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TMI Blog2018 (7) TMI 2355X X X X Extracts X X X X X X X X Extracts X X X X ..... that the respondent-assessee has written off the loan and would be entitled to the claim of bad debts. Tribunal by the impugned order also recorded a finding of fact that once the respondent-assessee has lent surplus money and offered the interest to tax as business income, then the activity of the respondent-assessee of lending money is a business activity. Therefore, the debt qualifies for deduction under Section 36(1)(vii) read with Section 36(2) of the Income Tax Act, 1961 - Decided against revenue. - SHRI SAKTIJIT DEY, JM AND SHRI MANOJ KUMAR AGGARWAL, AM For the Assessee : Sunil Natha, Ld.AR For the Revenue : Ram Tiwari, Ld. DR ORDER Per Manoj Kumar Aggarwal (Accountant Member) 1. Aforesaid appeal by assessee for Assessment Year [AY] 2012-13 contest the order of the Ld. Commissioner of Income-Tax (Appeals)-12 [CIT(A)], Mumbai, Appeal No.CIT(A)-12/ACIT-6(2)(1)/197/15-16 dated 03/10/2016 qua confirmation of certain disallowance towards provision of bad debts. The assessment for impugned AY was framed by Ld. Assistant Commissioner of Income Tax-6(2)(1), Mumbai [AO] u/s 143(3) of the Income Tax Act, 1961 on 25/03/2015 wherein the income of the assessee has been assessed at Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assessee of the previous year in which the amount of such debt or part thereof is written off or of an earlier previous year, or represents money lent in the ordinary course of the business of banking or money-lending which is carried on by the assessee;] (ii) if the amount ultimately recovered on any such debt or part of debt is less than the difference between the debt or part and the amount so deducted, the deficiency shall be deductible in the previous year in which the ultimate recovery is made; (iii) any such debt or part of debt may be deducted if it has already been written off as irrecoverable in the accounts of an earlier previous year [(being a previous year relevant to the assessment year commencing on the 1st day of April, 1988, or any earlier assessment year)], but the [Assessing] Officer had not allowed it to be deducted on the ground that it had not been established to have become a bad debt in that year; (iv) where any such debt or part of debt is written off as irrecoverable in the accounts of the previous year [(being a previous year relevant to the assessment year commencing on the 1st day of April, 1988, or any earlier assessment year)] and the [Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubmitted that the impugned amount as debited in the Profit Loss Account was not mere provision in nature rather the particular debtors against which these amounts were debited were clearly identified and the impugned amount was reduced from the aggregate of Sundry Debtors reflected in the Balance Sheet. Reliance has been placed on the judgment of Hon ble Apex Court rendered in Vijaya Bank Vs. CIT [2010 190 Taxman 257] which has been followed by Hon ble Bombay High Court in CIT Vs. Tainwala Chemicals Plastics India Ltd. [34 Taxmann.com 159] to support the contention that the reduction on gross basis, as done by the assessee, amounts to actual writing-off of the debts and it was not necessary that each and every debtors accounts was to be closed so as to make a valid claim. The same has been controverted by Ld. Departmental Representative [DR], Shri Ram Tiwari, who submitted that the statutory conditions as envisaged by law were not fulfilled. 5. We have heard the rival contentions and perused relevant material on record. So far as the factual matrix is concerned, we find that it is undisputed fact that the assessee has debited the impugned amount in the Profit Loss account and reduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y Finance Act, 2001 with effect from 1-4-1989. The assessee carried the matter in appeal before the Commissioner of Income-tax (Appeals) ['CIT(A)', for short], who opined that it was not necessary for the purpose of writing off of bad debts to pass corresponding entries in the individual account of each and every debtor and that it would be sufficient if the debit entries are made in the profit and loss account and corresponding credit is made in the Bad Debt Reserve Account . Against the decision of CIT(A) on this point, the Department preferred an appeal to the Income-tax Appellate Tribunal ['Tribunal', for short]. Before the Tribunal, it was argued on behalf of the Department that write off of each and every individual account under the head 'Loans and Advances' or Debtors was a condition precedent for claiming deduction under section 36(1)(vii) of 1961 Act. According to the Department, the claim of actual write off of bad debts in relation to Banks stood on a footing different from the accounts of the Non-Banking assessee(s), though it was not disputed before us that section 36(1)(vii) of 1961 Act covers Banking as well as Non-Banking assessees. Accordin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iew of the insertion of the Explanation vide Finance Act, 2001, with effect from 1-4-1989, the decision of the Gujarat High Court in the case of Vithaldas H. Dhanjibhai Bardanwala (supra) no more held the field and, consequently, mere creation of a provision did not amount to actual write off of bad debts, hence, these civil appeals. 