Income-tax---

----Rectification of mistakes---Bad debt---Condition precedent for rectification---Mistake must be apparent from record---Document forming basis of claim for bad debt not part of assessment record---Question whether bad debt was allowable in particular year, a debatable question---Bad debt was not allowable in rectification proceedings---Indian Income Tax Act, 1961, Ss.36 & 154.

A mistake apparent on the record must be an obvious and patent mistake and not something, which can be established by a long-drawn process of reasoning on points on which there may be conceivably two opinions. If an assessee is entitled to the deduction of a bad debt, even if it is not claimed, the authorities under the Act are bound to allow the same but there must be evidence on record to the effect that such a deduction can be allowed on the basis of documents, which are already on record. If there is no document on record then the position becomes different and a new case for the first time cannot be made in the proceedings under section 154 of the Income Tax Act, 1961.

The assessee was due to receive a sum of Rs.1,35,681 from K. For the assessment years 1962-63 to 1964-65, the debt was claimed as bad while computing the income of the assessee. The claim was rejected, as premature by the Income-tax Authorities The matter was ultimately challenged before the High Court under section 256 and finally the application under section 256(2) was rejected on April 19, 1978. The debtor filed an insolvency petition on February 23, 1965. The assessee was informed by the receiver vide letter, dated November 3, 1973, that a sum of Rs.126.04 was available as final dividend. A cheque for that amount, dated October 19, 1973, was also sent. The cheque was encashed and credited in the account of the assessee for the accounting year relevant to the assessment year 1975-76. The claim of the assessee was that since the final dividend was declared on October 19, 1973, the debt had become bad during the relevant accounting year ending Diwali 2030 (October 26, 1973), relevant to the assessment year 1974-75. The assessee applied on April 25, 1978, for rectification under section 154 for allowing the claim of bad debt for the assessment year 1974-75. The claim was rejected by the Income-tax Officer and the Appellate Assistant Commissioner. The Tribunal also dismissed the appeal of the assessee. On a reference:

Held, that the Tribunal found that the letter for declaring the final dividend on the basis of which the rectification was sought did not form part of the assessment record for the year 1974-75 till the assessment was completed. The Tribunal also found that the credit of dividend was taken by the assessee in the account for the assessment year 1975-76. The return for the assessment year 1974-75 was filed by the assessee on July 23, 1975, which was after the cheque was received by him vide letter, dated November 3, 1973. The assessment was completed on October 30, 1976, and even the revised return was not filed till that date. The system of accounting followed by the assessee was not part of the record. The question whether the debt had become bad in the year 1974-75 or in the year 1975-76 when the information was received along with the cheque and was credited in the books of account was a disputed question. Hence, there was no mistake apparent on record on the basis of which the order could be rectified.

Balaram (T.S.), ITO v. Volkart Brothers (1971) 82 ITR 50 (SC); CIT v. K.N. Oil Industries (1983) 142 ITR 13 (MP.); CIT v. Mattoo Worsted Spinning and Weaving Mills (1983) 139 ITR 1020 (J & K); CIT v. Sarju Prasad (1984) 148 ITR 718 (All.) and CIT (Addl.) v. Subramania Chettiar (S.RM.PL.) (1979) 119 ITR 925 (Mad.) ref.

N.K. Maloo for the Assessee.

G.S. Bapna-for the Commissioner.

JUDGMENT

V.K. SINGHAL J.---The Income Tax Appellate Tribunal has referred the following two questions of law arising out of its order, dated December 18, 1981, in respect of the assessment year 1974-75:

"(1) Whether, in the facts and circumstances of the case, the Tribunal having held that on the final declaration of dividend in the insolvency of debtor on October 19, 1973, as per cheque of date the claim of bad debt of Rs.1,35,681 had shifted to the assessment year 1974-75 was justified not to have held that other ingredients of section 36(2)(iii) of the Act were automatically fulfilled and that the assessee was entitled to the allowance of the said bad debt of the assessment year 1974-75?

(2) Whether, in the facts and circumstances of the case, the Tribunal was justified to dismiss the assessee's appeal on the new ground that credit for the dividend was taken by the assessee in the accounts for the assessment year 1975-76 and section 154 was not attracted?"

The brief facts of the case are that the assessee was due to receive a sum of Rs.1,35,681 from Kaluram Nemichand of Beawar. For the last years 1962-63 to 1964-65, the debt was claimed as bad while 67omputing the income of the assessee. The claim was rejected as premature by the Income Tax Authorities. The matter was ultimately challenged before this Court under section 256 and finally the application under section 256(2) was rejected on April 19, 1978.

