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2024 (9) TMI 721 - AT - Income TaxDisallowance of debts written off by the assessee - denial of deduction u/s 36(1)(vii) the claim as the assessee did not create any provision in the books of accounts, which is a mandatory requirement for claiming such deductions - HELD THAT - We have reproduced the relevant provision of the Act, herein above and from the bare reading of the provisions of the Act it is abundantly clear that, for the purpose of invoking the provisions of section 36 (1) (viia), it is essential for the assessee bank to make a provision in the books of account for bad and doubtful debts. Admittedly the assessee has not made any provision for bad and doubtful debts in its books of account, therefore in our considered opinion the assessee is not entitled to benefits of section 36 (1) (viia). In view of the above, the ground raised by the assessee is dismissed. Additional ground raised by the assessee - entitlement of the assessee u/s 36(1)(vii) of the Act to claim deduction on account of the bad debts actually written off in their books of account - Having admitted the additional ground raised by the assessee, which is relating to entitlement of the assessee u/s 36(1)(vii) of the Act to claim deduction on account of the bad debts actually written off in their books of account, since this issue has been raised before us for the first time and has not been considered by the lower authorities, therefore we deem it appropriate to remand back the matter to the file of the Ld. AO with the direction to examine afresh the issue in accordance with law after affording opportunity to the assessee. The assessee is also directed to prove that they have complied all the requirement of the law for claiming the deduction on account of the bad debts actually written off in their books of account. Addition towards profit on sale of investment - assessee had wrongly credited to the profit and loss account on account of profit on sale of investment and during the assessment proceedings the assessee filed the revised computation of income by deleting the said amount - revenue authorities did not allowed the claim of the assessee due to the reason that the assessee did not produced necessary evidence/documents before them - HELD THAT - It is a fact that the assessee does not stand to gain by not producing such documents. Be that as it may, now that the assessee is ready to produce all such documentary evidence in support of his contentions and get the matter disposed of on merits. The highest that would happen by allowing an opportunity to the assessee is that a cause would be decided on merits. We are of the view that fresh opportunity should be given to the assessee and, accordingly, we set aside the impugned issue to the file of the Ld. AO for deciding the issue afresh on merits after affording the opportunity of hearing to the assessee. Accordingly, the ground of the assessee is allowed for statistical purposes. Depreciation claimed on investment - HELD THAT - We are of the concerned opinion that no depreciation will be allowable to the assessee on the investment treated as current assets. We here by make it clear that, neither we have decided the nature of the investment, whether it is current or otherwise, nor it was an issue before us to decide the nature of the investments. We have only decided on the issue whether the assessee is eligible to claim depreciation on the investments, which the assessee has shown as current assets. Accordingly, on this count, this issue of the assessee is dismissed. Contention of the assessee that the investment are in the nature of non SLR and has been shown under the current assets - CBDT vide circular no. 665 dated 03/10/2/1993 has clarified that the investment which has been classified as per the guidelines of RBI as Available For Sale(AFS) and Held For Trading (HFT) will be treated as stock in trade and can be valued at lower of cost or market rate. Therefore in our opinion, whether the claim of the assessee that the investment are stock in trade or not in lieu of the aforesaid circular of CBDT is required to be verified from the relevant documents and books of accounts of the assessee. Therefore we remand the matter back to the file of Ld. AO with a direction to verify, whether the investment falls under stock in trade or not in lieu of the CBDT circular no. 665 dated 03/10/2/1993. If the Ld. AO after verification found it to be stock in trade, then he is directed to value the same at lower of cost or market rate as per the accepted accounting principle. This issue of the assessee is allowed for statistical purposes.
Issues Involved:
1. Disallowance of bad debts written off. 2. Addition of profit on sale of investment. 3. Disallowance of depreciation claimed on investment. Detailed Analysis: 1. Disallowance of Bad Debts Written Off: The first issue pertains to the disallowance of Rs. 173,15,46,253/- on account of debts written off by the assessee. The Assessing Officer (AO) disallowed the claim as the assessee did not create any provision under Section 36(1)(viia) in the books of accounts, which is a mandatory requirement for claiming such deductions. The AO's stance was supported by various judicial pronouncements and the fact that the assessee did not fulfill the conditions stipulated under Sections 36(1)(viia) and 36(2)(v). The CIT(A) upheld the AO's decision, noting that the assessee did not offer the reimbursement received under the Agricultural Debt Waiver and Debt Relief Scheme (ADWDRS) as income. The tribunal admitted an additional ground raised by the assessee, which argued for the applicability of Section 36(1)(vii) independently of Section 36(1)(viia). The tribunal remanded the matter back to the AO to examine if the assessee complied with all legal requirements for claiming the deduction under Section 36(1)(vii). 2. Addition of Profit on Sale of Investment: The second issue involves the addition of Rs. 5,11,09,716/- towards profit on the sale of investment. The assessee claimed that this amount was wrongly credited to the profit and loss account and filed a revised computation of income to exclude it. However, the AO did not consider the revised computation, stating that there were no specific directions from the tribunal on this issue. The CIT(A) upheld the AO's decision, noting that the assessee failed to provide sufficient evidence to support the claim. The tribunal observed that the revenue authorities did not allow the claim due to a lack of necessary evidence/documents. The tribunal remanded the issue back to the AO, directing the AO to decide the issue afresh on merits after affording the opportunity of hearing to the assessee. 3. Disallowance of Depreciation Claimed on Investment: The third issue concerns the disallowance of Rs. 7,05,18,382/- claimed by the assessee as depreciation on investment. The AO disallowed the claim, stating that the investments were not categorized as per RBI guidelines and were treated as capital investments, not stock in trade. The CIT(A) upheld this decision, noting that the guidelines issued by RBI or NABARD cannot override income tax provisions. The tribunal noted that the investments on which depreciation was claimed were treated as current assets by the assessee. Under the Income Tax Act, depreciation is allowed only on fixed assets, not on current assets. However, the tribunal remanded the matter back to the AO to verify whether the investments fall under stock in trade as per CBDT Circular No. 665 dated 03/10/1993. If found to be stock in trade, the AO was directed to value the same at the lower of cost or market rate. Conclusion: - The first issue regarding the disallowance of bad debts written off was remanded back to the AO for fresh examination. - The second issue concerning the addition of profit on the sale of investment was also remanded back to the AO for fresh consideration. - The third issue related to the disallowance of depreciation on investment was remanded back to the AO to verify if the investments are stock in trade and to value them accordingly. Separate Judgments: No separate judgments by different judges were delivered in this case.
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