9911796707
TMI Blog2012 (6) TMI 445X X X X Extracts X X X X X X X X Extracts X X X X ..... om the gross total sundry debtors, the provision for doubtful debts was reduced. In the computation of income filed along with the return of income for assessment year 2004-05, the assessee added to the profit as per P & L account the provision for doubtful debts of Rs. 70,00,000/-. Thus, the assessee did not claim any deduction on account of bad debts in assessment year 2004-05 though a provision was made in the books of account. It is also to be noticed that the provision for doubtful debts was reduced from the sundry debtors in the final balance sheet. The individual ledger account of the sundry debtors the amount due by them continued to be shown as due and payable and had not been written off. 3. In the assessment years 2005-06 and 2006-07, the assessee wrote off in the accounts of the concerned sundry debtors the provision for doubtful debts already credited in AY 04-05. In assessment year 2005-06, a sum of Rs. 49,64,221/- was written off by crediting the sundry debtors account and similarly a sum of Rs. 20,36,000/- was written off for assessment year 2006-07 by crediting the sundry debtors account. 4. The AO examined the claim of the assessment year 2006-07 and held that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6. We have considered the rival submissions. On perusal of the accounting entries passed, it is clear that the sum of Rs. 20,36,000/- claimed as deduction in AY 06-07 was part of Rs. 70,00,000/- claimed as provision for bad debt in AY 04-05 by debiting to the P & L account for AY 04-05 as provision for doubtful debts in assessment year. Correspondingly, in the balance-sheet from the gross total sundry debtors, the provision for doubtful debts was reduced. In the computation of income filed along with the return of income for assessment year 2004-05, the assessee added to the profit as per P & L account the provision for doubtful debts of Rs. 70,00,000/-. Thus, the assessee had not claimed as a deduction in the past the sum of Rs. 20,36,000/-. In assessment year 2004-05, though a sum of Rs. 70,00,000/- was reduced in the balance-sheet from the sundry debtors, the sundry debtors account was not credited and closed. It was only in the previous year relevant to assessment year 2006-07 that the debtors accounts were squared off by crediting the same to the extent of Rs. 20,36,000/-. Section 36(1)(vii) of the Act prescribes the conditions for allowing deduction on account of bad debt a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest thereon and even though the amount is not actually written off by debiting the profit and loss account of the assessee and crediting the amount to the account of the debtor, the assessee was still entitled to deduction under section 36(1)(vii). [See CIT v. Jwala Prasad Tiwari [1953] 24 ITR 537 (Bom) and Vithaldas H. Dhanjibhai Bardanwala v. CIT [1981] 130 ITR 95 (Guj)] Such state of law prevailed up to and including the assessment year 1988-89. However, by insertion (with effect from April 1, 1989) of a new Explanation in section 36(1)(vii), it has been clarified that any bad debt written off as irrecoverable in the account of the assessee will not include any provision for bad and doubtful debt made in the accounts of the assessee. The said amendment indicates that before April 1, 1989, even a provision could be treated as a write-off. However, after April 1, 1989, a distinct dichotomy is brought in by way of the said Explanation to section 36(1)(vii). Consequently, after April 1, 1989, a mere provision for bad debt would not be entitled to deduction under Section 36(1)(vii). To understand the above dichotomy, one must understand 'how to write off'. If an assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of Vijaya Bank (supra) and Southern Technologies Ltd. (supra) as laying down a prohibition to claim deduction on account of bad debts in the year in which the account of the debtor is squared off. In fact the stand of the Revenue in the case of Vijaya Bank (supra) was that the individual debtors account should be closed by writing it off as bad debts, for claiming deduction on account of bad debts. On the above stand of the Revenue, the Hon'ble Supreme Court observed as follows: "It is important to note that the assessee-Bank has not only been debiting the Profit and Loss Account to the extent of the impugned bad debt, it is simultaneously reducing the amount of loans and advances or the debtors at the year-end, as stated hereinabove. In other words, the amount of loans and advances or the debtors at the year-end in the balance-sheet is shown as net of the provisions for impugned debt. However, what is being insisted upon by the Assessing Officer is that mere reduction of the amount of loans and advances or the debtors at the year-end would not suffice and, in the interest of transparency, it would be desirable for the assessee-Bank to close each and every individual acco ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
