High Court Of Allahabad
Jubilant Organosys vs. CIT
Sections 36(1)(vii), 263
Asst. Year 1993-94
M. Katju & U. Pandey, JJ.
IT Appeal No. 46 of 2003
1st October, 2003
Dr. O.N. Tripathi & V.S. Dwivedi, for the Appellant
M. Katju, J. :
This is an appeal under s. 260A of the IT Act, 1961, by which the judgment of the Tribunal, Delhi Bench, New Delhi, dt. 14th Nov., 2002, has been challenged. Heard learned counsel for the parties.
The assessee is a company registered under the Indian Companies Act and the relevant assessment year is 1993-94. The assessment order was passed by the assessing authority on 31st March, 1995. Against that order a revision was filed under s. 263 of the IT Act which was allowed by the CIT on 18th Dec., 1996. Against that order, the assessee filed an appeal before the Tribunal which has been dismissed.
Learned counsel for the appellant submitted that the CIT was not justified in invoking the provisions of s. 263 of the IT Act as the order of the AO was not prejudicial to the interests of the Revenue nor was it erroneous.
A perusal of the order of the CIT shows that he was of the opinion that the profits under s. 80-I have to be computed after deducting the profits under s. 80HH, which the AO did not do. Hence, according to the CIT, the order was prejudicial to the interests of the Revenue and was erroneous. Another reason for invoking the jurisdiction under s. 263 by the CIT was that the AO had failed to disallow and add back the amount of Rs. 11,98,000 being provision for bad debts.
It appears that before the Tribunal, the assessee only urged that the CIT erred by observing that the appellant had not written off bad debts of Rs. 11,98,000 by debiting the P&L a/c and further that the assessee had not satisfied the conditions laid down under s. 36(1)(vii). Sec. 36(1)(vii) of the IT Act states : “subject to the provisions of sub- s. (2), the amount of any bad debt or part thereof which is written off as irrecoverable in the accounts of the assessee for the previous year.” To this provision an Explanation was inserted by the Finance Act, 2001, w.e.f. 1st April, 1989, which reads as follows : “Explanation.âFor the purposes of this clause, any bad debt or part thereof written off as irrecoverable in the accounts of the assessee shall not include any provisions for bad and doubtful debts made in the accounts of the assessee.”
8. In our opinion since the Explanation to s. 36(1)(vii) was added w.e.f. 1st April, 1989, it obviously applies to the present case in which the assessment year is 1993-94. The assessee had written off bad debts by debiting the P&L a/c but no credit in the debtor’s account was correspondingly made. Since this had to be done simultaneously, but was not, in our opinion, the provisions of s. 36 as amended were not complied with.
9. In the present case, the assessee had written off the bad debts in the P&L a/c but instead of making a corresponding credit entry in the account of the debtor, he had made an entry under the head “Provisions for doubtful debts”, and this was approved by the AO. The CIT hence rightly issued a notice under s. 263 as according to him the assessee while debiting the P&L a/c has not given the necessary credit in the account of the party.
10. As observed by the Supreme Court in Union of India & Ors. vs. S. Muthyam Reddy (1999) 156 CTR (SC) 361 : (1999) 240 ITR 341 (SC) : “By the Finance Act, 1989, Explanation to s. 2(1A) is inserted w.e.f. 1st April, 1970, to supersede the view expressed in the order under appeal and several decisions setting out similar ratio. This declaratory amendment having retrospective operation though coming into force during the pendency of this appeal must be given effect to. The said Explanation clearly declares that the revenue derived from land shall not include and shall be deemed never to have included any income arising from the transfer of any land referred to in s. 2(14)(iii)(a) or (b). The upshot of the same is that income derived from sale of such agricultural lands cannot be treated as ‘agricultural income’. Thus, the whole basis of the decision has been lost and, therefore, the order under appeal cannot be sustained and deserves to be set aside.”
11. In view of the above we are of the opinion that the assessee did not comply with the provision of s. 36(1)(vii) which had been amended with retrospective effect from 1st April, 1989. Thus there is no force in this appeal and it is dismissed.
12. Before parting with this case we may mention that under s. 263 of the IT Act, the CIT can correct both errors of fact and errors of law. His jurisdiction is not limited to correcting errors of law alone as there is no such express restriction in the language of s. 263. The only requirement is that the impugned order should be prejudicial to the Revenue.
[Citation : 265 ITR 420]