2015 (8) TMI 1294 - AT - Income Tax

Eligibility of claim of deduction u/s 36(1)(viia) - Held that - . On a reference to the provisions of section 36(1)(viia) of the Act it is very much clear that for claiming deduction under the said provision assessee has to create a provision for bad and doubtful debts in its books of account. Therefore contention of ld. AR that there is no need for making any provision for bad and doubtful debts for claiming deduction u/s 36(1)(viia) is not acceptable We are inclined to remit the matter back to the file of AO for deciding afresh after verifying the fact whether assessee has created any provision for bad and doubtful debts in its books of account in terms with section 36(1)(viia). In case it is found that assessee has made a provision for bad and doubtful debts in its books of account then deduction u/s 36(1)(viia) can be allowed to assessee. In case it is found that assessee has not made any provision for bad and doubtful debts in its books of account then assessee would not be eligible for any deduction u/s 36(1)(viia) in view of the ratio laid down by the Hon ble P&H High Court in case of State Bank of Patiala Vs. CIT (2004 (5) TMI 12 - PUNJAB AND HARYANA High Court ). With the aforesaid observations we remit the issue back to the file of AO for deciding afresh - Decided in favour of revenue for statistical purposes.

Issues:
- Appeal against order of CIT(A)-VI, Hyderabad for AY 2009-10.
- Department's application for rectification under section 254(2) of the Act.
- Allowance of deduction u/s 36(1)(viia) in revised return.
- Dismissal of petition u/s 154 by AO.
- Department's contention on provision for bad and doubtful debts.
- Interpretation of section 36(1)(viia) for claiming deduction.
- Requirement of provision for bad and doubtful debts for deduction u/s 36(1)(viia).

Analysis:
1. The appeal before the ITAT Hyderabad stemmed from the department's challenge against the order of the CIT(A)-VI, Hyderabad for the assessment year 2009-10. The ITAT had initially disposed of the assessee's appeal but later considered a departmental application under section 254(2) seeking rectification to address a specific ground related to the allowance of the assessee's claim of deduction u/s 36(1)(viia).

2. The core issue revolved around the department's contention regarding the assessee's claim of deduction u/s 36(1)(viia) made in the revised return of income. The facts indicated that the assessee initially filed its return of income for the relevant assessment year and later submitted a revised return claiming the said deduction, which the Assessing Officer (AO) did not consider during the assessment under section 143(3) of the Act.

3. The dispute further escalated when the AO dismissed the assessee's petition under section 154, citing the unavailability of the revised return during the original assessment and questioning the eligibility of the assessee to claim the deduction due to the absence of a provision for bad and doubtful debts in the Profit and Loss Account.

4. The ITAT analyzed the provisions of section 36(1)(viia) and emphasized the requirement for the assessee to create a provision for bad and doubtful debts in its books of account to claim the deduction under this provision. Citing relevant case law, including the decision of the Hon'ble P&H High Court, the ITAT established that the provision for bad and doubtful debts is a prerequisite for claiming the deduction u/s 36(1)(viia).

5. In light of the above interpretation, the ITAT concluded that the matter should be remitted back to the AO for fresh consideration to ascertain whether the assessee had indeed created a provision for bad and doubtful debts in its books of account as mandated by section 36(1)(viia). Depending on this verification, the deduction u/s 36(1)(viia) would be allowed or disallowed accordingly, aligning with the legal principles established by precedent cases.

6. Ultimately, the ITAT allowed the department's appeal for statistical purposes, emphasizing the need for a thorough assessment by the AO to determine the eligibility of the assessee for the deduction u/s 36(1)(viia) based on the presence or absence of the requisite provision for bad and doubtful debts in the books of account.

This detailed analysis of the judgment highlights the procedural history, legal arguments, and the ITAT's decision regarding the allowance of the deduction u/s 36(1)(viia) in the context of the revised return and the requirement for a provision for bad and doubtful debts as per statutory provisions and judicial precedents.

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