9911796707
TMI Blog2000 (9) TMI 13X X X X Extracts X X X X X X X X Extracts X X X X ..... her the assessee has violated rule 5 of the First Schedule to the Act, read with section 36(1)(vii), by debiting an amount of Rs.1.18 crores to the profit and loss account under the head 'Reserve for doubtful debts'?" Facts: In the assessment year in question, the assessee took bank commission of Rs.6.01 lakhs (approximately) as expenses for earning dividend income. The department made upward revision by including the apportioned cost of salary, allowances and investment expenses for earning dividend income. Accordingly, the total expenses pertaining to dividend income for section 80M of the Income-tax Act, 1961 ("the Act") were computed at Rs.13.56 lakhs (approximately). Similarly, the Assessing Officer rejected the claim of the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccounts 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 business. He contended tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eof. 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 judgments of the Bombay High Court in the case of CIT v. Jwala Prasad Tiwari [1953] 24 ITR 537. He also relied upon the judgment of the G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ether the debt had become irrecoverable in terms of section 36(1)(vii). Findings on question No. 2: To decide question No. 2, the relevant sections are quoted hereinbelow: "36.(1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28- . . . (vii) subject to the provisions of sub-section (2), the amount of any bad debt or part thereof which is written off as irrecoverable in the accounts of the assessee for the previous year:" Rule 5(a) and (c) of the First Schedule under sub-heading B. "THE FIRST SCHEDULE INSURANCE BUSINESS [see section 44] B. Other insurance business 5. Computation of profits and gains of other insur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 entry. This can only be to the debit of the profit and loss account. That, this is the only debit which can be raised as a result of writing off a bad debt. To the same effect is the judgment of the Gujarat High Court in the case of Sarangpur Cotton Mfg. Co. Ltd. [1983] 143 ITR 166. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quirement 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 reserve which is not admissible under the provi sions of section 36(1), then the amount shall be added back in computing the profits of the business. However, in the present case, as stated hereinabove, there is full compliance with section 36(1)(vii). The manner of writing off is as per t ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
