2018 (7) TMI 2316 - AT - Income Tax

Disallowance of deduction claimed u/s.36(1) (viia) - provision as required under the said Section was not created - HELD THAT - Section 36 (1) (viia) indicate that allowance is for any provision for bad and doubtful debts. In our opinion, the use of the word any before the words provision for bad and doubtful debts indicate that nomenclature under which the provision is made may not be a critical factor in determining the allowance. Once a provision under whatever name is debited in the profit and loss account, then it is can be allowed, provided it is within the limits specified. No doubt assessee had preferred claims in its return which were in excess of what was allowable u/s.36(1) (viia) of the Act, since debits to the profit and loss account whether it was called provision for standard asset, reserve for DCB difference, NPA provision, waiver loans, sundry debtors over three years, bullet jewel loan, overdue interest reserves, sundry debtors over three years, even if they were all aggregated was lower than the amount assessee could have claimed u/s.36(1) (viia) None of the lower authorities had carefully gone through the nature of the each of the debits mentioned above before coming to a conclusion that these were actually not provision for bad and doubtful debts, but something else, like creation of a Reserve. Though peculiarities of nomenclature by itself will not render the assessee ineligible for claiming deduction available to it u/s.36(1) (viia) it is required for the assessee to show that these were indeed provisions for bad and doubtful debts. We are of the opinion that this issue requires a fresh look by the ld. Assessing Officer - Decided in favour of assessee for statistical purpose..

Summary

Issues Involved:
- Validity of re-assessments for assessment years 2009-10 to 2012-2013
- Disallowance of deduction claimed by the assessee u/s.36(1)(viia) of the Income Tax Act, 1961

Analysis:

Validity of Re-Assessments:
The appeals were filed by the assessee against orders of the Commissioner of Income Tax (Appeals) for assessment years 2009-10 to 2012-2013, challenging the validity of the re-assessments. The assessee's counsel decided not to press the grounds assailing the validity of the re-assessments for these years. Consequently, the grounds challenging the validity of the re-assessment were dismissed as not pressed.

Disallowance of Deduction u/s.36(1)(viia):
The main issue in the appeals was the disallowance of deduction claimed by the assessee under section 36(1)(viia) of the Income Tax Act for the mentioned assessment years. The assessee had claimed specific amounts as deductions for each year, supported by provisions created in its accounts. The lower authorities denied the claim under section 36(1)(viia) on the basis that a provision for bad and doubtful debts was not created as required by the section. The assessee's representative argued that despite different nomenclatures, the debits made were essentially provisions for bad and doubtful debts and should be allowed under the section. However, the Departmental Representative contended that since the provision was not created as per the section's requirements, the claim should be disallowed.

Judgment and Conclusion:
After considering the arguments and perusing the relevant provisions of the Income Tax Act, the Tribunal found that the critical factor for allowance under section 36(1)(viia) was the creation of any provision for bad and doubtful debts, irrespective of the nomenclature used. The Tribunal noted that the lower authorities did not thoroughly analyze the nature of the debits made by the assessee before disallowing the claim. Therefore, the Tribunal set aside the lower authorities' orders and remitted the question of whether the assessee could claim the deduction under section 36(1)(viia) back to the Assessing Officer for a fresh consideration in accordance with the law. Consequently, the appeals of the assessee were partly allowed for statistical purposes.

In conclusion, the Tribunal's judgment focused on the interpretation of the provisions of the Income Tax Act regarding the deduction claimed by the assessee under section 36(1)(viia). The decision emphasized the importance of the nature of the provision created rather than the nomenclature used, and directed a fresh assessment by the Assessing Officer to determine the eligibility of the assessee for the claimed deduction.