2014 (2) TMI 1080 - HC - Income Tax

Bad debt u/s 36(1)(viia) of the Act - Whether the Tribunal is correct in law and fact in holding that the bad debt relating to the non- rural branches in excess of the credit balance of the provisions for bad debts created u/s 36(1)(viia) alone is admissible for deduction u/s 36(1)(vii) of the Act Held that - The provisions of Section 36(1)(vii) and (viia) of the Income Tax Act are distinct and independent items of deduction and operate in their respective fields - the proviso would not permit the benefit of double deduction operating with reference to rural loans while, under Section 36(1)(vii), the assessee would be entitled to general deduction upon an account having become bad debt and being written off as irrecoverable in the accounts of the assessee for the previous year Decided in favour of Assessee. Disallowance of claim for leave encashment Held that - The opinion of the Tribunal so far as disallowance claimed in respect of leave encashment under Section 43B(f) of the Act, as on today, the provision seems to be in force in the light of the stay order granted - as long as Section 43B(f) is on Statute, the disallowance is justified. Trade surplus on sale of jewellery - Whether the Tribunal is correct in holding that the surplus outstanding in the appellant s accounts acquired the character of trade surplus when the appellant had not credited the sum in their P&L account and there is nothing to show that there is cessation of the liability Held that - The decision in Catholic Syrian Bank Ltd. CIT (Asst.) 2012 (2) TMI 262 - SUPREME COURT OF INDIA followed The amount is reflected in the account for long time over number of years as trade surplus amount it has to be considered as income as observed by the Tribunal - there is no fault with the opinion of the Tribunal thus, the appeal is partly allowed Decided against assessee.

Summary

Issues involved:
1. Disallowance of bad debt under Section 36(1)(vii)
2. Disallowance of leave encashment claim under Section 43B(f)
3. Addition of trade surplus on sale of jewellery

Analysis:

Issue 1: Disallowance of Bad Debt under Section 36(1)(vii)
The appellant bank claimed bad debts written off under Section 36(1)(vii) for the assessment year 2006-07. The Assessing Officer disallowed the claim, but the CIT(Appeals) allowed it, citing a Division Bench decision. However, the Tribunal reversed the CIT(Appeals) finding, relying on a Full Bench judgment. The appellant argued that the Full Bench's interpretation was erroneous, as Section 36(1)(vii) and (viia) operate independently. The Supreme Court clarified that bad debts not covered under (viia) are deductible under (vii). Consequently, the Tribunal's reliance on the Full Bench judgment was deemed incorrect, and the first issue was decided in favor of the appellant.

Issue 2: Disallowance of Leave Encashment Claim under Section 43B(f)
The second issue involved the disallowance of leave encashment claim under Section 43B(f). The CIT(Appeals) allowed the claim, but the Tribunal reversed this decision based on a stay order from the Calcutta High Court. As long as Section 43B(f) remains in force, the disallowance is considered justified, as per the Tribunal's decision.

Issue 3: Addition of Trade Surplus on Sale of Jewellery
Regarding the addition of trade surplus on the sale of jewellery, the Assessing Officer noted an amount of Rs. 23,221 reflected in the suspense account over several years. The appellant argued that this amount should not be considered income as it might need to be returned to the borrower. However, the Tribunal viewed this amount as income due to its long-standing presence in the account. Citing relevant case law, the Tribunal's decision was upheld, and the third issue was decided in favor of the Revenue.

In conclusion, the judgment addressed the disallowance of bad debt, leave encashment claim, and trade surplus addition, providing detailed analysis and legal interpretations for each issue, resulting in a mixed outcome for the appellant and the Revenue.