The debtor filed an insolvency petition before the Insolvency Judge, Ajmer, on February 23, 1965. The assessee was informed by the receiver vide letter, dated November 3, 1973, that a sum of Rs.126.04 was available as final dividend. A cheque for that amount, dated October 19,1973, wasalso sent. The cheque was encashed and credited in the account of the assessee for the accounting year relevant to the assessment year 1975-76. The claim of the assessee was that since the final dividend was declared on October 19,1973, therefore, the debt had become bad during the relevant accounting year ending Diwali 2030 (October 26, 1973), relevant to the assessment year 1974-75, the assessee applied on April, 25, 1978, for rectification under section 154 to the Income Tax Officer for allowing the claim of bad debt for the assessment year 1974-75. The claim was rejected by the Income Tax Officer and the Appellate Assistant Commissioner. The Tribunal also dismissed the appeal of the assessee on the ground that the earlier claim made for the assessment years 1962-63, 1963-64 and 1964-65 was found premature and hence it amounted to a direction that the claim should be allowed in the year in which the insolvency petition was disposed of. The claim could not be pressed at the time of the assessment for the year 1974-75, since the assessee was simultaneously pursuing the remedy on different lines by way of reference in respect of earlier assessment years. When his reference application was rejected, his claim to deduct the bad debts survived for the assessment year 1974-75. The claim for bad debts in the assessment years 1962-63, 1963-64 and 1964-65 was considered to be premature. There was no finding that the debt became bad in 1974-75 and as such all that was said was that the debt did not become bad in those years. It was for the assessee to place the facts before the Income Tax Officer at the time of assessment for 1974-75 and claim that the debt became bad in 1974-75. The assessee's claim was based on the provisions of section 36(2)(iii) and it was observed that the decision of the High Court was given on April, 19, 1978, and the cheque of the receiver was, dated October, 19, 1973, for Rs.126.04. Even these documents did not form part of the record for the assessment year 1974-75 till the assessment was completed. It will be a mistake apparent from record with which the Tribunal did not agree.

Learned counsel for the assessee relied upon the decision in the case of CIT v. K.N. Oil Industries (1983) 142 ITR 13 (MP), wherein it was held that even if the relief has not been claimed in the assessment proceedings it can be claimed by rectification of assessment. The decision in the case of CIT v. Sarju Prasad (1984) 148 ITR 718 (All.) has also been relied upon that if there was failure to file estimate within time it could move the Tribunal for rectification under the Act. The decision in the case of CIT v. Motto Worsted Spg. and Wvg. Mills (1983) 139 ITR 1020 (J & K) has also been relied upon that if the conditions set out in section 80-J are satisfied and the claim was not made in the original assessment rectification is permissible. It is stated that in view of the decision in the case of Addl. CIT v. S. RM. PL. Subramania Chettiar (1979) 119 ITR 925 (Mad.), the debt had become bad on the date when the final dividend was received in the insolvency proceedings. In this case, the final dividend was declared on October 19, 1973, and as such the debt had become bad during the accounting period ending Diwali 2030 (October 26, 1973), relevant to the assessment year 1974-75.

The provisions of section 36(2)(iii) on the basis of which the claim of the assessee rests are as under:---

"(2) In making any deduction for a bad debt or part thereof, the following provisions shall apply--- ....

(iii) any such debt or part of debt may be deducted if it has already been written off as irrecoverable in the accounts of an earlier previous year, but the Assessing Officer had not allowed it to be deducted on the ground that it had not been established to have become a bad debt in that year."

