By TIOL News Service

AHEMDABAD, AUG 11, 2016: THE issue before the Bench is - Whether an assessee can be penalised for concealment, on the ground that assessee has withdrawn its claim for bad debts subsequent to the filing of return, upon noticing that the debt amount is recoverable. NO IS THE ANSWER.

Facts of the case:

The assessee had filed its return declaring total loss of Rs.76,35,086/-. The assessment u/s 143(3) was however completed determining total income of Rs.74,44,640/-, wherein the AO added Rs.82,16,850/- towards bad debt. When the assessee came to know about the possibility of recovery due to granting of refund amounting to Rs.55,85,711/- by the AO in the case of its subsidiary, Lotus Mills Ltd., the assessee had withdrawn its claim for bad debts for the said amount. The AO disallowed the claim of withdrawal but imposed penalty u/s 27(1)(c) holding that he was satisfied that the assessee had concealed the income by filling inaccurate particulars of income in terms of provision to section 271(1)(c) explanation-4A. On appeal, the CIT(A) deleted the penalty.

After hearing the parties, the High Court held that,

++ it is seen that the Tribunal has given an observation that: "the assessee written off the bad debts on the advice of the auditors and and as soon as the assessee came to know that the debt amount is recoverable, it immediately withdrew the claim before the AO. In our opinion, the assessee is bound to rely on the advice of the auditors until and unless it is not proved that the advice given by the auditors was not a bonafide one. No evidence or material was brought on record which may prove that the advice given by the auditors was not a bonafide one. It is also seen that the case of the assessee is duly covered by the decision of the Gujarat High Court in the case of BTX Chemical P. Ltd. v. CIT. In that view of the matter, the issue raised in this Appeal is to be answered in favour of the assessee.

(See 2016-TIOL-1702-HC-AHM-IT)