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TMI Blog2011 (9) TMI 756X X X X Extracts X X X X X X X X Extracts X X X X ..... ated:- 30-9-2011 - MR. JUSTICE A.K. SIKRI, MR. JUSTICE M.L. MEHTA, JJ. For Appellant: Mr. Ajay Vohra with Ms. Ms. Kavita Jha and Mr. Somnath Shukla, Advocates. For Respondent: Ms. P.L. Bansal, Sr. Advocate with Mr. Deepak Anand, Advocate. A.K. SIKRI, J. 1. This appeal was listed along with seven other appeals, all of which were field by the Income Tax Department. Lead appeal of the Revenue was ITA No.1572 of 2006 and the issue raised in this appeal is linked with that. It pertains to the Assessment Year 1996-97. To put it in nutshell, during the year, the assessee created special reserve under Section 36(1)(viii) of the Act amounting to Rs.12,906.18 lacs. The assessee had an opening balance of Rs.26,963 lacs as on 01.04.1995. Out of these amounts, the assessee transferred a sum of ₹ 50 Crores to provision for bad and doubtful loans and thus, the assessee carried forward a sum of Rs.34,869.18 lacs by way of special reserve under Section 36 (1) (viii) of the Act. This balance appears in the annual accounts of the assessee in Schedule II under the head Reserve and Surplus . Thus the position of the special reserve account in the books of the assessee stood ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of bad debts actually written off. (b) The amount of claim of deduction of bad debts written off was to be reduced by the cumulative amount of provision for bad and doubtful debts allowed deduction under Section 36(1)(viia)(c) of the Act for Assessment Years 1992-93 to 1996-97 to the extent of Rs.34,31,90,547. (c) Alternatively, the amount of deduction claimed for bad debts written off had to be reduced by the amount withdrawn from special reserve created under Section 36(1)(viii) of the Act and credited to the profit and loss account in Assessment Years 1995-96 and 1996-97, aggregating to Rs.22,500 lacs. (d) Further without prejudice, the amount of deduction claimed for bad debts written off needed to be reduced by the amount standing to the credit of provision for bad and doubtful debts in the books of account of the assessee upto 31.3.1996, aggregating to Rs.30,582.14 lacs. 5. Being aggrieved by the aforesaid order dated 26.02.1999, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals). The CIT(A) held that the deduction on account of bad debts written off had to be reduced to the extent of (a) The amount of Rs.5000 lacs withdr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... counsel for the appellant that this is the only issue which survives in this appeal after rendering the judgment dt 11.7.2011 in ITA No.1572/2006. 9. As already pointed out above, the Tribunal did not accept the submission of the assessee that the provision relating to the claim of deduction of bad debts actually written off from the provisions of the aforesaid Section. The Tribunal dealt with this issue in the following manner: 16. At the same we see considerable force in the contention of the revenue that the assessee could not separately claim deduction of bad debt actually written off in accordance with the provisions of Section 36(1)(vii) and at the same time claim further deduction under the provisions of Section 36(1)(viia) of the Act. This position clearly emerges from the proviso to Section 36 (1)(vii) as well as from the provisions of Section 36 (2)(v). According to the proviso to Section 36(1)(vii) in the case of an assessee to which Clause (viia) applies, the amount of deduction under Section 36(1)(vii) shall be limited to the amount by which bad debt or any part thereof exceeds the credit balance in the provision made under Section 36(1)(viia). Similarly the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount of disallowance to be made in the case of the assessee in accordance with the proviso to Section 36(1)(vii). We, therefore, restore this issue to the file of the learned Assessing Officer for computation of disallowance accordingly after allowing the assessee an opportunity to place relevant facts. 10. Mr. Ajay Vohra, learned counsel appearing for the assessee/appellant submitted before us that the AO had discussed the issue of disallowance of Rs.50 Crores under Section 36(1)(viii) of the Act and computation made by him clearly reveal that insofar as the deduction of ₹ 570 lacs is concerned, that was allowed by the AO. The CIT (A) had upheld the same observing as under: 9.6 The only issue, therefore, to be considered is whether the bad debts actually written off should first exhaust the provision of Rs.5.70 Crores created this year u/s 36(1)(viiia)(c). There is no ambiguity in this regard in the provision of section 36(1)(vii)(c), therefore, the bad debts written off will be reduced by the amount of Rs.5.70 crores if not already done. To this extent the AO s action is upheld. 11. CIT (A) thereafter took up the issue of transferring of an amount of Rs.129 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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