While hearing the case of Bajaj Auto Finance Ltd, a division bench of the Bombay High Court has held that if the Assessing Officer has a different view against an order of High Court or Tribunal on a claim made by the Assessee then the claim is debatable.
Assessee-Company in the instant case, has duly filed its return of income for the relevant assessment year and the Company had debited a sum of Rs. 1,69,37,818 in its profit & loss account as provision for doubtful overdue installments under higher purchase agreements and the Assessee claimed the same as bad debts under section 36(1)(vii) of the Income Tax Act 1961.
During the course of assessment proceedings the Assessing Officer (AO) disallowed the claim under section 141(1)(a) of the Act by holding that the amount represented mere provision for doubtful debts and the same could not be treated as bad debts.
In response, the counsel for the Assessee, Advocate Vasanti Patel submitted that the adjustment could not be made in respect of a provision for doubtful installments as its allowability was a debatable issue, relied upon the decision taken by both Bombay and Gujarat High Court in similar issue.
However, the AO refused to accept the contention of the Assessee and accordingly he confirmed the disallowance. On appeal both lower authorities such CIT(A) and Income Tax Appellate Tribunal (ITAT) uphold the decision of the AO and confirmed the disallowance made by him. Aggrieved by the order of the lower authorities, the Assessee approached the Court on further appeal.
While analyzing the above narrated facts deeply, Justice Riyaz.I.Chagla and Justice M.S.Sanklecha observed that “it is undisputed that the decision of Gujarat High Court was referred to in the computation of income. Thus, the AO could not have disallowed the claim on prima facie view that the same is inadmissible. In fact, there can be no dispute that even according to the AO, the issue was debatable”
The Court further held that “whether the claim of a provision for bad debts is deductible under section 36(1)(vii) of the Act or not is debatable. Further the above mentioned claim for deductions as made by the Assessee by following the decision of the Gujarat High Court thus a debatable issue. Therefore, the same could not be disallowed by way of an intimation under section 143(1)(a) of the Act. While concluding the issue, the Court further held that the disallowance cannot be made by intimation under the said section of the Act, as it requires that a party be given an opportunity to establish its claim before disallowing it”.
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