2004 (5) TMI 12 - HC - Income Tax

Claim for deduction of the provision for bad debts to Rs. 1,19,36,000 under section 36(1)(viia) - Tribunal was right in holding that since the assessee had made a provision of Rs. 1,19,36,000 for bad and doubtful debts, its claim for deduction under section 36(1) (viia) of the Act had to be restricted to that amount only. Since the language of the statute is clear and is not capable of any other interpretation, we are satisfied that no substantial question of law arises in this appeal for consideration by this court.

Summary

Issues:
Claim for deduction of provision for bad debts under section 36(1)(viia) of the Income-tax Act, 1961 restricted by Assessing Officer and upheld by Commissioner of Income-tax (Appeals) and the Tribunal.

Analysis:
The assessee filed an appeal under section 260A of the Income-tax Act against the order of the Income-tax Appellate Tribunal, where the Assessing Officer's restriction of the claim for deduction of provision for bad debts to Rs. 1,19,36,000 under section 36(1)(viia) was upheld. The assessee initially claimed a deduction of Rs. 1,94,21,000 under section 36(1)(viia) for the assessment year 1985-86. However, the Assessing Officer observed a provision for bad debts in the books at Rs. 1,19,36,000 and restricted the allowance to that amount, disallowing the balance. The Commissioner of Income-tax (Appeals) and the Tribunal upheld this decision.

The amendment to section 36(1) of the Act enhanced the deduction available under section 36(1)(viia) retrospectively from April 1, 1985. The assessee finalized its balance-sheet on February 14, 1985, based on the unamended section and filed a revised return on April 24, 1986, claiming a higher deduction. The assessee argued that it couldn't have made the higher provision in the balance-sheet for 1985-86 due to the timing of the amendment, making up the shortfall in the subsequent year. The Tribunal noted that the provision must be made to claim the deduction under section 36(1)(viia) and that the provision was made in the subsequent year, not the relevant assessment year.

The Tribunal correctly pointed out that the provision must be made in the same assessment year to claim the deduction, as evident from the language of the statute. Since the provision for bad debts was only made for Rs. 1,19,36,000 in the subsequent year, the claim for deduction under section 36(1)(viia) had to be restricted to that amount. The court found no substantial question of law for consideration and dismissed the appeal without costs.