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TMI Blog2024 (12) TMI 187X X X X Extracts X X X X X X X X Extracts X X X X ..... vision for doubtful debt in the given facts and circumstances. Therefore, while concurring with the stand of Ld. AR, we direct the Ld.AO to delete the impugned additions. Decided in favour of assessee. - Shri Sandeep Gosain, Judicial Member And Ms Padmavathy S, Accountant Member For the Assessee : Shri Prateek Jian For the Revenue : Shri Nagnath Bimrao Pasale ORDER PER SANDEEP GOSAIN, JM: The present appeal has been filed by the assessee challenging the impugned order 19.07.2023, passed u/s 250 of the Income Tax Act, 1961 ( the Act ), by the learned Commissioner of Income Tax (Appeals)-47, Mumbai ( Ld. CIT(A) ), for the assessment year 2015-16. The assessee has raised the following grounds of appeal: 1. On the facts and circumstances of the Appellant's case and in law the Id. CIT(A) erred in confirming the action of Ld. A.O. in reopening the assessment u/s 147 by issue of notice dated 31.03.2021 u/s 148 which is bad in law and without jurisdiction. 2. On the facts and circumstances of the Appellant's case and in law the Id. CIT(A) erred in confirming the action of the Ld. A.O. in making an addition of Rs. 1,48,50,000/- on account of provision for doubtful debts claimed as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A No. 186/Mum/2017, which is based on the decision of Hon ble Supreme Court in the case of TRF Ltd Vs. CIT, [2010] 190 taxman 391 and Vijaya Bank Vs. CIT, [2010] 190 taxman 257 and the operating portion of the decision is reproduced herein below: 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 it's 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? The first question is no more res integra. Recently, a Division Bench of this Court in the case of Southern Technologies Limited vs. Joint Commissioner of Income Tax, reported in [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, accordingly, in favour of the assessee vide Paragraph ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... planation in Section 36(1)(vii) with effect from 1st April, 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 and Loss Account and creating a provision for bad and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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) of 1961 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 it's 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 a flip- side to the argument of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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. For the afore-stated reason, we uphold the judgement of the Tribunal dated 31st July, 2003, and set aside the impugned judgement of the High Court. Consequently, the assessee's appeals stand allowed with no order as to costs. 7. We have also gone through the another decision of the Coordinate Bench of ITAT, Ahmadabad in ITA No. 1725 1726/Ahd/2019 in the case of M/s. Trio Elevators Company (Ind) Ltd Vs. DCIT wherein it was held as under: 9. We have heard the rival contentions of both the parties and perused the materials available on record. There is no dispute to the fact that the assessee has claimed deduction under the head provision for doubtful debts and doubtful advances by debiting the profit and loss account and simultaneously making adjustments in the sundry debtors account and advances account as reflected in the balance sheet as on 31/03/20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to the extent of the provision for bad and doubtful debt is sufficient? 15.2 The above question was answered by the Hon'ble Supreme Court in the manner as detailed below: 8. Coming to the second question, we may reiterate that it is not in dispute that section 36(1)(vii) of 1961 Act applies both to Banking and Non-Banking businesses. The manner in which the write off is to be carried out has been explained hereinabove. It is important to note that the assessee-bank has not only been debiting the profit and loss account to the extent of the impugned bad debt, it is simultaneously reducing the amount of loans and advances or the debtors at the year-end, as stated hereinabove. In other words, the amount of loans and advances or the debtors at the year-end in the balance-sheet is shown as net of the provisions for impugned debt. However, what is being insisted upon by the Assessing Officer is that mere reduction of the amount of loans and advances or the debtors at the year- end would not suffice and, in the interest of transparency, it would be desirable for the assessee-bank to close each and every individual account of loans and advances or debtors as a pre-condition for claim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3,625/- to Profit and Loss account in respect of such doubtful debts and the same was also reduced in the balance sheet from sundry debtors/trade receivable. It also appears from the records that the judgment passed by the Hon'ble Supreme Court in the case of Vijaya Bank has been distinguished by the authorities below on the ground that said judgment relates to actual write off bad debts and not provision of bad debts. However, the judgment relied upon by the Learned AR has clearly laid down the ratio that mere debit to profit and loss account is not sufficient and simultaneously obliterating of provision from accounts by reduction from loans and advances or debtors on assets side of balance sheet amounts to writing off for grant of