TMI Blog2012 (6) TMI 445X X X X Extracts X X X X X X X X Extracts X X X X ..... llant. C.G.K Nair for the Respondent. ORDER N.K. Billaiya, Accountant Member- This is an appeal by the assessee against the order dated 4-2-2011 of CIT(A)-16, Mumbai, relating to assessment year 2006-07. The only issue in this appeal is as to whether the Revenue authorities were justified in denying the claim of the assessee for deduction on account of bad debt a sum of ₹ 20,36,000/- while computing the taxable income. 2. The assessee, is a company. It is engaged in the business of importing and trading of computerized digital printing machines, inks, spares, etc. In AY 04-05, the assessee identified some of the dues from its customers as potentially bad. The assessee accordingly made a provision for doubtful debts in the books of account of ₹ 70,00,000/-. The provision for doubtful debts was debited to the Profit Loss account in AY 2004-05. 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 doubtfu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e claim of the assessee. In this regard, it was pointed out that writing off debts as bad debts is done by crediting the debtors account and such accounting entry had been passed by the assessee only in the previous year relevant to assessment year 2006-07 in so far as a sum of ₹ 20,36,000/- is concerned. He pointed out that the conclusion of the Revenue authorities that the amount should be debited to the P L account is not correct because a sum of ₹ 20,36,000/- claimed as deduction on account of bad debts is part of the sum of ₹ 70,00,000/- which was already debited to the P L account in assessment year 2004-05. In this regard, the assessee also submitted that the AO has not disputed the fact that the sum of ₹ 70,00,000/- debited in the P L account in assessment year 2004-05 was already credited as income in the previous years prior to AY 04-05 and therefore the condition laid down in sec. 36(2) was satisfied. The ld. D.R. relied on the order of the AO/CIT(A). 6. We have considered the rival submissions. On perusal of the accounting entries passed, it is clear that the sum of ₹ 20,36,000/- claimed as deduction in AY 06-07 was part of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayer, was a mere provision and the same could not be equated with the actual write off of the bad debt, as required by section 36(1)(vii) of the Act. On the above facts, the Hon'ble Supreme Court considered two questions for determination. The first question was with regard to the manner in which actual write off takes place under the Accounting principles. The second question was whether it was imperative for the assessee-Bank to close the individual account of each debtor in it's Books or a mere reduction in the Loans and Advances Account or Debtors to the extent of the provision for bad and doubtful debt is sufficient? On the first the first question the Hon'ble Supreme Court referred to it's own ruling in the case of Southern Technologies Ltd. v. Jt. CIT [2010] 320 ITR 577/187 Taxman 346 (SC) wherein the Hon'ble Supreme Court held as follow: Prior to April 1, 1989, the law, as it then stood, took the view that even in cases in which the assessee(s) makes only a provision in its accounts for bad debts and 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account to the extent of the provision for bad and doubtful debt is sufficient, the Hon'ble Supreme Court held that Section 36(1)(vii) of 1961 Act applies both to Banking and Non-Banking businesses and that it is not necessary to claim deduction on account of bad debts that the individual debtors account should be closed by crediting the said account. 9. In the light of the Hon'ble Supreme Court decision the Assessee could have claimed the deduction of ₹ 20,36,000 in AY 04-05 even though the debtors account had not been squared off during the previous year relevant to AY 04-05. It is not necessary that the claim for deduction should be routed through only the P L account of the previous year in which the deduction is claimed, as has been the stand of the Revenue. 10. The Assessee did not claim deduction in AY 04-05. The question is whether the deduction can be claimed in AY 06-07 on the basis of squaring off the debtors account in the books of accounts of the previous year relevant to AY 06-07. We cannot read the decision of the Hon'ble Supreme Court in the case of Vijaya Bank ( supra ) and Southern Technologies Ltd. ( supra ) as laying down a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... years. There is also a flip- side to the argument of the Department. Assessee has instituted recovery suits in Courts against it's debtors. If individual accounts are to be closed, then the Debtor/Defendant in each of those suits would rely upon the Bank statement and contend that no amount is due and payable in which event the suit would be dismissed. (underlining by us for emphasis) 11. In the light of the above observations of the Hon'ble Supreme Court, it is reasonable to hold that there is no prohibition to claim deduction on account of bad debts in the year in which the debtors account is squared off by crediting bad debts. The only condition when a claim for deduction is made in the year in which the debtors account is squred off would be to see that the deduction should not have been claimed in the year in which the provision for bad debts was written off in the profit and loss account and corresponding reduction of the debtors is shown in the balance sheet. So long as there is no double deduction, there cannot be any objection for allowing the claim of the Assessee for deduction on account of bad debts. 12. The facts of the present case clearly show ..... X X X X Extracts X X X X X X X X Extracts X X X X
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