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TMI Blog1998 (10) TMI 93X X X X Extracts X X X X X X X X Extracts X X X X ..... to Rs. 22,96,07,907 vide letter dated 30-1-1992. The assessee was required to explain to the Assessing Officer that bad debts actually written off during the year out of the sums already allowed as deduction in the preceding years under section 36(1)(vii) and 36(1)(viia). The appellant was also required to specify the basis for making the provisions for bad and doubtful debts. The intention of the assessee was also invited for allowing deduction under section 36(1)(viia) instead of section 36(1)(vii) as it seemed to the Assessing Officer from the account that the bad debts had been actually written off during the year. It was explained that the irrecoverable portion of debts determined on the basis of the procedure prescribed was written off by debiting the Profit Loss account and crediting the provision for bad and doubtful debts. It was also further submitted that by making such entries in the accounts, the assessee had made full compliance of the provisions of section 36(1)(vii) and was entitled for deduction under that section. It was also explained that debiting bad debt entries in Profit Loss account tentamounted to 'write off'. The reliance was also placed on the decisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctures [1986] 161 ITR 65/26 Taxman 295 (Mad.). The reliance was also placed on Circular of Board dated 14-9-1979 to show that the deductions under the said two clauses were distinct and independent of each other. The detailed submissions regarding the claim were also submitted before the CIT(A). After considering the details filed by the assessee and other materials on record, the CIT(A) was of the view that assessee is not entitled to claim the deduction under section 36(1)(vii). It was only eligible under section 36(1)(viia) but no such claim was made by assessee under section 36(1)(viia). Therefore, the deduction allowed by the Assessing Officer were curtailed by the CIT(A). While disallowing the claim of the assessee, the CIT(A) has discussed in great details in his order from page 11 to page 53. While discussing in detail the CIT(A) has also given his finding that no written off was done by the assessee as the amounts are shown in the name of the respective parties to whom the loans were advanced by the assessee. The appeal for assessment year 1992-93 was also rejected by the CIT(A) by following the decision for assessment year 1991-92 on this issue. 5. Now the assessee is i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inue to get the full benefit of the write off of the irrecoverable debts under section 36(1)(vii) in addition to the benefit of deduction of the provision for bad and doubtful debts under section 36(1)(viia)." The Board's Circular dated 12th June, 1987, para 17.1 to para 17.4 which says as under: "1985--The present proviso to the clause was inserted by the Finance Act, 1985 with effect from 1 April, 1985. The scope and effect of the amendment was explained by the Board in the following circular: "Deduction in respect of provisions made by banking companies for bad and doubtful debts.--- 17.1 Section 36(1)(vii) of the Income-tax Act provides for a deduction in the computation of taxable profits of the amount of any debt or part thereof which is established to have become a bad debt in the previous year. This allowance is subject to the fulfilment of the conditions specified in sub-section (2) of section 36. 17.2 Section 36(1)(viia) of the Income-tax Act provides for a deduction in respect of any provision for bad and doubtful debts made by a scheduled bank or a non-scheduled bank in relation to advances made by its rural branches, of any amount not exceeding one and a half ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld be legitimately entitled to the benefit of that provision of the tax law which enabled a larger benefit to him. The theory of implied repeal advanced by the revenue had to be accepted with a caution. The inference of implied repeal cannot be drawn as it is to be necessarily spelled out. And certainly there is no express repeal of section 80RRA, even partially. The Parliament was well aware of the two provisions in the Statute book. It was also aware of the law laid down by the High Court and the Supreme Court in the case of Aditya V Birla case . Nothing prevented the Parliament from making a specific provision of repeal so as to get rid of the situation created in the field of law by the decision of the Supreme Court in Aditya V Birla case . It cannot be said that the amendment introduced in section 80-0 by the Finance (No. 2) Act, 1991 is so inconsistent with the provision of section 80RRA as to rebut the presumption against implied repeal. It cannot be said that section 80-O has either impleidly repeated section 80RRA or the former has an overriding effect on the later provision to the extent to which it confers a similar benefit on the assessee like the petitioner. The theory ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R 137 (Lahore), CIT v. Bosotto Bros. Ltd. [1940] 8 ITR 41 (Mad.) and J.C. Thakkar v. CIT [1955] 27 ITR 658 (Bom.). Therefore, we are of the considered view that the assessee is entitled to deduction claimed under section 36(1)(vii). 