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TMI Blog2024 (9) TMI 1203X X X X Extracts X X X X X X X X Extracts X X X X ..... per the requirements of clause (vii) as also clause (viia) of Section 36 (1). There was nothing erroneous or illegal for the assessee to make an independent provision for bad and doubtful debts under clause (viia), to be adjusted in the subsequent assessment year, so as to claim the benefit under clause (vii) as observed by us. Such approach of the assessee certainly would not fall foul of the stipulation of the proviso below clause (vii) of Section 36 (1). It is not the revenue s case that the assessee had exceeded the deduction beyond the limits as prescribed by the proviso, namely, the amount by which the bad debts or part thereof exceeds the credit balance in the provision, for bad and doubtful debts account, made under clause (viia). For the aforesaid reasons, we hold that the assessee was entitled for the deductions under clauses (vii) and (viia) of Section 36 (1) of the Act for the assessment years in question. We, accordingly, allow the appeals by answering the questions of law in favour of the assessee and against the revenue. - G. S. KULKARNI SOMASEKHAR SUNDARESAN, JJ. For the Appellant : Mr. Mihir Naniwadekar a/w. Mr. Ruturaj H. Gurjar. For the Respondent : Mr. Subir K ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee s case that during the previous year, the assessee actually wrote off total bad debts of Rs. 4,56,71,000/- which related to the debts arising in the prior years. The assessee contended that at the end of the year, i.e., on 31 March, 1993, the assessee made fresh provision and claimed deduction under section 36 (1) (viia) of Rs. 1,11,79,936/-. Mr. Naniwadekar has prepared a table to indicate total bad debts written off; opening credit balance of bad debts provision; amount of bad debts claimed as deduction u/s. 36 (1) (vii); provisions for bad debts made u/s. 36 (1) (viia); and total deduction claimed for the assessment years 1993-94 and 1994-95. Such table is extracted hereunder:- Sr.No. A.Y. Total Bad Debts written off Op. Credit Balance of Bad Debts provision Amount of Bad Debts claimed as deduction u/s. 36 (1) (vii) Provision for Bad Debts made u/s. 36 (1) (viia) Total Deduction claimed 1. 1993-94 4,56,71,000 1,78,54,098 2,78,16,902 1,11,79,936 3,89,96,838 2. 1994-95 13,00,55,738 1,11,79,936 11,88,75,802 2,15,65,529 14,04,41,331 5. In assessing the income of the assessee, in the context of the deductions on this count as claimed by the assessee, the Assessing Officer w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore, we dismiss this ground taken by the assessee. 7. Mr. Naniwadekar has reiterated the assessee s case as urged before the authorities below. He contends that the provisions of Section 36 (1) (vii) and Section 36 (1) (viia) are independent of each other, which permits the assessee to have a separate deduction of the amount of bad debts under clause (vii) as also to have a provision for bad debts under clause (viia) of Section 36 (1), in terms of the formula stipulated therein. According to Mr. Naniwadekar, the assessee was making such provision under both the said clauses for the assessment years in question, as also for the subsequent years, wherein the amount of bad debts of which a deduction was claimed under section 36 (1) (vii) was arrived at, after reducing from it/utilizing the amounts in respect of which provision for bad debts was made in the previous assessment year, and thereafter giving effect and/or utilizing such provision as permissible under section 36 (1) (viia), a total deduction under both the clauses was claimed as clearly seen from the chart (supra). It is his submission that the account clearly depicted that the provision of Rs. 1,11,79,936/- under th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to in Section 28 (i) . (ii) .. . (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: Provided that in the case of an assessee to which clause (vii-a) applies, the amount of the deduction relating to any such debt or part thereof shall be limited to the amount by which such debt or part thereof exceeds the credit balance in the provision for bad and doubtful debts account made under that clause; . (vii-a) in respect of any provision for bad and doubtful debts made by (a) a scheduled bank (not being a bank approved by the Central Government for the purposes of clause (viiia) or a bank incorporated by or under the laws of a country outside India) or a non-scheduled bank, an amount not exceeding five percent of the total income (computed before making any deduction under this clause and Chapter VI-A) and an amount not exceeding two per cent of the aggregate average advances made by the rural branches of such bank computed in the prescribed manner: (b) a bank, being a bank incorporated by or under the laws of a country outside India, an amount not ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar to the provision for bad and doubtful debts account, made under that clause. 