The eligibility criteria and qualifications for being appointed as members can be examined by the superior courts in exercise of the power of judicial review. If the qualifications and eligibility criteria provided for selection of members is not proper and adequate to enable them to discharge judicial functions and inspire confidence and conducive for the proper functioning of the Tribunal, it will result in invalidation of the constitution of the Tribunal;

(iv) A Tribunal packed with members who are drawn from the civil services and who continue to be employees of different Ministries or Government Departments by maintaining lien over their respective posts, amounts to transferring judicial functions to the executive which would go against the doctrine of separation of power and independence of judiciary;

(v) When a Tribunal is substituted in place of the High Court it is essential that the standards applied for appointing such members should be as nearly as possible as applicable to High Court Judges. Only persons with a judicial background and eligible for appointment as High Court Judges, can be considered for appointment of Judicial Members;

(vi) On facts, the qualifications in s. 10FD for appointment as a member are so dilute as to suggest that the qualifications prescribed are tailor made to provide sinecure for a large number of officers to serve up to 65 years in Tribunals exercising judicial functions. The Tribunals cannot become providers of sinecure to members of civil services, by appointing them as Technical Members;

(vii) There is also the dilution of independence. If any member of the Tribunal is permitted to retain his lien over his post with the parent cadre or ministry or department in the civil service for his entire period of service as member of the Tribunal, he would continue to think, act and function as a member of the civil services. A litigant may legitimately think that such a member will not be independent and impartial. The independence of members discharging judicial functions in a Tribunal cannot be diluted;

(viii) If the members are selected as per s. 10FD, there is every likelihood of most of the members, including the ‘Judicial Members’ not having any judicial experience or company law experience and such members being required to deal with and decide complex issues of fact and law;

(ix) There is also lack of security of tenure with regard to the short term of three years, the provision for routine suspension pending enquiry and the lack of any kind of immunity which requires to be remedied;

(x) Several other defects in Parts 1B and 1C of the Act pointed out which render them unconstitutional and invalid. Suggestions given as how to make them operational.

(146.9 KiB, 697 DLs)

S. 271(1)(c) Penalty: Supreme Court chides High Court for “casual” order. Guidelines laid down as to how judgements should be written. Correctness of Gold Coin 304 ITR 308 (SC) reiterated

The assessee filed a Nil return after claiming depreciation. The AO disallowed depreciation but still assessed the total income at Rs. Nil. Penalty u/s 271(1)(c) was levied on the disallowance which was deleted by the Tribunal on the ground that as the returned income and the assessed income was Nil, penalty could not be levied. The department filed an appeal before the High Court which was dismissed on the basis that no penalty u/s 271(1)(c) could be levied where the returned and assessed income were Nil. On further appeal by the Revenue, HELD allowing the same:

(i) The High Court has dealt with the appeal in a most casual manner. The order is not only cryptic but does not even remotely deal with the arguments projected by the Revenue before it. It is unfortunate that the guidelines issued by the Supreme Court from time to time as to how judgments/orders are to be written are not being adhered to. It is true that brevity is an art but brevity without clarity is likely to enter into the realm of absurdity, which is impermissible. This is reflected in the impugned order. Detailed guidelines laid down as to how judgements should be written;

(ii) On merits, in view of CIT vs. Gold Coin Health 304 ITR 308 (SC) (which overruled Virtual Soft Systems 289 ITR 83 SC), penalty u/s 271(1)(c) is leviable even if the assessment is at a loss;

(iii) At first glance, it appeared that Gold Coin Health required reconsideration by a larger Bench in view of CIT vs. Elphinstone Spinning and Weaving Mills Co 40 ITR 142 (which was followed in Virtual Soft) but it is not so because of distinguishing features between Gold Coin and Elphinstone Spinning;

(iv) In order to enable the Court to refer any case to a larger Bench for reconsideration, it is necessary to point out that particular provision of law having a bearing over the issue involved was not taken note of or there is an error apparent on its face or that a particular earlier decision was not noticed, which has a direct bearing or has taken a contrary view. This is not the case herein and so a reference to a larger Bench is not necessary.

(49.9 KiB, 707 DLs)

For s. 36(1)(vii) Bad Debt, write off of individual debtor’s a/c is not necessary

The assessee made a provision for bad debts by debiting the P & L A/c and crediting the Provision for Bad debts A/c. Thereafter, the provision account was debited and the loans and advances a/c was credited. The AO denied the claim for bad debts u/s 36(1)(vii) on the ground that the individual account of the debtor had not been written off. The CIT (A) and Tribunal allowed the assessee’s claim though the High Court reversed it. On appeal by the assessee, HELD reversing the High Court:

(i) 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 amount from the debtors account in the Balance Sheet. Consequently, the figure in the loans and advances in the Balance Sheet was shown net of the provision for bad debts;

(ii) The AO’s insistence that the individual account of the debtor should be written off was not acceptable because (a) it was based on a mere apprehension that the assessee might claim deduction twice over and it was open to the AO to check whether the assessee was claiming double deduction, (b) if the individual accounts were closed, the Debtor could in the recovery suits rely on the Bank statement and contend that no amount is due and payable to the assessee and (c) the AO was empowered by s. 41(4) to tax the recovery.