- (1.) This appeal has been filed by the assessee under Section 260A of the Income Tax Act, 1961 (in short "the Act") against the order dated 28.2.2011 passed by the Income Tax Appellate Tribunal, Chandigarh Bench "B", Chandigarh (hereinafter referred to as "the Tribunal"), in ITA No. 398/Chandi/2009 relating to the assessment year 2005-06, claiming the following substantial questions of law:- "A. Whether the ITAT is justified in allowing deduction neither as bad debts nor as business loss u/s 28 read with Section 37 in the instant case since the relief under Section 37 was clearly available to the assessee on account of non-recovery of advances made to M/s Neepaz Metaliks on the facts of the case on record before the Tribunal which is contrary to the binding nature of circular of the board specifically mentioning that the "officers of the department must not take advantage of ignorance of an assessee as to his rights. It is one of their duties to assist a taxpayer in every reasonable way, particularly in "the matter of claiming and securing reliefs", particularly when now it is a settled law that the circulars of CBDT are binding on the Income Tax Authorities as also held by the Constitutional Bench of the Hon'ble Supreme Court in the case of Navnit Lal C. Javeri B. Whether the ITAT is justified by not giving the relief to the assessee u/s 28 read with Section 37 suo motu on account of M/s Neepaz Metaliks, when the Tribunal is duty bound to grant the relief u/s 37 even when the counsel of the assessee has not raised that plea as held by the Hon'ble Supreme Court in the case of Mahalakshmi Textile Mills Limited , particularly when the business loss has not been disputed C. Whether the ITAT is justified in not ignoring the mistake of the counsel claiming the deduction of bad debts u/s 36(1)(vii) on account of non-recovery of advances to M/s Neepaz Metaliks which could be rightly claimed u/s 28 read with Section 37 as business loss, as by this order the innocent assessee has suffered on the advise tendered by the counsel, which is based on bona fide belief of being correct when it is already a well settled law that no litigant should suffer on account of the mistake committed by the counsel and specifically held by this Hon'ble High Court D. Whether the Income Tax Appellate Tribunal is justified in not considering the issue of bad debt on account of sales made to M/s Mega Alloys Ltd. to the tune to Rs.2,20,000/-, when the condition/section 36 (2)(i) is duly fulfilled -
(2.) Briefly stated, the facts necessary for adjudication of controversy involved as narrated in the appeal are that the assessee is a commission agent and trader in sponge iron. The assessee filed a return declaring an income of Rs.4,78,552/- on 31.10.2005 for the assessment year 2005-06 claiming deduction of Rs.19,50,052/- on account of rebate and discount. The return was processed under Section 143(1) of the Act and the same was selected for scrutiny. During the course of assessment proceedings, the details of account of rebate and discount were examined by the Assessing Officer. The entries in respect of bad debts claimed by the assessee were scrutinized and Rs.14,30,000/- and Rs.2.20,000/- were disallowed vide order dated 28.12.2007 under Section 36(1)(vii) of the Act on account of bad debts claimed by the assessee in respect of M/s Neepaz Metaliks (now M/s Adhunik Metaliks Ltd.) and M/s Mega Alloys Limited, Jalandhar, respectively. The Assessing Officer disallowed the claim of bad debt in respect of M/s Neepaz Metaliks (now M/s Adhunik Metaliks Ltd.) on the following grounds:- (i) the assessee had claimed that she was hopeful to recover 50% of the outstanding balance amount whereas balance 50% was taken as bad debts. However, this was found to be incorrect as the same was never communicated to the debtor nor any credit note for the 50% written off amount was issued. (ii) the debtor, M/s Adhunik Metaliks (erstwhile M/s Neepaz Metaliks) had shown credit balance of assessee in its balance sheet as on 31.3.2005, 31.3.2006 and 31.3.2007. (iii) On spot cross verification of assessee's claim towards M/s Adhunik Metaliks was found to be good debt. (iv) though entry of bad debt was prima facie evidence of debt becoming irrecoverable but was not conclusive unless substantiated by cogent material by the assessee. (v) no genuine efforts were made by the assessee to recover the amount from M/s Adhunik Metaliks Ltd. as no correspondence was made with the said company. (vi) No basis had been produced by the assessee as to on what basis 50% of the outstanding amount was considered to be recoverable. (vii) M/s Adhunik Metaliks Ltd. is a public limited company whose shares were listed on National Stock Exchange in India.
(3.) The claim of bad debt of Rs.2,20,000/- relating to M/s Mega Alloys Ltd., Jalandhar was not allowed for the reasons enumerated as under:- (i) M/s Mega Alloys Ltd. had shown credit balance of assessee in its books of account as on 31.3.2005 and 31.3.2006 and, therefore, good debt would not turn into bad debt only if the assessee so chooses. (ii) though entry of bad debt was prima facie evidence of debt becoming irrecoverable but was not conclusive unless substantiated by cogent material by the assessee. (iii) no genuine efforts were made by the assessee to recover the amount from M/s Adhunik Metaliks Ltd. as no correspondence was made with the said company.;