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2019 (1) TMI 96 - AT - Income TaxClaim for bad and doubtful debts made by way of a provision - Claim denied by AO on the ground that the provision implies a contingent, and not an ascertained, liability, inadmissible in computing business income - quantum of claim - Held that:- The profile or the constitution of the rural advances recoverable admittedly changing with time, a provision in its’ respect would only be with reference to that outstanding at any given point of time. As such, this part of the provision, i.e., referable to the rural advances, could not exceed, at any given time, 10% of the advances computed in the manner provided in the Rules. In fact, this is the accepted position; the assessee’s reply dated 29/12/2014 in the assessment proceedings whereat it says that the provision qua rural advances, including that already made earlier, thus, does not exceed 10% of its’ rural branch advances. This was in fact also the unanimous view of the learned representatives before us. The other component of the provision u/s. 36(1)(viia) is with reference to a percentage of the income (prior to the provision for bad and doubtful debts). This, of course, would stand to be made, and accordingly claimed, on a year-to-year basis. The assessee, as observed by the tribunal in its’ order for AY 2008-09 maintained separate provision accounts for the two components. Subject, therefore, to the quantum limitation prescribed by law, as explained by us, the assessee’s claim for deduction toward provision for bad and doubtful debts is to be allowed under section 36(1)(viiia), and the assessee succeeds in principle. The AO shall, while confirming the same – the provision component linked to income being required to be revised on each revision in the assessee’s income in appeal, also clarify the exact amount of provision made by the assessee in its books; the ld. CIT(A) pointing to some difference therein, i.e., while giving appeal effect to this order, which is in conformity with the judicial rulings. Further, the write off of debts as bad and doubtful, i.e., in future, needless to add, would be by way of debit to the provision account, which is to be replenished, each year, on the basis of the parameters provided
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