The assessee claimed the debts outstanding against Kaluram Nemichand as bad. This contention was rejected as premature even up to the stage of this Court. The insolvency petition was filed before the Insolvency Judge on February 23, 1965. The receiver had written a letter, dated November 3, 1973, that a sum of Rs.126.04 is available as final dividend and a cheque, dated October 19, 1973, for the said amount was also sent. The cheque was encashed and the assessee credited the amount in his account for the accounting year relevant to the assessment year 1975-76. The claim was made that because the dividend was declared during the accounting period ending on October 26, 1973, i.e., assessment year 1974-75, therefore, the bad debt should be allowed in that assessment year in respect of the fact that no claim was made in the Income Tax Return submitted for that year. It was claimed by way of moving an application for rectification. The Tribunal found that there was no finding of this Court that the debt has become bad in the year 1974-75. and, therefore, the rectification application was not maintainable. In the ground of appeal it was stated that the receipt of Rs.126.04 by the assessee from the Official Receiver in the insolvency of the said debtor by cheque, dated October 19, 1973, on account of final dividend from the debtor's estate makes him entitled for deduction and the assessee has brought on record. The Tribunal found that the letter for declaring the final dividend on the basis of which the rectification is sought did not form part of the assessment record for the year 1974-75 till the assessment is complete. The Tribunal also found that the credit for the dividend was taken by the assessee in the account for the assessment year 1975-76 and. therefore, the application under section 154 was not maintainable. The moot question which arises is whether the claim for bad debt could be raised for the first time in the rectification proceedings, when no such claim was made in the assessment order, not even a document in respect thereof was submitted before the Income Tax Officer so that it may be considered to constitute a mistake apparent from the record. The important thing to be seen over here is that the return for the assessment year 1974-75 was filed by the assessee on July 23, 1975, which was after the cheque was received by him vide letter, dated November, 3, 1973. The assessment was complete on October 30, 1976, and even the revised return was not filed till that date If there is an order of this Court then it may constitute ground for rectification and the authorities under the Act are bound to rectify the order on the basis of the decision given. The decision which was given by this Court was that it is premature for the assessee to claim the debt in the assessment years 1962-63 to 1964-65. Whether it has become a bad debt in the year 1974-75 or not has to be seen in the scope of the provisions of section 154. For section 154 the mistake must be apparent. Whether the debt lids become bad in the year 1974-75 or in the year 1975-76 when the information was received along with the cheque and was credited in the books of account is a disputed question of fact. It was no doubt true that if the assessee is entitled for any debt even if a is not claimed and is legally entitled the authorities under the Act are bound to allow the same but there must be evidence on record to the effect that such a deduction can be allowed on the basis of documents which were already on record. If there is no document on record then the position becomes different and a new case for the first time cannot be made in the proceedings under section 154 of the Income Tax Act. It has not come on record what was the system, which the assessee was maintaining and what were the entries made in the books of account. The decision in the case of Addl. CIT v. S. RM. PL. Subramania Chettiar (19791 119 ITR 925 (Mad.) was based on the undisputed fact where the assessee had already written off the bad debt for the assessment year 1963-64 and the Income Tax Officer disallowed the claim on the ground that debt should not be considered as bad until the final declaration of the dividends by the official assignee takes place. It was held by the Madras High Court that since the debt has already been written off as irrecoverable in the accounts of the earlier previous year, there is no necessity for a further or fresh writing off of the debt by the assessee after he took over the business in view of the above provisions. Failure of the assessee to produce any document on record that the debt" had become bad for the year 1974-75 disentitles him for claiming the said deduction under section 154. In the proceedings under section 154 there must be a mistake apparent from the record. The finding, which has been recorded by the tribunal is that no record was produced before the assessing authority and. therefore, the matter could not fall within the purview of section 154. Even in the assessment proceedings for the year 1974-75 neither the claim was made nor any document was produced and the alleged cheque for Rs.126.04, dated October 19, 1973 was not entered in the books of account for the year 1974-75, The apex Court in the case of T.S. Balaram, ITO v. Volkart Brothers (1971) 82 ITR 50 has held that a mistake apparent on the record must be an obvious and patent mistake and not something which can be established by a long-drawn process of reasoning on points on which there may be conceivably two opinions. A decision on a debatable point of law is not a mistake apparent from the record The cheque was entered in the books of account for the assessment year 1975-76 and even the forwarding letter was received in the said assessment year. The position in 1975-76 would have been different, but since we are considering the claim in respect of the assessment year 1974-75 during which even the alleged letter was not received by the assessee it could not be considered that the Income Tax Officer has committed any mistake apparent on record on the basis of which the order could be rectified.

In these circumstances, we are of the view that the Tribunal having held that on the final declaration of dividend in the insolvency of the debtor on October, 19. 1973, as pet cheque of date, the claim of bad debt of Rs.1,35,681 had shifted to the assessment year 1974-75 was justified not to have held that other ingredients of section 36(2)(iii) of the Act were automatically fulfilled and that the assessee was entitled to the allowance of the said bad debt for the assessment year 1974-75. We are further of the view that the Tribunal was justified to dismiss the assessee's appeal on the new ground that credit for dividend was taken by the assessee in the accounts for the assessment year 1975-76 and section 154 was not attracted.

Consequently, the reference is answered in favour our of the Revenue and against the assessee. No order as to costs. A copy of this judgment be sent to the Tribunal for compliance.

M.B.A./1638/FC Reference answered.