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2014 (9) TMI 1217 - AT - Income TaxAllowability of claim of bad and doubtful debts made in the return of income u/s 36(1)(vii) - HELD THAT - From 1.4.1989 only the debts which is written as bad and doubtful is to be allowed as deduction u/s 36(1)(vii) of the act. It is the duty of the assessee to written off the debts and claim that it is deduction while computing the income. The provisions of sec. 36(1)(vii) has been amended by insertion of Explanation with retrospective effect from 1.4.1989 by Finance Act 2001 and as per this Explanation bad debts written off in the accounts of the assessee shall not include in the provisions of bad and doubtful debts made in the accounts of the assessee. Claim of the assessee that the bad debt was debited into the P L Account and the same amount was reduced from the total loans and advances in Schedule VII in the balance sheet and it shall be allowed as deduction u/s 36(1)(vii) of the Act. In our opinion the case of the assessee is squarely covered by the decision in the case of Vijaya Bank 2010 (4) TMI 46 - SUPREME COURT and Kirloskar Systems Ltd 2013 (12) TMI 9 - KARNATAKA HIGH COURT had considered similar issue. Being so the case of the assessee is to be allowed. - Decided in favour of the assessee.
Issues:
- Allowability of claim of bad and doubtful debts under section 36(1)(vii) of the Income Tax Act. Analysis: The appeal before the Appellate Tribunal ITAT Cochin concerned the allowability of a claim of bad and doubtful debts made by the assessee under section 36(1)(vii) of the Income Tax Act for the assessment year 2010-11. The Assessing Officer (AO) disallowed the claim, citing that the provision for bad and doubtful debts was only allowable for banks and not for other assesses. The Commissioner of Income Tax (Appeals) upheld this decision, stating that the provision was clearly laid out in the Explanation to section 36(1)(vii) of the Act, which excluded any provision for bad and doubtful debts made in the accounts of the assessee. The assessee, aggrieved by this decision, appealed to the ITAT. The assessee argued that the issue was covered by the judgment of the Hon'ble Supreme Court in the case of Vijaya Bank vs CIT, where it was held that provisions made for bad and doubtful debts were allowable as deductions under section 36(1)(vii) of the Act. The assessee also relied on decisions of the Hon'ble Karnataka High Court to support their claim. The ITAT considered the arguments of both parties and examined the relevant material on record. The ITAT noted that the provisions of section 36(1)(vii) had been amended with retrospective effect from April 1, 1989, by the Finance Act 2001. The ITAT referred to the judgment of the Hon'ble Supreme Court in the case of Southern Technologies Ltd. v. Joint Commissioner of Income-tax, where it was clarified that any bad debt written off would not include any provision for bad and doubtful debts made in the accounts of the assessee. The ITAT held that if an amount of doubtful debt was debited to the profit and loss account and credited to the asset account, it constituted a write-off of an actual debt, making it eligible for deduction under section 36(1)(vii). Based on the precedents cited and the interpretation of the law, the ITAT concluded that the claim of the assessee should be allowed. The ITAT found that the case of the assessee was squarely covered by previous judgments of the Hon'ble Supreme Court and the Hon'ble Karnataka High Court on similar issues. Therefore, the ITAT decided the issue in favor of the assessee and allowed the appeal. In conclusion, the ITAT ruled in favor of the assessee, allowing the appeal and holding that the claim of bad and doubtful debts under section 36(1)(vii) of the Income Tax Act was permissible in this case.
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