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2009 (5) TMI 610 - ITAT BANGALOREBusiness expenditure - Bad debts written off recovered - Deduction u/s 36(1)(viia) or 41(4)? - assessee-Bank declared the amount written off as bad debts in the earlier years which has been subsequently recovered. However, same has not been offered to tax. Argument of the assessee Bank was that what was not claimed as deduction u/s 36(1)(vii), if subsequently recovered, need not be offered to tax u/s 41(4) - CIT(A) have appreciated the fact that the recoveries from such bad debts written off do not constitute income u/s 41. HELD THAT:- We observe that by virtue of section 36(1)(viia) certain assessees like the appellant-bank are allowed to provide in a particular manner provision for bad and doubtful debts as a charge to P&L account, irrespective of the actual bad debts. If bad debts exceed the reserve, the excess amount alone can be charged to P&L account as per section 36(1)(vii), in such event section 41(4) comes to play, when the excess amount so charged to P&L account u/s 36(1)(vii) is subsequently recovered from bad debts. In this given case, the assessee asserts that the actual amount is adjusted against the reserve created by virtue of section 36(1)(viia) and had not exceeded the reserve account. Therefore, the assessee claims no amount was charged to P&L account by invoking section 36(1)(vii). Since the assessee has not claimed bad debts u/s 36(1)(vii), but purely adjusted the amount against the reserve created u/s 36(1)(viia), section 41(4) cannot be invoked. Therefore, we are in agreement with the contentions of the assessee. Accordingly, this issue goes in favour of the assessee-Bank. We remitted back on the file of AO to verify the other issues.
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