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TMI Blog2011 (12) TMI 797X X X X Extracts X X X X X X X X Extracts X X X X ..... ar in excess 5% of the total income assessed after appeal effect at Rs.5,20,86,28,184/ without appreciating the fact that the deduction as per Section 36(1) (viia) of the Act is to be limited to 5% of the gross total income ?" 2. The assessee is a banking company incorporated in USA. In the previous year relevant to the assessment year 200001, the assessee had written off bad debts in its books of account amounting to Rs.52.36 crores and had made provision for bad doubtful debts aggregating to Rs. 34,61,58,000/. The opening credit balance in the provision for bad and doubtful debts account was Rs.2 crores which according to the assessee was allowable in the assessment year 19992000. 3. In the return of income filed fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessing officer that in terms of the proviso to Section 36(1)(vii), the bad debts written off during the year have to be adjusted by the closing provision for bad debts and not the opening provision for bad debts. 6. While giving effect to the order of the Commissioner of Income Tax (A) on 29th March 2005, the assessing officer recomputed the deduction allowable under Section 36(1)(viia), as the total income stood reduced on account of deletion of various disallowances by the Commissioner of Income Tax (A). Accordingly, after giving effect to the order of the Commissioner of Income Tax (A), the deduction under Section 36(1)(viia) was computed at Rs.27,41,63,404/ instead of Rs.30,82,06,745/ as originally computed. The dif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s could not exceed Rs.52.36 crores. As the deduction under Section 36(1)(viia) was originally computed at Rs.30,82,06,745/, the balance amount was allowable under Section 36(1) (vii). In view of the order of the Commissioner of Income Tax (A), the total income stood reduced and consequently deduction under Section 36(1)(viia) stood reduced at Rs.27,41,63,404/. It is contended that since Rs. 27,41,63,404/ out of Rs.52.36 crores is allowable under Section 36(1)(viia), the balance amount has been correctly allowed under Section 36(1)(vii) of the Act. 10. Before dealing with the rival contentions, we may quote the provisions of Section 36 of the Act, to the extent relevant herein : "Other deductions. 36. (1) The deductions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mputed before making any deduction under this clause and Chapter VIA); (c) " 11. Section 36 of the Act, thus, provides that where an assessee in the previous year writes off any debt as irrecoverable in the books of accounts maintained by it, then, subject to the proviso to Section 36(1)(vii) and Section 36(2) of the Act, the entire amount written off is allowable as deduction under Section 36(1)(vii) of the Act. The proviso to Section 36(1) (vii) inserted by Finance Act, 1985 with effect from 1st April 1985 provides that in the case of an assessee to which clause (viia) applies, the deduction in relation to such debt shall be limited to the amount by which such debt exceeds the credit balance in the provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... corporated by or under the laws of a country outside India. Therefore, under clause (b) of Section 36(1)(viia), the assessee is entitled to a deduction in respect of any provision made for bad and doubtful debts, to the extent, not exceeding five per cent of the total income computed before making any deduction under clause (viia) of Section 36(1) and Chapter VIA of the Act. 14. Admittedly, the opening credit balance in the provision for bad and doubtful debts account was Rs.2 crores which according to the assessee was allowable in the assessment year 19992000. The lower authorities have not disputed this contention of the assessee. If the above amount of Rs.2 crores is held allowable in the assessment year 19992000, then, the op ..... X X X X Extracts X X X X X X X X Extracts X X X X
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