TMI Blog2006 (6) TMI 419X X X X Extracts X X X X X X X X Extracts X X X X ..... vely. The facts of the case relating to the assessment year 1977-78 are that the assessee is a banking company engaged in the business of advancing loans to the customers. In the return of income filed, the assessee claimed bad debts amounting to Rs. 9,19,339. The Assessing Officer disallowed the claim on the ground that the assessee failed to establish that these debts had become bad. On appeal, the learned CIT(A) upheld the disallowance. The assessee carried the matter in appeal before the Income-tax Appellate Tribunal, Amritsar Bench (in short the Tribunal). It was argued before the Tribunal that both the Assessing Officer and the CIT(A) did not examine each item of bad debts. It was submitted that the details of the bad debts were submitted before the authorities below. The Tribunal considered the submissions of the assessee and vide its order dated 14th October, 1982 in ITA No. 57/Asr/1981 for the assessment year 1977-78 set aside the orders of the authorities below and directed the ITO to examine the claim of the assessee with reference to evidence in respect of each item. 3. Thereafter, the Assessing Officer took up the set aside assessment and allowed the opportunity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r called upon the assessee to furnish details as to whether interest on the bad debts had been credited to the respective account and offered to tax, the steps taken to recover bad debts claimed and whether entries had been actually written off in the books of the account. The Assessing Officer stated in the orders that the assessee expressed its inability to furnish the requisite details. Therefore, the Assessing Officer disallowed the claim of the assessee for deduction under section 36(1)( vii ) for these two assessment years also. 5. Being aggrieved, the assessee filed appeals against the assessment orders before the CIT(A) challenging the disallowance of bad debts for all the assessment years. It was submitted before the CIT(A) that the assessee was engaged in the business of banking and bad debts claimed were incidental to assessee s business. It was submitted that the assessee had furnished party-wise details of the amounts due from them and also steps taken to recover the amounts from the parties. In fact, in almost all the cases, suits had been filed. Relying on the judgment of Hon ble Gujarat High Court in the case of Vithaldas H. Dhanjibhai Bardanwala v. CIT [198 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant fulfilled all the requisite conditions for claiming the amounts under reference as bad debts, and there is no justification for not allowing the same. The addition so made amounting to Rs. 9,19,339 is, therefore, deleted. The appeal is allowed." This order was followed for the subsequent two assessment years. The Revenue is aggrieved with the orders of the CIT(A). Hence, these three appeals before us. 6. The learned senior Departmental Representative, Sh. Darshan Singh, referred to the provisions of section 36(1)( vii ) of the Act and submitted that these provisions as existed for the relevant assessment years required that the assessee would be entitled to the claim of bad debts only if it is established that such debts had become bad in the year when these were claimed and these must be written off as irrecoverable debts in the books of account of the assessee. He submitted that until these two conditions were satisfied, the assessee would not be entitled to claim deduction of the same. He submitted that subsequent amendment to the provisions of section 36(1)( vii ) where the amount could be claimed and allowed on the basis of writing off the same in the books of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tained against loan, the reason why such debt could not be recovered and action taken by way of filing a suit, the present position of the case were furnished. He submitted that in a case where subsequently the amounts were recovered and adjusted, the position in this regard was indicated and the respective amounts were offered to tax in respective assessment years. Reliance was placed on the following judgments in support of the contention that the assessee satisfied the condition that the amounts had become irrecoverable and bad in the accounting years relevant to assessment years under consideration and, therefore, rightly written off : ( i ) Shree Bhagpatia Food Industries ( supra ), where it was held that in a case where the amounts were written off because despite legal registered notices served on the debtors, no payment was received, it was not necessary that insolvency proceedings must be initiated or suit must be filed before debt could be said to be a bad debt. In such a case, the assessee would be entitled to deduction of bad debts. ( ii ) Goodlas Nerolac Paints Ltd. ( supra ), where it was held that where two conditions were satisfied, i.e. , debt was a trade ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the P L a/c and balance sheet of the bank. As per the provisions of the Banking Regulation Act, 1949, the provision of bad and doubtful debts has to be to the satisfaction of the statutory auditors of the bank. The Tribunal held that to disbelieve any portion of the bad debt claim of banking company as premature requires clear and cogent evidence on the basis of which it can reasonably be said that the decision in respect of write off of the debt is erroneous. 