2012 (11) TMI 542 - AT - Income Tax

Disallowance of Bad debts Whether claim for provision for bad and doubtful debts under section 36(1)(viia)(c) on its activity relating to providing infrastructure facility be allowed. Held that - deduction under section 36(1)(vii) on the basis of write-off and provision under section.36(1)(viia) can both be claimed as long as there was no duplication. Since assessee here was not allowed its claim under section 36(1)(viia)(c) for the provision for bad and doubtful debts, there was no threat of any double deduction being availed by it. There is no dispute that for the amount claimed under section.36(1)(vii), there was an actual write off effected in its books. Claim of Revenue that there was violation of Rule 46A, is without any basis, since assessee has not been given the benefit of provision under section 36(1)(viia)(c) of the Act. Hence, the question of bifurcation of activities becomes redundant. It is to be noted that the assessee is not in appeal before us against disallowance of its claim for provision for bad and doubtful debts under section 36(1)(viia)(c). We therefore, do not find any reason to interfere with the order of the CIT(A). The appeals of the Revenue for all the three years stand dismissed - In the result, appeals filed by Revenue are dismissed.

Summary

Issues involved:
- Disallowance of bad debts claimed by the assessee under section 36(1)(vii) and provision for bad & doubtful debts under section 36(1)(viia)(c) of the Income Tax Act, 1961.

Analysis:

1. Issue of Disallowance of Bad Debts:
The Revenue raised concerns regarding the claim of bad debts allowed by the CIT(A) without providing the Assessing Officer with the opportunity to bifurcate the activities done by the assessee. The assessee had filed returns claiming write-off of bad debts under section 36(1)(vii) and provision for bad & doubtful debts under section 36(1)(viia)(c) for the impugned Assessment Years. Initially, the Assessing Officer allowed the claim for bad debts write off but disallowed the provision for doubtful debts. Upon appeal, the CIT(A) allowed the claim for provision as well. The Tribunal remitted the matter back to the Assessing Officer for reconsideration. The Assessing Officer, in the subsequent assessment, reversed the decision and disallowed the claim for bad debts write off but allowed the provision for bad and doubtful debts under section 36(1)(viia)(c).

2. Interpretation of Sections 36(1)(vii) and 36(1)(viia)(c):
The Assessing Officer disallowed the claim for bad debts write off under section 36(1)(vii) while allowing the provision for bad and doubtful debts under section 36(1)(viia)(c). The CIT(A) reversed this decision, allowing the claim of bad debt under section 36(1)(vii) but disallowing the provision under section 36(1)(viia)(c). The CIT(A) held that the provision for bad and doubtful debts was related to providing infrastructure facilities, not loans or advances, making it ineligible under section 36(1)(viia)(c). The Tribunal, citing the Catholic Syrian Bank Ltd case, allowed the claim under section 36(1)(vii) as there was no duplication of deductions, given the disallowance of the provision under section 36(1)(viia)(c).

3. Double Claim and Rule 46A:
The Revenue argued that the assessee could not claim both provision for bad and doubtful debts under section 36(1)(viia)(c) and write off bad debts under section 36(1)(vii). However, the Tribunal noted that since the provision under section 36(1)(viia)(c) was disallowed, there was no risk of double deduction. The Tribunal found no violation of Rule 46A as the assessee was not granted the benefit of the provision under section 36(1)(viia)(c), making the bifurcation of activities irrelevant. The Tribunal upheld the CIT(A)'s decision to allow the claim of bad debts under section 36(1)(vii) and dismissed the Revenue's appeals for all three years.

In conclusion, the Tribunal upheld the CIT(A)'s decision to allow the claim of bad debts under section 36(1)(vii) while disallowing the provision for bad and doubtful debts under section 36(1)(viia)(c) for the assessee, as there was no double deduction due to the disallowance of the provision. The appeals filed by the Revenue were dismissed.