1. This is an appeal filed by the assessee and is directed against the order dt. 11th May, 2006 in the matter of rectification of mistakes under Section 154 r/w Section 250 of the IT Act, 1961, for the asst.
yr. 2002-03. The assessee is, in substance, aggrieved that the CIT(A), on the peculiar facts and circumstances of this case, ought to have held that the rectification petition filed by the assessee was maintainable and he should have directed the AO to grant deduction of Rs. 39,83,677 in respect of bad debts which were written off in the relevant previous year.
2. The issue in appeal lies in a narrow compass of undisputed material facts. The assessee had claimed a deduction of Rs. 39,83,677 on account of bad debts, in the asst. yr. 2001-02. However, the claim was rejected by the AO on the ground that the bad debt was not actually written off.
Aggrieved by the stand so taken by the AO, the assessee carried the matter in appeal before the CIT(A) but without any success. The CIT(A) held that though the account of the debtor was debited by credit to provision account, this entry has to be treated as 'provision for bad debts' and it is to be treated as actually written off in previous year relevant to the subsequent assessment year, i.e., accounting year ended 31st March 2002. The AO had given a categorical finding to this effect, which was confirmed by the CIT(A). In the meantime, the assessee had also filed his income-tax returns for the asst. yr. 2002-03 and since he had claimed the bad debts in the asst. yr. 2001-02, he did not claim the bad debt of Rs. 39,83,677 again this year as well but disclosed, by way of note to the computation of income attached to the income-tax return, that "the assessee has written off Rs. 41,90,45.28 as bad debts and out of which Rs. 39,83,877.40 was written off in 01-02 due from Ghanshyam Sukhwani and the balance of Rs. 2,06,787.88 has been debited to P&L a/c this year". When it was held by the CIT(A) that Rs. 39,83.677 was actually written off in the asst. yr. 2002-03 and the entry made in the asst. yr. 2001-02 is to be construed as creation of provision, the assessee moved a rectification petition to the AO pointing out that the bad debt of Rs. 39,83,677, even though not claimed in the asst. yr. 2002-03, ought to have been allowed by the AO in this assessment year. The AO rejected the petition and held that the claim for bad debt was rightly declined for the asst. yr. 2001-02 since the amount was not actually written off by the assessee in the previous year relevant to that assessment year, and that the claim for bad debts has rightly not been allowed for the asst. yr. 2002-03 since the assessee has not claimed the same. There was no mistake in the assessments, according to the AO, and the assessee was, therefore, not entitled to any relief in the matter. Aggrieved, assessee carried the matter in appeal before the CIT(A) but without any success. The CIT(A), in a rather mechanical tone, concluded as follows: In the present case, the learned AO has accepted the returned income and, therefore, it is clear that no grievance emanates from the action of the AO, because there is a failure on the part of the appellant to make a claim in the return of income. In view of this, on the facts of the case, it is held that there is no mistake rectiflable under Section 154 of the Act and, therefore, the application of the appellant making a claim in respect of bad debts at Rs. 39,83,677.40 was rightly rejected by the learned AO. The ground of appeal taken by the appellant in this regard thus fails.
3. The assessee is not satisfied by the stand so taken by the CIT(A) and is in second appeal before us.
4. Having heard the rival contentions and having considered the applicable legal position, we are unable to share the perception of the authorities below. A careful analysis of the legal position leads us to the conclusion that the rectification petition should have been allowed.
5. A mistake apparent from record is not only a mistake in the acts of an authority; even a wrongful inertia of a public authority is also a mistake apparent from record. All the powers of someone holding a public office are powers held in trust for the good of public at large.
There is, therefore, no question of discretion to use or not to use these powers. It is so for the reason that when a public authority has the powers to do something, he has a corresponding duty to exercise these powers when circumstances so warrant or justify--a legal position which has the approval of Hon'ble Supreme Court. In this perspective, let us take a look at the scheme of Section 153(3) of the Act.
6. Section 153(3) provides that time limits for assessments, reassessments and recomputations do not apply, inter alia, in the cases where "such assessment, reassessment or recomputation is made on the assessee or on any person in consequence of or to give effect to, any finding or direction contained in an order under Section 250...."The effect of this provision is that notwithstanding any time limits contained in Section 153, any orders to give effect to, or in consequence to, findings or directions contained in an order passed by the CIT(A) can be passed at any time.
7. As to what is the nature of 'finding or direction' under Section 153(3), Hon'ble Supreme Court's following observations in the case of Rqjinder Nath v. CIT provide guidance: A finding given in an appeal, revision or reference must be a finding necessary for the. disposal of the case, that is in respect of a particular assessee and in respect of a particular assessment year. To be a necessary finding, it must be directly involved in disposal of a case. It is possible that in certain cases, in order to render a finding on 'A', a finding in respect of 'B' is called for....The same principle seems to apply when the question under inquiry is whether an income is taxable in the assessment year under consideration or for any other assessment year....
8. It is thus clear that the CIT(A)'s finding that bad debts are not allowable in the asst. yr. 2001-02 because the same is allowable in the asst. yr. 2002-03, which is the assessment year of actual write off, is the kind of 'finding' which is covered by the provisions of Section 153(3) of the Act.
9. In view of the fact that the CIT(A) has admittedly given a finding to the effect that the bad debt claim is admissible in the year of actual write off, which is previous year relevant to the asst. yr.
2002-03, coupled with the fact that the AO has the powers to do assessment, reassessment or recomputation on the assessee in consequence of, or to give effect to, such a. finding contained in an order passed by the CIT(A), the AO should have passed the order recomputing and correctly assessing the taxable income of the assessee for the asst. yr. 2002-03. By not doing so, the AO has not given effect to the 'finding' contained in the CIT(A)'s order for the asst. yr.
2001-02, and, to that extent, the AO's inertia is clearly a mistake apparent from record. This inaction is clearly contrary to the scheme of the Act which permits any assessment, reassessments and recomputation orders to give effect to, or in consequence of, any findings or directions not only in the CIT(A)'s order but also orders of the Tribunal, Hon'ble High Courts, Hon'ble Supreme Court as well as of "any Court" in a proceeding otherwise than in appeal. An AO, as indeed any other authority in the IT Act, cannot turn to the assessee and say that although he has authority to do something for the good of the assessee, it is not necessary that he must exercise that authority.
The inaction of the AO, therefore, is a mistake apparent from the record, and there cannot be any two reasonable opinions on whether or not the AO should give effect to the finding of the CIT(A). It is also important to bear in mind that any other view of the matter will result in a double jeopardy to the assessee which will constitute 'absurdity' besides being grossly inequitable and patently unfair. An interpretation which leads to such absurdities, as is the settled law, is to be avoided.
10. For the reasons set out above, we uphold the grievance of the assessee and direct the AO to give proper effect to the findings of the CIT(A) for the asst. yr. 2001-02 by recomputing the taxable income for the asst. yr. 2002-03 and allowing the bad debt in the year in which it is actually written off, i.e. 2002-03. The assessee gets the relief accordingly.
In the result, the appeal is allowed. It was so pronounced in the open Court upon conclusion of hearing.