Case Law Details
Big Bags International (P) Ltd. Vs DCIT (Karnataka High Court)
The assessee had exported bags to foreign customers in the past and had incurred unforeseen additional costs on certain imported raw material. In order to recover the additional costs incurred, the assessee had raised debit notes on the foreign customers and credited the amount due from them, raised by way of debit notes as income in its books of accounts and had offered the same to tax in earlier years. The customers of the assessee refused to make payment and therefore, the assessee had written off the amount as not recoverable. It is pertinent to mention that Section 36(1)(vii) of the Act mandates that in order to claim bad debts, the assessee has to write off the same in its books of accounts and assessee is not required to prove that the debt as irrecoverable. In this connection, reference may be made to decision of the Supreme Court in VIJAYA BANK LTD and TRF LTD. SUPRA.
It is pertinent to mention here that similar claim of bad debts was made by the assessee for Assessment Year 2009-10 arising out of the same set of circumstances and the Assessing Officer denied the same on similar grounds as has been done in this case. However, the Commissioner of Income Tax (Appeals) as well as the tribunal accepted the stand of the assessee and granted the relief to the assessee. The revenue did not challenge the order passed by the tribunal and accepted the view in favour of the assessee. Admittedly, in the instant case, the assessee had written off the bad debts to the tune of Rs.3,33,79,791/- in its books of accounts and has complied with the mandate contained in Section 36(2) of the Act. The Assessing Officer has not disputed the aforesaid aspect of the matter.
The Supreme Court in RADHASOA MI SATSANG Vs. COMMISSIONER OF INCOME-TAX’ (1992) 60 TAXMAN 248 (SC) has held that even though principles of res judicata do not apply to income tax proceedings, but where a fundamental aspect permeating through the different Assessment Years has been found as the fact one way or the other and the parties have allowed the position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in subsequent year. For this reason also, in the facts of the case, a different view cannot be taken.
In view of preceding analysis, the substantial questions of law framed by a bench of this court are answered in favour of the assessee and against the revenue.
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