9911796707
TMI Blog2003 (11) TMI 286X X X X Extracts X X X X X X X X Extracts X X X X ..... for computing shortfall for the purpose of section 36(1)(vi) of the Act. As for the learned CIT(A)'s reliance on Hon'ble Punjab Haryana High Court's judgment in the case of Nandlal Sohanlal [ 1977 (5) TMI 15 - PUNJAB AND HARYANA HIGH COURT] , suffice to mention that, in our considered view, the view canvassed by the revenue is not a correct or acceptable view of the matter. We, therefore, reject the same as an untenable view and decline to go into the controversy as to what will be the legal position in a situation in which more than one views on an issue are possible views. There are two aspects to this issue. In the first place, the ad hoc deduction u/s 36(l)(viia)(b) being the last item on the computation of taxable business profits it cannot be taken into account at the time of allowing deduction u/s 36(1)(vii), and, to that extent, the actual deduction attributable to bad debts [i.e. 36(1)(vii) plus 36(1)(viia)(b)] will indeed be more than the actual bad debts in that year. However, since the provision so allowed u/s 36(1)(viia)(b) is to be taken into account while allowing deduction for actual bad debts in the subsequent year, the effect of excess deduction, if a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... works out to Rs. 40,48,390, being 5% of adjusted total income assessable to tax, and he further held that the aforesaid amount of R;. 40,48,390 is also to be taken into account for computation of deduction under section 36(1)(vi). In other words, the Assessing Officer held that the deduction in respect of provision for bad debts is to be restricted to the amount in excess of aggregate of (a) opening balance in provision for bad debts made under section 36(1)(viia)(b); plus (b) further provision under that section held to be admissible for the year. The assessee's claim that provision under section 36(1)(viia)(b) held to be allowable for the year is not to be taken into account for computation of deduction under section 36(1)(vi) was, thus, declined. Aggrieved, assessee carried the matter in appeal before the CIT(A) but without any success. While rejecting the assessee's appeal, the CIT(A), inter alia, observed as follows: "... On a reasonable interpretation of section 36(1)(vii), it is clear that the claim of the appellant regarding the bad debts has to be adjusted not only against the opening balance of provision for bad debts but has also to be adjusted against the provision whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before proceeding to address ourselves to the core issue in this appeal. The relevant provisions are as follows: Section: 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: Provided that in the case of an assessee to which clause (viia) 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; (viia)(b) in respect of any provision for bad and doubtful debts made by- (a) [Not relevant for our purposes] (b) a bank, being a bank incorporated by or under the laws of a country outside India, an amount not exceeding five per cent of the total income (computed before making any deduction under this clause and Chapter VI-A); 6. On a careful analysis of these provisions, it is immediately clear tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nter alia, deduction admissible under section 36(1)(vi). In other words, deduction under section 36(1)(vi) is required to be computed and allowed before computation of deduction of section 36(1)(viia). Therefore, at the stage of computing admissible deduction under section 36(1)(vi), admissible deduction under section 36(1)(viia)(b) cannot be worked out. In this view of the matter, in our considered view, the scheme of the Act does not visualize taking into account admissible provision under section 36(1)(viia)(b) for the current previous year, for the purpose of computing deduction under section 36(1)(vi) of the Act. The computations made by the Assessing Officer in the impugned order show that deduction allowed under section 36(1)(viia) is Rs. 40,48,390 and net business income is Rs. 6,41,77,764, but then the deduction under section 36(1)(viia) does not work out to 5% of the profits before allowing this deduction (6,41,77,764 + 40,48,390 = 6,82,26,154) which should have been then Rs. 34,11,307. The inconsistency has arisen because the Assessing Officer computed the admissible deduction under section 36(1)(viia)(b) even before computing deduction under section 36(1)(vi) because he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is no dispute about the fact that even a debt at the end of the year can be subject-matter of provision under section 36(1)(vii), and it need not be confined to the debt outstanding at the beginning of the year. It is noteworthy that the reference is for the debts not the provision at the end of the year. There is no suggestion, however, that for the purpose of computing shortfall of provision for the purpose of section 36(1)(vii), it is open to the Assessing Officer to take into account balance of provision created under section 36(1)(viia)(b) at the end of the relevant year. The above observations made by the Hon'ble Rajasthan High Court, therefore, do not come in our way in taking the stand that we have taken in the preceding paragraph. 8. We now come to another plea strenuously argued by the learned Departmental Representative, and that is with regard to the proposition that in case the assessee's plea is to be upheld, the assessee will get undue benefit in the first year of operations, because, on one hand, the assessee will be entitled to an ad hoc claim on the basis of taxable business income and, on the other hand, such an ad hoc claim will not be set off in deduction for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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