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2013 (1) TMI 209 - HC - Income TaxMethod of operation of proviso to section 36(1)(vii) – Bad debts written-off – Provision for doubtful debts - Assessee is in banking business - Circular No.17/2008 dated 26-11-2008 - Assessee had claimed a deduction u/s 36(1)(vii) by way of bad debt - Simultaneously claimed deduction u/s 36(1)(vii)(a) for provision for bad and doubtful debts - The revenue's contention is that by virtue of such proviso, the claim of the assessee for deduction for debts written off, should be reduced by the closing balance of the assessee in his account for the provision of bad and doubtful debts. On the other hand, the assessee contends that such diminution should be limited to the opening balance of such account Whether for the purpose of section 36(1)(vii) only the closing credit balance in the provision account of the earlier years is to be considered, despite the provision of section 36(2)(v) Held that:- As the statutory provision is silent on the precise method of working out the deduction. The issue has been made sufficiently clear by the CBDT Circular No.17/2008 dated 26-11-2008.(i) u/s 36(1)(vii), deduction on account of bad debts which are written off as irrecoverable in the accounts of the assessee is admissible. However, this should be allowed only if the assessee had debited the amount of such debs to the provision for bad and doubtful debt account u/s 36(1)(viia), as required by section 36(2)(v) - (ii). While considering the claim for bad debts u/s 36(1)(vii), the A.O. should allow only such amount of bad debts written off as exceeds the credit balance available in the provision for bad & doubtful debt account created u/s 36(1)(viia). The credit balance for this purpose will be the opening credit balance i.e., the balance brought forward as on 1st April of the relevant accounting year Therefore, bearing in mind the circular issued by CBDT dated 26-11-2008 appeal decides in favour of assessee
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