5. At the outset, we may state that, in these civil appeals, broadly, two questions arise for determination. The first question which arises for determination concerns the manner in which actual write off takes place under the Accounting principles. The second question which arises for determination in these civil appeals is, whether it is imperative for the assessee-bank to close the individual account of each debtor in its books or a mere reduction in the Loans and Advances Account or Debtors to the extent of the provision for bad and doubtful debt is sufficient? 6. The first question is no more res integra. Recently, a Division Bench of this Court in the case of Southern Technologies Ltd. v. Jt. CIT [2010 320 ITR 577], [in which one of us (S.H. Kapadia, J.) was a party] had an occasion to deal with the first question and it has been answered, accord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the learned counsel, in view of the insertion of the said Explanation in section 36(1)(vii) with effect from 1-4-1989, a mere debit of the impugned amount of bad debt to the profit and loss account would not amount to actual write off. According to him, the Explanation makes it very clear that there is a dichotomy between actual write off on the one hand and a provision for bad and doubtful debt on the other. He submitted that a mere debit to the profit and loss account would constitute a provision for bad and doubtful debt, it would not constitute actual write off and that was the very reason why the Explanation stood inserted. According to him, prior to Finance Act, 2001, many assessees used to take the benefit of deduction under section 36(1)(vii) of 1961 Act by merely debiting the impugned bad debt to the profit and loss account and, therefore, the Parliament stepped in by way of Explanation to say that mere reduction of profits by debiting the amount to the profit and loss account per se would not constitute actual write off. To this extent, we agree with the contentions of Shri Bhattacharya. However, as stated by the Tribunal, in the present case, besides debiting the profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 36(1)(vii) of 1961 Act. This view has been taken by the Assessing Officer because the Assessing Officer apprehended that the assessee-bank might be taking the benefit of deduction under section 36(1)(vii) of1961 Act, twice over. [See Order of CIT (A) at pages 66, 67 and 72 of the Paper Book, which refers to the apprehensions of the Assessing Officer]. In this context, it may be noted that there is no finding of the Assessing Officer that the assessee had unauthorisedly claimed the benefit of deduction under section 36(1)(vii), twice over. The Order of the Assessing Officer is based on an apprehension that, if the assessee fails to close each and every individual account of its debtor, it may result in assessee claiming deduction twice over. In this case, we are concerned with the interpretation of section 36(1)(vii) of 1961 Act. We cannot decide the matter on the basis of apprehensions/desirability. It is always open to the Assessing Officer to call for details of individual debtor's account if the Assessing Officer has reasonable grounds to believe that assessee has claimed deduction, twice over. In fact, that exercise has been undertaken in subsequent years. There is also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income of the previous year in which it is recovered. In the circumstances, we are of the view that the Assessing Officer is sufficiently empowered to tax such subsequent repayments under section 41(4) of 1961 Act and, consequently, there is no merit in the contention that, if the assessee succeeds, then it would result in escapement of income from assessment. 10. For the afore-stated reason, we uphold the judgment of the Tribunal dated 31-7-2003, and set aside the impugned judgment of the High Court. Consequently, the assessee's appeals stand allowed with no order as to costs The ratio of the above decision has been followed by Hon ble Bombay High Court in CIT Vs. Tainwala Chemicals Plastics India Ltd. [34 Taxmann.com 159] wherein the Hon ble Court has held as under:- 3. In so far as question (c) is concerned, the Tribunal by the impugned order has followed the decision of the Apex court in the matter of Vijaya Bank Ltd. v. CIT [2010] 323 ITR 166/190 Taxman 257, wherein it has been held that once the provision of doubtful debt has been debited to the profit and loss account and corresponding provision has been credited or reduced from the debtors account in the balance-sheet, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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