TMI Blog2007 (12) TMI 243X X X X Extracts X X X X X X X X Extracts X X X X ..... tion was made on 17-3-2004 accepting the returned income filed by the assessee. The Assessing Officer issued notice under section 154 to disallow the provision for bad and doubtful debts debited to Profit Loss Account claimed by the assessee based on RBI guidelines for Non-Banking Financial Company (NBFC). During the course of rectification proceedings under section 154, it was pleaded by the assessee that the assessee being a Non-Banking Financial Company was bound by NBFC Prudential Norms (Reserve Bank) Directions, 1998 issued by the RBI vide notification dated 31-1-1998 and accordingly made provision on account of bad and doubtful debts following these guidelines. The Assessing Officer did not accept this contention of the assessee on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted that after amendment to section 145 of the Act, hybrid system of accounting cannot be followed by the assessees. The RBI guidelines do not stop accrual of interest under section 5 of the Act. Circular No. 621 issued by CBDT on 19-12-1991 gives the legislative intention. Therefore, allowing a provision for bad and doubtful debts is a mistake apparent from record. 5. On the other hand, ld. AR of the assessee submitted that Assessing Officer's power under section 154 are limited for correcting the mistakes which are apparent from the record. The mistakes should be apparent and should not be arrived at by a long drawn process of reasoning and investigation. The Assessing Officer can amend the order but he cannot pass a new order. He place ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and doubtful debts could not be allowed as deduction. The Special Bench has decided the issue in favour of revenue. Therefore, in view of the decision of the Special Bench and amendment brought into statute, there is no debate about the allowability of provision for bad and doubtful debts. He also submitted that ld. CIT(A) has misinterpreted the law by relying on the decision of ITAT in the cases of Overseas Sanmar Financial Services Ltd. and TEDCO Investment Financial Services Ltd. Withdrawing the claim under section 154 has rectified the mistake committed by the Assessing Officer in the original assessment. Thus the order passed under section 154 rectifying the mistake apparent from record by Assessing Officer is not a review of the ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion and at times even, by way of abundant caution, to clear any mental cobwebs surrounding the meaning of a statutory provision spun by interpretative process to make the position beyond controversy or doubt." Hon'ble Delhi High Court in the case of CIT v. Orissa Cement Ltd. [2002] 254 ITR 24 while explaining the scope of an "Explanation" to a statutory provision observed as under: "The object of an Explanation to a statutory provision is: (a) to explain the meaning and intendment of the Act itself; (b) where there is any obscurity or vagueness in the main enactment, to clarify the same so as to make it consistent with the dominant object which it seems to subserve; (c) to provide an additional support to the dominant object of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from 1-4-2002 was held to be operative prospectively." 10. From the decisions of Hon'ble Courts referred to above, it is clear that the purpose of insertion of the Explanation is to explain the statutory provisions. The plain reading of the Explanation to section 36(1)(vii) shows that the legislative intention is to allow deduction in respects of bad debts actually written off in the books of account and deny the benefit of section 36(1)(vii) of the Act in respect of provision made for "bad and doubtful debts". It makes the position of law beyond controversy or doubt. Thus the provision for bad and doubtful debts made in the account of the assessee cannot be allowed as deduction under section 36(1)(vii) of the Act. It is not the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee to follow hybrid system of accounting which is not permissible in view of provisions of section 145 with effect from 1-4-1997. From this date assessee can either follow mercantile system of accounting or cash system. Hybrid system of accounting is not permitted. Wherever the Legislature has desired to relax the provisions of law, it has expressly done so. One such example is in respect of banks, financial institutions and public companies engaged in infrastructure development which have been permitted under section 43D of the Act to recognize the income in respect of sticky loans on receipt basis. NBFCs have not been granted this concession of recognition of their income in respect of sticky loans. Therefore, we are unable to agr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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