10. Now we will see the dispute regarding writing off of the bad and doubtful advances from the respective accounts. Regarding this, we would like to mention here that there was an amendment in the statute with effect from 1st April, 1989 and by Circular No. 551 dated 23-1-1990 reported in 183 ITR Stt. 37 the Board has clarified the position which is stated in para 6.6 of the Circular which is reproduced here as under :--- "6.6. Amendments to sections 36(1)(vii) and 36(2) to rationalise provisions regarding allowability of bad debts. - The old provisions of clause (vii) of sub-section (1) read with sub-section (2) of the section laid down conditions necessary for allowability of bad debt. It was provided that the debt must be established to have become bad in the previous year. This led to enormous litigation on the question of allowability of bad debt in a particular year, because the bad debt was not necessarily allowed by the Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of India v. IAC [1985] 13 ITD 550 (Cal.), the Tribunal in para 10.5 has observed as under: "10.5 There is no statutory method of 'write off' indicated in the Act. The concept of 'write off' has, therefore, to be understood in the sense of commercial accountancy and, according to it, the amount of a debt is debited to the profit and loss account. The corresponding credit can be given to the debtor's account or to any other account, say, to reserve for bad and doubtful accounts. In the present case, the corresponding credit regarding 'write off', as noted earlier, has been given to reserve for bad and doubtful debts account which in turn is deducted from the debtor's account before taking the final figure of the debtor's account to the balance sheet of the bank. The aforesaid procedure of write off has met with judicial approval as will be clear from the facts and the ratio of the following cases: Vithaldas H. Dhanjibhai Bardanwala v. CIT [1981] 130 ITR 95 (Guj.), CIT v. Jwala Prasad Tiwari [1953] 24 ITR 537 (Bom.) and Sarangpur Cotton Mfg. Co. Ltd. v. CIT [1983] 143 ITR 166 (Guj.)." We find that the bank as per procedure adopted as written off the irrecoverable portion of debts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here is no material change on Statute for computing the income. The assessee was also required to explain that why the income should not be computed as per section 145. In response to query, it was explained that section 145 is a machinery section and chargeable income is explained by sections 4 5 of the Statute. Therefore, the method of assessee for computing the income is correct. The Assessing Officer was not satisfied and he rejected the claim of the assessee and enhanced the income of the assessee by disallowing the claim of the assessee which was on account of non-accrual of the income. It was agitated before the CIT(A) and the same submissions were submitted before the CIT(A). The reliance was placed on various case laws. 14. After considering the material on record and considering the ratio of various case laws, the CIT(A) was in agreement with the finding of the Assessing Officer. Therefore, for the reasons given by the Assessing Officer the order of the Assessing Officer was confirmed by the CIT(A) on this point. 15. Now the assessee is in appeal here before us for all the three years on this point. 16. Shri Dinesh Vyas, Advocate, who mainly argued the appeal on b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mills Ltd. [1966] 59 ITR 574 (SC). 18. In counter reply the learned counsel submitted that the facts of the case in Morvi Industries Ltd. is distinguishable and the ratio of the decision in Moon Mills Ltd.'s case is helping to the case of the assessee. 19. We have heard the rival submissions and considered them carefully. We have also perused the material on which our attention was drawn. We find that a copy of written submissions filed before the CIT(A) is placed on paper book from pages 1 to 17. After perusing the written submissions, we find that assessee has explained in detail. Some portions of the reply which were filed before the Assessing Officer and again before the CIT(A) is reproduced here as under :--- "It is relevant to mention here that interest on securities is not accrued on day to day basis and the assessee Bank does not have any right or claim over the interest on such securities till it becomes due. It may also be mentioned here that at the time of issue of a particular security, the terms of the issue specifically provide when the interest will becomes due. Generally the interest on securities becomes due on six monthly basis. Thus the income from interes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... visions of section 145 cannot override section 5. If an income has neither accrued nor received within the meaning of section 5, whatever section 145 may say, such income cannot be charged to tax even though a book keeping entry has been made recognising such hypothetical income which in law and on fact did not really accrue or arise or received in previous year. Section 145 determines the mode of computing the taxable income. It does not affect the range of taxable income or the ambit of taxation. The computation provisions cannot enlarge or restrict the content of taxable income. The range of taxable income or ambit of taxation is to be determined in accordance with the charging provisions. (ii) The proviso to section 145(1) does not merely confer a discretionary power upon the Assessing Officer but also imposes a statutory duty on him to examine in every case whether income, profits and gains chargeable to tax in the relevant year, could properly be deduced from the method of accounting followed by the assessee. For tax purposes, the accrual or receipt of income in the relevant previous year, in the instant case, will have to be determined in consonance with the ambit of tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income. For example, if assessee sells its stock-in-trade which is in the shape of Govt. securities etc., then he is not entitled to receive the interest which is receivable on due date and due date comes after the close of the accounting year. Therefore, the contention of the assessee is bona fide and in our considered view as we have already stated that assessee deserves to succeed. 