8. We have heard both the parties at some length and given our thoughtful consideration to the rival contentions with reference to facts, evidence and material placed on record. The claim of the assessee relates to the assessment years 1977-78, 1979-80 and 1980-81, respectively. Therefore, the provisions of clause ( vii ) of sub-section (1) of section 36 relevant to the assessment years under reference shall apply for considering the claim of the assessee for bad debts. Section 36(1)( vii ) as it stood at the relevant time provided that subject to the provisions of sub-section (2), the amount of any debt, or any part thereof, which is established to have become a bad debt in the previous year, shall be allowed as dedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n that these debts had become irrecoverable in the accounting year relevant to assessment years under consideration. We have referred to the details filed by the assessee and placed on record. The same showed the dates when these were written off, amount, nature of security against the debt, reason for debt becoming bad and legal action taken against the party. This shows that in most of the cases, the amounts in question were very small. The nature of security obtained was hypothecation of stock, which in many cases was a stock of poultry birds. The reason for becoming debt as bad was the natural calamity i.e. , business loss, death of the birds, death of a debtor etc. The mere fact that assessee has filed suits in most of the cases where the amount involved was substantial, itself shows that the assessee has taken adequate steps to recover the amounts due from the party keeping in view the commercial expediency and the cost of litigation. In most of the cases, the amounts realized were adjusted and offered to tax in subsequent assessment years. It is not in doubt that the assessee is a banking company belonging to the State Government. The accounts of the assessee are subject to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e amounts were written off by debiting the P L a/c and crediting the provision for bad and doubtful debts. According to him, the amounts were not written off by crediting the bad debts to the respective accounts of the sundry debtors. Thus, the Assessing Officer was of the view that the first condition had not been satisfied. He further observed that the assessee failed to furnish complete information i.e. , individual case files to show that amount had become irrecoverable in the accounting year under reference. The bad debts appeared in the names of 940 parties. The assessee furnished details in the form of name of the party (Branchwise), date when written off, amount of debt, nature of security, nature of calamity, action taken to recover the amount and the outcome of such action. Since the amounts in question were comparatively of small amounts and the number was very large, the assessee furnished complete details of 67 parties which have been extracted in Annex. A to the assessment order. The Assessing Officer noticed that in most of the cases the suits have been pending in the Courts and, therefore, writing off the amounts of bad debts in the books was premature. He was of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herefore, for parity of reasons, we set aside the order of the CIT(A) and delete the impugned disallowance of bad debts. This ground of appeal is allowed. 14. The second ground relates to sustaining a disallowance of entertainment expenses. The facts of the case are that the Assessing Officer disallowed the expenditure of Rs. 6,64,872 under section 37(2A) of the Act being entertainment expenditure after allowing an amount of Rs. 30,000 allowable under the Act. On appeal, the learned CIT(A) upheld the disallowance by relying on the order for the assessment year 1982-83. The assessee has now come up in appeal before this Bench. 14.1 The learned counsel for the assessee submitted that this claim of the assessee is covered by order dated 29th June, 2005 of Tribunal, Amritsar Bench in the case of the assessee in ITA No. 841/Asr/1988 for the assessment year 1985-86. A copy of this order was placed at pp. 38 to 42 of the paper book. He submitted that out of total entertainment expenses of Rs. 6,64,872, the amount allowable as per Tribunal s order works out to Rs. 2,30,049 i.e. 1/4th of expenses of Rs. 2,18,618 which worked out to Rs. 72,782 incurred on the employees, Rs. 13,552 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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