13. Now applying the provisions of Section 36 (1) (vii) and (viia) to the facts of the present case, it would be required to be seen as to whether the Tribunal was correct in confirming the findings of the authorities below. To examine the case of the assessee, it would be first required to be noted as to how the assessee has dealt with the actual bad debts [clause(vii)] and in regard to the provision for bad debts in its accounts [clause(viia)]. It appears to be quite clear from the chart which we have extracted hereinabove, that the assessee has accounted for the actual bad debts suffered by the assessee for the assessment year which is an amount of Rs.4,56,71,000/-. However, the deduction of bad debts claimed under section 36 (1) (vii) is of an amount arrived at after deduction/subtracting the opening credit balance of the bad debt provision , made in the previous assessment year from such amount of bad debts written off, which was of the amount of Rs.1,78,54,098/-, from the total bad debts written off, resulting in an amount of Rs. 2,78,16,902/- as bad debts claimed as deduction u/s. 36 (1) (vii). I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arrived at after deducting an amount of Rs.1,78,54,098 which was credited balance in the provision for bad doubtful debts. As per the provisions of sec. 36 (1) (vii) of the I.T. Act, 1961 bad debts written off as bad debts will be to the extent it exceeds the credit balance in the provisions made for bad doubtful debts by the assessee. While writing off bad debts the assessee has not taken into consideration the provion for bad doubtful debts as on 31.3.1993. The amount allowable as provision for bad doubtful debt as per the provisons of sec. 36 (1) (viia) of the I.T. Act, 1961 for the year is 1,11,79,936/-. The assessee has not taken this credit balance into consideration while claiming bad debts. After deducting the provision for bad doubtful debts allowable during the year under consideration the total bad debts written off allowable come to (2,78,16,902 1,11,79,936) Rs.1,66,36,962/-. (emphasis supplied) 15. The highlighted portion of the Assessing officer s finding in fact is in the teeth of the provisions of Section 36 (1) (viia) looked from any angle. It is inconceivable that the amount of bad debts claimed as deduction under Section 36 (1) (vii) could have any bearing so as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 36 (1) (vii) relating to allowance of the bad debts. Contention of the Revenue that the banks covered by cl. (viia) were not entitled to deduction under s. 36 (1) (vii) was rejected. The Court held that proviso to s. 36 (1) (vii) would ensure that there would be no double benefit of deduction in such cases. 15. In the present case, however, the question of method of operation of proviso to s. 36(1 (vii) arises. Such proviso as noted, provides that in case of an assessee to which cl. (viia) applies, the amount of deduction relating to any such debt or part thereof shall be limited to the amount by which such debt or part thereof exceeds the credit balance in the provision for bad and doubtful debts account made under that clause. The Revenue's contention is that by virtue of such proviso, the claim of the assessee for deduction for debts written off, should be reduced by the closing balance of the assessee in his account for the provision of bad and doubtful debts. On the other hand, the assessee contends that such diminution should be limited to the opening balance of such account. 16. We notice that in this respect the provision is silent. We may therefore record that the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relevant accounting year or the closing credit balance as on 31st March of the relevant accounting year. In view of the Boards Instruction No.17/2008 dated 26th November 2008, it is clear that the expression credit balance in the proviso to Section 36 (1) (vii) is relatable to the opening credit balance in the provision for bad and doubtful debts account i.e. the balance brought forward as on 1st day of April of the relevant accounting year. 13. The question then to be considered is, whether the deduction allowed in the present case under Section 36 (1) (vii) and under Section 36 (1) (viia) exceed the limits prescribed under the respective sections? Under Section 36 (1) (vii) of the Act any bad debt written off as irrecoverable in the accounts of the assessee is allowable deduction. Proviso to Section 36 (1) (vii) provides that in the case of an assessee to which clause (viia) of Section 36 (1) applies, the deduction under Section 36 (1) (vii) shall be limited to the bad debt that exceeds the credit balance in the provision of bad and doubtful debts account maintained under Section 36 (1) (viia) of the Act. It is not in dispute that the assessee is a bank incorporated by or under t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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