deduction. Moreso, disallowance for failure to close individual account of each debtors in account books is not justified. Further that, we have also carefully considered the judgment passed by the Hon'ble Jurisdictional High Court in the case of CITvs-Vodafone Essar Gujarat Ltd. While deciding the identical issue in favour of the assessee, the Hon'ble High Court took into consideration of the judgment passed in the matter of Vijaya Bank and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en a provision could be treated as a write off. However, after April 1, 1989, a distinct dichotomy is brought in by way of the said Explanation to section 36(1) (vii). Consequently, after April 1, 1989, a mere provision for bad debt would not be entitled to deduction under Section 36(1)(vii). To understand the above dichotomy, one must understand how to write off. If an assessee debits an amount of doubtful debt to the profit and loss account and credits the asset account like sundry debtor's account, it would constitute a write off of an actual debt. However, if an assessee debits provision for doubtful debt' to the profit and loss account and makes a corresponding credit to the current liabilities and provisions' on the liabilities side of the balance-sheet, then it would constitute a provision for doubtful debt. In the latter case, the assessee would not be entitled to deduction after April 1, 1989. 17/The Supreme Court (in Vijaya Bank) further observed as under: 7. One point needs to be clarified. According to Shri Bishwajit Bhattacharya, learned Additional Solicitor General appearing for the Department, the view expressed by the Gujarat High Court in the case of Vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ors is shown as net of provisions for impugned bad debt. This aspect is lost sight of by the High Court in it's impugned judgement. In the circumstances, we hold, on the first question, that the assessee was entitled to the benefit of deduction under Section 36(1)(vii) of 1961 Act as there was an actual write off by the assessee in it's Books, as indicated above. 18. It can thus be seen that in case of Southern Technologies Ltd. (supra), the Supreme Court explained that if an assessee debits an amount of doubtful debt to the Profit and Loss account and credits the asset account like sundry debtor's account, it would constitute a write-off of an actual debt. On the other hand, if an assessee debits provision for doubtful debt to the Profit and Loss account and makes a corresponding credit to the current liabilities and provisions on the liabilities side of the balance sheet, then it would constitute a provision for doubtful debt and in such a case after 1.4.1989, the assessee could claim no deduction under section 36(1)(vii) of the Act. 19. This principle was further clarified in case of Vijaya Bank (supra) by observing that in case on hand, the assessee besides debiting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to be reversed. Thus we set aside the finding of the learned CIT (A) and direct the AO to delete the addition made by him. Hence the ground of appeal of the assessee is allowed. 9.2 From the above, we note that the ITAT in the case of Vidras India Ceramics (P.) Ltd (Supra) after considering and relying on the judgment of Hon'ble SC in the case of Vijaya Bank (Supra) has granted relief to the assessee for the provision made with respect to doubtful debts. Respectfully following the same we hold that assessee is eligible for deduction on account of provision for doubtful debts in the given facts and circumstances. It is for this reason that the assessee in the present case has written off the provision of doubtful debts in the profits and loss account and also has given effect in the balance sheet of the assessee. Thus to our understanding the principle laid down by the Hon'ble S.C in the case Vijay Bank as discussed above cannot be denied for its application merely on the reasoning that the word provision for doubtful debts has been used by the assessee in its Financial Statements. 9.3 It is also important to note that the assessee has not written off the provision for dou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of CIT Vs. Tainwala Chemicals Plastics India Ltd., [2013] 34taxmann.com 159 (Bombay), wherein it was held as under: IT: Where assessee-company made provision for doubtful debt given to its group concern and had debited same to profit and loss account and correspondingly reduced assets by reducing amount of unsecured loans, doubtful debt qualified for deduction under section 36(1)(vii) Section 36(1) (vii) of the Income-tax Act, 1961 Bad debts (Provision for doubtful debt] - Assessment year 2004-05-Assessee-company made provision for doubtful debt given to its group concern and claimed same to be allowed as deduction under section 36(1)(vii) - It had debited provision of doubtful debt to profit and loss account and correspondingly reduced assets by reducing amount of unsecured loans It had lent surplus money and offered interest income to tax as business income Whether doubtful debt in question qualified for deduction under section 36(1)(vii) read with section 36(2) Held, yes [Para 3] [In favour of assessee] 10. From the above, we noticed that Coordinate Bench of ITAT, Hon ble jurisdictional High Court of Mumbai (supra) have granted relief by following the decision of Hon ble Supreme ..... X X X X Extracts X X X X X X X X Extracts X X X X
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