22. In the case of Kedarnath Jute Mfg. Co. Ltd. the Hon'ble Supreme Court has held that-- "Whether the assessee is entitled to a particular deduction or not will depend upon the provisions of law relating thereto and not on the view which the assessee might take of his rights; nor can the existence or absence of entries in his books of account be decisive or conclusive in the matter." 23. In the case of Seth Pushalal Mansinghka (P.) Ltd. the Hon'ble Supreme Court has observed that the words "accrue" and "arise" do not words are used in contradistinction to the word "receive'' and indicate a right to receive. If the assessee acquires a right to receive the income, the income can be said to accrue to him, though it may be received later, on its being ascertained." 24. After considering the rati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herwise major expenses made by the assessee on installation of computers etc. were allowed. it was argued that computers were fitted in a plant and, therefore, the expenses made on preparation of site plan has to be allowed for the purpose of section 32AB. Reliance was placed on IAC v. Kakkar Complex Steels (P.) Ltd. [1983] 6 ITD 174 (Asr.), Addl. CIT v. Madras Cements Ltd. [1977] 110 ITR 281 (Mad.) and CIT v. Pure Ice Cream Co. [1981]/[1980] 4 Taxman 193 and 129 ITR 394 (Delhi). 28. On the other hand the learned D/R strongly relied on the order of the authorities below. 29. After considering the material available on record, we find that the assessee deserves to succeed because there is no dispute that assessee had purchased computes and they were installed at a place which was prepared for installation of computers. The department has allowed the deduction under section 32 of the amount which was spent on power system, air conditioners, computes, advance ledger for posting, but they only picked the amount for disallowing the claim which was spent on site preparation and others. In our considered view, these expenses were made for installation of computers. Therefore, they sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tances. The totality of circumstances is that the assessee spent the amount for preparing the site which was used for installation of computers. Therefore, in our considered view the assessee is entitled for the claim under section 32AB and we allow this ground of the assessee accordingly. 34. Ground No. 3 in ITA No. 5/JP/92 is against the confirmation of disallowance of Rs. 8796 made under rule 6B of the IT Rules. The Assessing Officer made disallowance of Rs. 8796 on the basis of audit report. The CIT(A) confirmed the order of the Assessing Officer. Here, before us, the learned A/R of the assessee stated that this deduction is allowable deduction as this is not covered by rule 6B because these expenses are not in nature of entertainment as they were spent on presentation items to the Directors of the assessee-company. It was further stated that the similar issue has been decided by the Tribunal of Jaipur Bench in case of Mangalam Cement Ltd. v. Dy. CIT [1992] 43 ITD 292. 35. On the other hand, the learned D/R placed reliance on the order of the authorities below. 36. After considering the material on record, we find that similar issue was decided by the Tribunal in case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... visions of law. Therefore, there is no defect in the order of the authorities below. 41. We have considered the rival submissions and also perused the material on record. We find that similar issue was came up before the Tribunal and the same was allowed in favour of the assessee. In the case of Chase Bright Steel Ltd. (No. 1) the Hon'ble Bombay High Court has held that the expenditure on rent in respect of guest house was allowable under section 30 and the expenses on repairs and polishing of the furniture in the guest house were allowable under section 31. They could not be disallowed under the provisions of section 37(3). In the case of Ahmedabad Mfg. Calico Printing Co. Ltd. the Hon'ble Gujarat High Court has held that--- "The assessee was, admittedly, a tenant of the premises described as residential accommodation in the nature of guest house and employees of the assessee stayed there for temporary periods. The assessee would be entitled to deduction of rent paid by him for such premises under sub-clause (i) of clause (a) of section 30. It would also be entitled to deduction of the cost of repairs to such premises. It was the case of the assessee that an expenditure ..... X X X X Extracts X X X X X X X X Extracts X X X X
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