S. 271(1)(c): Despite conceding “bad debts”, assessee can raise new plea of “trading loss”

CIT vs. Sumangal Overseas Ltd (Delhi High Court)

The assessee gave advances to its suppliers of which Rs. 2.05 crores was written off as “bad debts”. The AO disallowed the claim on the ground that as the advances had never been treated as income, the conditions of s. 36(1)(vii) & 36(2) were not satisfied. The assessee accepted the disallowance. Penalty u/s 271(1)(c) was levied by relying on Escort Finance 328 ITR 44 (Del) on the ground that in the case of a corporate assessee whose accounts were duly audited by qualified Chartered Accounts, the claim of bona fide mistake is untenable. However, the Tribunal deleted the penalty on the ground that the write off, though not admissible as “bad debts” was allowable as a “trading loss”. On appeal by the department, HELD dismissing the appeal: