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TMI Blog2005 (7) TMI 64X X X X Extracts X X X X X X X X Extracts X X X X ..... e, has already been concluded by the Division Bench judgment of our High Court in the case of CIT v. General Insurance Corporation of India (No. 2). Hence, we answer the substantial question of law raised in the present petition in the affirmative, in the sense, in favour of the appellant assessee - - - - - Dated:- 26-7-2005 - Judge(s) : DR. S. RADHAKRISHNAN., J. H. BHATIA. JUDGMENT The judgment of the court was delivered by Dr. S. Radhakrishnan J.-Heard learned counsel for the parties. In this appeal, the following substantial question of law has been sought to be raised: "Whether the Income-tax Appellate Tribunal erred in law in holding that 'Reserve for bad and doubtful debts' fell within the permissible adjustments prescribed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the order passed by the Commissioner of Income-tax (Appeals) deleting the disallowance made in respect of "Reserve for bad and doubtful debts". There is no dispute that the appellant had submitted the profit and loss account to the Controller of Insurance as required under the provisions of the Insurance Act. Mr. Irani, learned counsel for the appellant, has pointed out that the Controller of Insurance had accepted the same. Dr. Daniel, learned counsel for the respondent, has sought to contend, relying on the provisions of section 44 of the Income-tax Act, that under rule 5(a), it is not permissible to deduct unless it is an expenditure or allowance. Dr. Daniel has contended that unless it is an expenditure or actual allowance, mere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f as irrecoverable in the accounts of the assessee for the previous year. He pointed out that the words 'any bad debt or part thereof which is written off as irrecoverable in the accounts of the assessee for the previous year' were introduced by the Direct Tax Laws (Amendment) Act, 1987 with effect from April 1,1989. He contended that prior to April 1,1989, the words were as follows: 'any debt or part thereof, which is established to have become a bad debt in the previous year'. He also invited our attention to the First Schedule to the Act and, in particular, rule 5. The First Schedule refers to insurance business. It is required to be read with section 44. He contended that, in the present case, we are not concerned with life insurance bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bad debt or a part thereof. He contended that prior to April 1, 1989, clause (i) in section 36(2) stipulated that no deduction shall be allowed unless any debt or part thereof has been written off as irrecoverable in the accounts of the assessee. He pointed out that after April 1, 1989, however, the Legislature has removed the above condition from section 36(2) and has transferred it under section 36(1)(vii). Therefore, he contended that there is no basic change brought about by the Legislature and the law, as it stood before April 1, 1989, remains the same. He, therefore, contended that the Tribunal has rightly relied upon the judgment of the Bombay High Court in the case of CIT v. Jwala Prasad Tiwari [1953] 24 ITR 537. He also relied upon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansferred to 'reserve account for doubtful debts'. In the case of Jwala Prasad Tiwari [1953] 24 ITR 537, the Bombay High Court had held that the expression 'writing off is a technical term used by the auditors. That, there are two methods of dealing with a debt which has been written off in the books of account, viz., by giving corresponding credit to the debtor's account or by giving corresponding credit to the bad and doubtful debts account. The first method is only employed where it is desired to close the account of the debtor. The second method is employed where there are some chances of recovery. That, when we talk of 'writing off, we are not concerned with the credit to be given to an account. That, 'writing off means raising a debit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of our case. In the present matter, the assessee has posted entries in the profit and loss account and has made corresponding entries in the bad debt reserve account. Therefore, there is compliance with section 36(1)(vii). It may be noted that prior to April 1, 1989, this statutory requirement existed under section 36(2)(i). That entry has been shifted and brought to section 36(1)(vii). Therefore, to the extent of the exact requirement of writing off of the concerned debt as irrecoverable, the law remains the same even after April 1, 1989. Hence, there is compliance with section 36(1)(vii). Rule 5(a) of the First Schedule, inter alia, lays down that where any expenditure or allowance is debited to the profit and loss account by way of rese ..... X X X X Extracts X X X X X X X X Extracts X X X X
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