2013 (12) TMI 370 - HC - Income Tax

Bad Debts - Held that - The claim for provision for bad and doubtful debts is created as per the provisions under Section 36(1)(vii) of the Act - The Tribunal accepted the contention of the assessee that since the balance outstanding in the provision account made under Section 36(1)(vii) was only Rs.1,81,00,000/- the bad debts can be debited only to that extent - Even if the assessee debits the entire bad debts of Rs.7.51 crores to the provision account then the said account will show a debit balance of Rs.5.7 crores which has to be closed by transferring it to the profit and loss account - Both the method will show the same results - Decided against Revenue. Excess provision written back - Held that - The Tribunal found that there was no discussion about the same in the assessment order - The matter requires examination by the Assessing Officer - The issue was restored for fresh decision.

Summary

Issues:
1. Disallowance of bad debts written off under Section 36(1)(vii).
2. Disallowance under Section 14A.
3. Deduction for excess provision written back.

Issue 1: Disallowance of bad debts written off under Section 36(1)(vii):
The appeal challenged the order by the Income Tax Appellate Tribunal regarding the assessment year 2007-2008. The Assessing Officer disallowed a sum of Rs.5,70,13,359/- as bad debts written off under Section 36(1)(vii). The assessee appealed, raising three issues: disallowance under Section 14A, deduction for bad debts written off, and deduction for excess provision written back. The Commissioner of Appeals allowed the appeal related to the deduction of bad debts and excess provision. The revenue challenged the decision on bad debts and excess provision. The Tribunal opined that the bad debts can be debited only to the extent of the balance outstanding in the provision account made under Section 36(1)(vii), resulting in the same outcome whether debited to the provision account or profit and loss account.

Issue 2: Disallowance under Section 14A:
The Tribunal remitted the matter back to the Assessing Officer for fresh examination regarding the disallowance made under Section 14A of the Act. This decision was based on the assessee's case in previous assessment years and a High Court judgment. The Tribunal found the need for a fresh examination by the Assessing Officer due to the lack of discussion in the assessment order.

Issue 3: Deduction for excess provision written back:
The Tribunal noted the absence of discussion on the reduction of excess provision written back in the assessment order. Consequently, the matter was deemed to require examination by the Assessing Officer. The Tribunal's decision highlighted the necessity for a detailed examination by the Assessing Officer in this regard.

In conclusion, the appeal was dismissed as no substantial question of law arose for consideration. The Tribunal's findings indicated that the method adopted for deduction under Section 36(1)(vii) did not alter the outcome, leading to the dismissal of the appeal.