RAJIV SHARMA,ARVIND KUMAR TRIPATHI, JJ. - (1.) HEARD Mr. D. D. Chopra, learned counsel for the appellant and Mr. Dhruv Mathur, learned Counsel for the respondent.
(2.) THE Income Tax Appeal No.159 of 2008 has been filed by the revenue assailing the judgment and order dated 11.4.2008 passed by the Income Tax Appellate Tribunal, whereby the bad debts as claimed by the assessee during the Assessment Year 2004 -05 has been allowed and the contention of the revenue that decision to write off bad debt, physically and actually, was not taken in the relevant previous year by the respondent and the account cannot remain open for an indefinite period was rejected. In the connected Appeal No.17 of 2009, the Revenue has assailed the judgment and order dated 25.9.2008 passed by the Income Tax Appellant Tribunal. This Court has admitted the instant appeal on the following substantial questions of law: - (1) Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was justified in holding that assessee can keep his accounts open for an indefinite period and pass an entry at a later stage even after 12 months from the closure of the accounting period? (2) Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was justified in allowing the claim of bad debts of the assessee on the ground that it has been written off in the accounts of the relevant period year while failing to appreciate that decision to write off bad debt was not taken in the relevant previous year and the same were actually not done in the previous year by 31st March?
(3.) BRIEF facts, giving rise to the instant appeal, are that the assessee U.P. Rajkiya Nirman Nigam Ltd. is a State Government Undertaking engaged in the construction activities. During the year Assessment Year under consideration, i.e. 2004 -05 relevant to the F.Y. 2003 -04, the assessee had filed its original return declaring therein Rs.6,34,21,360/ - on 1.11.2004, but subsequently, the same was revised at Rs.4,32,14,180/ - on 18.8.2005 and while revising the said return, it has been declared that the debts to the tune of Rs.2,13,50,967.28, out of Rs.42.07 crores of sundry debtors, had become bad and irrecoverable, as these debts were pertaining to the period 1987 -88 and 1998 -99. A notice under Section 143 (1) of the Income Tax Act was issued requiring the assessee to explain as to how the the debts which had become bad only on 30.3.2005 and accordingly relates to Assessment Year 2005 -06, but the same has been claimed in the Assessment Year 2004 -05 to which reply was tendered by the Assessee -respondent and the relevant para of the reply reads as under: - "(i) That the financial year ended on 31.3.2004. (ii) That the audit for the period 1.4.2003 upto 31.3.2004 could only be finalized after the closure of financial year that is after 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 decision by the AUDITORS to reconcile, audit, pass rectification entry (if any), passing of journal entry in the Books, any correction by the auditors, or decision regarding debit of expenditure or any outgoing or credit of any income or receipt, accounting of any asset or liability different from what the assessee has already done, can and shall only be taken after 1.4.2004. Hence whether any decision for debiting an entry or crediting an entry is to be taken, whether by the auditors, Management or by the management on, the advise and guidance of the Statutory Auditors so as to disclose the correct income for the purpose of assessment, will only be taken on or after 1.4.2004. Hence whether the same is taken on 1.4.2004 or 30.9.2004 or any other date after 1.4.2004 will not change the nature and complexion of the entry. In the present case, when the due date for filing return came, the accounts had not been completely audited and finalized the Books were still subject to audit and open for any correction by the auditors. Hence any decision made before finalization of Accounts can in any manner effect and correct the Accounts and the decision so taken has in all circumstances to be considered as a method and procedure for placing correct income for assessment both as per the statutory provisions of Companies Act, 1956 and I.T. Act, 1961." ;