TMI Blog2013 (1) TMI 209X X X X Extracts X X X X X X X X Extracts X X X X ..... (1)(vii), deduction on account of bad debts which are written off as irrecoverable in the accounts of the assessee is admissible. However, this should be allowed only if the assessee had debited the amount of such debs to the provision for bad and doubtful debt account u/s 36(1)(viia), as required by section 36(2)(v) - (ii). While considering the claim for bad debts u/s 36(1)(vii), the A.O. should allow only such amount of bad debts written off as exceeds the credit balance available in the provision for bad & doubtful debt account created u/s 36(1)(viia). The credit balance for this purpose will be the opening credit balance i.e., the balance brought forward as on 1st April of the relevant accounting year Therefore, bearing in mind the circular issued by CBDT dated 26-11-2008 appeal decides in favour of assessee - TAX APPEAL NOS. 1077 TO 1080 OF 2010 - - - Dated:- 27-6-2012 - AKIL KURESHI AND MS. HARSHA DEVANI, JJ. M.R. Bhatt and Mrs. Mauna M. Bhatt for the Appellant. Manish J. Shah for the Respondent. ORDER Akil Kureshi, J. - Leave to amend the question of law framed in the respective appeals. 2. In all these appeals arising between the Income-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Commissioner (Appeals) against such order of the Assessing Officer. The Commissioner (Appeals) by his order dated 10th February, 2003 gave partial relief to the assessee. Before the Commissioner the assessee contended that : "From the above facts, it is clear that for the year under consideration, an amount of Rs. 1412.45 lakhs has been written off as bad debts in the books of account and considering opening credit balance in bad debs provision account of Rs. 75.84 lakhs, amount of Rs. 1336.62 lakhs (1412.45 - 75.84) has been claimed as deduction in Income tax Return u/s 36(1)(vii) r.w.s. 36(2), as per details furnished on page 34 of the paper book. Therefore, under the provisions of Section 36(1)(vii) r.w.s. 36(2). total amount of Rs.13,36,61,936/- being the amount written off in the books of account as bad debts, limited by opening balance in the provision for Doubtful Debts under IT Act account, was available and should have been allowed by the A.O. As against this, the A.O. has allowed deduction of Rs. 12,00,06,881/- (i.e. Rs. 13,36,61,936 minus Rs. 1,36,55,055). Thus, deduction allowed u/s 36(1)(viia) is short by Rs. 1,36,55,055/- and the same requires to be allowed as de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITD 76. 10. The revenue, therefore, in the present appeal has raised the following question for our consideration:- "Whether the appellate Tribunal is right in law and on facts in holding that for the purpose of section 36(1)(vii) only the closing credit balance in the provision account of the earlier years is to be considered, despite the provision of section 36(2)(v) of the Act?" 11. The counsel for the revenue vehemently contended that the Tribunal erred in its interpretation of the applicable statutory provisions particularly those contained in section 36(1)(vii) and 36(1)(viia) of the Act. He submitted that proviso to section 36(1)(vii) had not been given its full effect. Drawing our attention to clause (v) of sub-section (2) of section 36 he contended that for claiming bad debt under section 36(1)(vii). It is necessary that the amount should have been first debited to the provision for bad and doubtful debts account. Referring to the decision of the Apex Court in the case of Catholic Syrian Bank Ltd. v. CIT [2012] 343 ITR 270; the counsel submitted that the correct interpretation of this statutory provision involved would lead to only one conclusion namely that the bad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ultural and rural development bank], an amount not exceeding five per cent of the total income (computed before making any deduction under this clause and Chapter VIA) and an amount not exceeding ten per cent of the aggregate average advances made by the rural branches of such bank computed in the prescribed manner : [Provided that a scheduled bank or a non-scheduled bank referred to in this sub-clause shall, at its option, be allowed in any of the relevant assessment years, deduction in respect of any provision made by it for any assets classified by the Reserve Bank of India as doubtful assets or loss assets in accordance with the guidelines issued by it in this behalf, for an amount not exceeding five per cent, of the amount of such assets shown in the books of account of the bank on the last day of the previous year:] [Provided further that for the relevant assessment years commencing on or after the 1st day of April, 2003 and ending before the 1st day of April, 2005, the provisions of the first proviso shall have effect as if for the words "five per cent", the words "ten per cent" had been substituted:] [Provided also that a scheduled bank or a non-scheduled bank referre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sions of section 36(1)(vii) relating to allowance of the bad debts. Contention of the Revenue that the Banks covered by clause (viia) were not entitled to deduction under section 36(1)(vii) was rejected. The Court held that proviso to section 36(1)(vii) would ensure that there would be no double benefit of deduction in such cases. 15. In the present case, however, the question of method of operation of proviso to section 36(1)(vii) arises. Such proviso as noted, provides that in case of an assessee to which clause (viia) applies, the amount of deduction relating to any such debt or part thereof shall be limited to the amount by which such debt or part thereof exceeds the credit balance in the provision for bad and doubtful debts account made under that clause. The revenue's contention is that by virtue of such proviso, the claim of the assessee for deduction for debts written off, should be reduced by the closing balance of the assessee in his account for the provision of bad and doubtful debts. On the other hand, the assessee contends that such diminution should be limited to the opening balance of such account. 16. We notice that in this respect the provision is silent. We ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tutory powers under section 119(2) of the Act, may have the effect of relaxing the rigours of a statutory provision, in the case of Catholic Syrian Bank Ltd. (supra) itself, the Apex Court touched on the effect of the circular issued by the Board. It was observed as under- "Now we shall proceed to examine the effect of the circulars which are in force and are issued by the Central Board of Direct Taxes (for short, "the Board"). In exercise of the power vested in it under section 119 of the Act. Circulars can be issued by the Board to explain or tone down the rigours of law and to ensure fair enforcement of its provisions. These circulars have the force of law and are binding on the income-tax authorities, though they cannot be enforced adversely against the assessee. Normally, these circulars cannot be ignored. A circular may not override or detract from the provisions of the Act but it can seek to mitigate the rigour of a particular provision for the benefit of the assessee in certain specified circumstances. So long as the circular is in force, it aids the uniform and proper administration and application of the provisions of the Act (Refer to UCO Bank v CIT [1999] 4 SCC 599)." ..... X X X X Extracts X X X X X X X X Extracts X X X X
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