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2012 (6) TMI 445 - AT - Income TaxDenial of claim of the assessee for deduction on account of bad debt assessee contented that the assessee did not claim any deduction on account of bad debts in assessment year 2004-05 though a provision was made in the books of account Held that - Since assessee in assessment year 2004-05 reduced a sum of ₹ 70,00,000/- in the balance-sheet from the sundry debtors, the sundry debtors account was not credited and closed - The assessee made a provision for doubtful debts in the books of account but in computation of income filed along with the return of income for assessment year 2004-05 added to the profit as per P & L account the provision for doubtful debts - though the Assessee had not claimed deduction on account of bad debts in AY 04-05 there is no double deduction claimed - the claim of the Assessee deserves to be accepted as if the claim is not allowed, then it would amount to double taxation in favour of assessee.
Issues Involved:
1. Justification of Revenue authorities in denying the claim of the assessee for deduction on account of bad debt of Rs. 20,36,000 while computing taxable income. Issue-wise Detailed Analysis: 1. Justification of Revenue authorities in denying the claim of the assessee for deduction on account of bad debt of Rs. 20,36,000 while computing taxable income: The assessee, a company engaged in importing and trading computerized digital printing machines, inks, spares, etc., identified certain dues from customers as potentially bad in AY 2004-05 and made a provision for doubtful debts amounting to Rs. 70,00,000. This provision was debited to the Profit & Loss (P&L) account and reduced from the gross total sundry debtors in the balance sheet. However, in the computation of income for AY 2004-05, the assessee added back the provision for doubtful debts to the profit, thus not claiming any deduction for bad debts in that year. In subsequent years, specifically AY 2005-06 and AY 2006-07, the assessee wrote off the provision for doubtful debts by crediting the sundry debtors' account. For AY 2006-07, a sum of Rs. 20,36,000 was written off. The Assessing Officer (AO) denied the deduction claim for AY 2006-07 on the grounds that the amount was not transferred to the P&L account, relying on the decision in CIT v. Hotel Ambassador, which held that writing off bad debts without charging the P&L account is not a write-off. On appeal, the CIT(A) upheld the AO's decision. The assessee argued before the Tribunal that the amount claimed as a deduction was part of the Rs. 70,00,000 provision already debited in AY 2004-05 and that the AO's requirement to debit the P&L account again in AY 2006-07 was incorrect. The assessee also contended that the condition in Section 36(2) was satisfied as the sum of Rs. 70,00,000 was credited as income in prior years. The Tribunal considered the rival submissions and the accounting entries. It was clear that the sum of Rs. 20,36,000 claimed in AY 2006-07 was part of the Rs. 70,00,000 provision made in AY 2004-05. The Tribunal referred to the Supreme Court decision in M/S. Vijaya Bank v. CIT, which held that to claim a deduction under Section 36(1)(vii), it is not necessary to close individual debtor accounts, and a mere reduction in the loans and advances/debtors account is sufficient. The Tribunal noted that the assessee did not claim the deduction in AY 2004-05 and that there was no double deduction. It was concluded that denying the deduction would result in double taxation since the Rs. 70,00,000 was already debited to the P&L account in AY 2004-05 but added back in the computation of total income. Thus, the Tribunal directed that the deduction of Rs. 20,36,000 be allowed. Conclusion: The appeal by the assessee was allowed, and the deduction on account of bad debts of Rs. 20,36,000 was directed to be allowed.
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