2019 (3) TMI 219 - AT - Income Tax

Entitlement to deduction u/s.36(1)(viia) - not written off the bad debts in its books of account - HELD THAT - For the purposes of claiming the deduction the assessee should have actually written off the bad debts exceeding the threshold limit prescribed by the Act. In the present case the assessee has actually not written off the bad debts in its books of account and had continued to show the same on the assets side of the balance sheet. Assessee is not entitled to any deduction u/s.36(1)(viia). - Decided against assessee.

Summary

Issues:
1. Disallowance of provision made towards non-performing investments.
2. Disallowance of provision for bad and doubtful debts under section 36(1)(viia).

Issue 1: Disallowance of provision made towards non-performing investments:
The appeal was filed against the order of the CIT (A) for the assessment year 2012-13. The assessee raised grounds challenging the disallowance of provision made towards non-performing investments of ?97,00,000, claiming it had become irrecoverable and was made as per the Reserve Bank of India's direction. The CIT (A) disallowed the provision for bad and doubtful debts under section 36(1)(viia) as it was not in accordance with the Act. The AO disallowed the excess claim of expenditure and brought it to tax. The AR argued that the assessee had obtained a license from RBI to run banking business and relied on a judgment of the Supreme Court. However, the Tribunal found no merit in the appeal, as the debts were not written off in the books of account, leading to the dismissal of the appeal.

Issue 2: Disallowance of provision for bad and doubtful debts under section 36(1)(viia):
The AO disallowed the provision for bad and doubtful debts as the debts were not written off in the books of account. The AR relied on a Supreme Court judgment to support the claim for deduction under section 36(1)(viia). The DR contended that the assessee did not meet the conditions of the Act. The Tribunal noted that the assessee had not written off the bad debts in the books of account and continued to show them on the assets side of the balance sheet. Referring to the Supreme Court's judgment, the Tribunal clarified the distinction between actual write-off and provision for bad debts. As the assessee did not meet the requirements for deduction under section 36(1)(viia), the appeal was dismissed.

In conclusion, the Tribunal upheld the disallowance of the provision made towards non-performing investments and the provision for bad and doubtful debts under section 36(1)(viia) for the assessment year 2012-13. The appeal was dismissed based on the failure to meet the statutory conditions for claiming deductions.