2009 (8) TMI 848 - AT - Income Tax

Summary

Issues involved: Appeal by revenue against order granting relief for bad debts u/s 36(1)(viia)(b) of the Act for assessment year 2000-01.

Summary:
The appeal was filed by the revenue against an order granting relief for bad debts u/s 36(1)(viia)(b) of the Act for the assessment year 2000-01. The assessee, a banking company incorporated in the USA, was entitled to claim a deduction for bad and doubtful debts not exceeding 5% of the total income computed before making deductions. The proviso to section 36(1)(vii) limits the deduction relating to bad debts to the amount by which such debt exceeds the credit balance in the provision for bad and doubtful debts account. In this case, the bad debts written off in the previous year exceeded the credit balance in the provision for bad debts. The Assessing Officer initially allowed a deduction based on the total income computed, but after a reduction in total income due to an appellate order, the deduction was also reduced. The assessee contended that the difference should be allowed as bad debt under the proviso to section 36(1)(vii). The learned CIT(A) accepted the plea and directed the Assessing Officer to allow the further deduction. The revenue appealed to the Tribunal.

The Tribunal upheld the decision of the learned CIT(A), stating that the overall deduction for bad debts written off should not exceed the actual bad debts written off in the books of account. The Tribunal found that the reduced provision for bad debts would be offset by the claim for deduction on account of bad debts under the proviso to section 36(1)(vii), ensuring that the ceiling for deductions was not violated. Therefore, the Tribunal dismissed the appeal of the revenue, affirming the correctness of the learned CIT(A)'s decision to allow the claim of the assessee.