TMI Blog2014 (12) TMI 213X X X X Extracts X X X X X X X X Extracts X X X X ..... 167/- in the profit and loss account that too in the profit and loss appropriation account. The provisions of section 36(1)(vii) do not contain the requirement of writing off the bad debts to the profit and loss account of the Assessee what the provision mandates that the amount of any bad debt or part thereof should be written off as irrecoverable in the Accounts of the Assessee for the previous year - assessee emphasized that the provision requires writing off in the accounts of the assessee not in the profit and loss account, the ledger accounts of the parties form part of the accounts, maintained by the assessee - Therefore, the requirements of Section 36(1)(vii) are duly complied with – the contentions of assessee is upheld and the findings of CIT(A) is set aside and the matter is remitted back to AO for verification – Decided in favour of assessee. - I.T.A. No.889/Ahd/2011 - - - Dated:- 19-9-2014 - SHRI N.S. SAINI AND SHRI KUL BHARAT, JJ. For the Appellant : Shri S.N.Soparkar with Ms.Urvashi Shodhan, ARs For the Respondent : Shri Subhash Bains,CIT-DR ORDER Per: Kul Bharat: This appeal by the Assessee is directed against the order of the Ld.Commi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ame cannot be said to be written off, even, though the debtors accounts are duly credited. Accordingly, the claim of bad debts of ₹ 1,17,16,78,697/- is disallowed. The ld.counsel for the assessee submitted that this finding of AO is against the ratio of the judgement of Hon'ble Apex Court rendered in the case of TRF Ltd. vs. CIT (supra), wherein it is held that it is enough if the bad debt is written off as irrecoverable in the accounts of the assessee. He submitted that the Hon'ble Apex Court has held that when the bad debt occurs, the bad debt account is debited and the customer's account is credited, thus, closing the account of the customer. 4. We have heard the rival contentions, perused the material available on record and the case-laws relied. We find that the AO has rejected the bad debts on the ground that the assessee by debiting the sum of ₹ 33,25,78,167/- only, that too, in the profit and loss appropriation a/c. Hence, the same cannot be said to be written off, even, though the debtors accounts are duly credited. Accordingly, the claim of bad debts of ₹ 1,17,16,78,697/- is disallowed. However, the ld.CIT(A) observed that the appellant r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... As per the award of the arbitrator, the company has written off an amount of ₹ 11716.79 lacs which, based on legal opinion has been set off against Revaluation Reserve and the net amount of ₹ 3325.78 lacs is debited to profit and loss account as part of exceptional and extraordinary items. 15. The company has an investment of ₹ 3000.00 lacs in Ashima Dyecot Limited, an associate company. The accumulated loss as at March 31, 2006 has exceeded the net worth of the said company. However, having regard to the prospects of long-term revival of the company, no provision is considered necessary on this account. Decline in value of the investments in Nachmo Knitex Limited is not provided for since the decline, in the opinion of the company, is not of a permanent nature. The company has made provision for diminution in the value of investment of ₹ 2200.00 lacs in fully convertible debentures of its 100% subsidiary, Ashima Cottons Private Limited (ACPL) as the net asset value of ACPL has become negative. The said amount appears as part of exceptional and extraordinary items. 4.1. The contention of the assessee is that the above notes c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... count is prescribed by the Schedule VI of the Companies Act itself, as the main purpose of such netting off is for the purpose of achieving effective and concise presentation of these statements. However, in the humble understanding of appellant, it would be absolutely irrational to conclude that such item; which are netted off only in order to achieve this object, are not given effect in its entirety in the Profit loss account. The presentation adopted by appellant-company was only to copy with and in accordance with the disclosure requirements of Accounting Standard 5 Net Profit Loss for the Period, Prior Period items and Changes in Accounting Policies , however such compliance on part of appellant cannot change the prime character of the impugned debt of ₹ 117.17 crores, being admissible as per the provisions of section 36(1)(vii) of the Act. Further, so far as the observation of ld.Assessing Officer with respect to the charge of impugned amount of debt to the profit and loss appropriation account is concerned, it is most respectfully submitted that the concept of profit loss appropriation accounts no where finds its place in requirements of Schedule V ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of writing of bad debt is complied, the same becomes allowable in view of the Judgement of Hon'ble Apex Court rendered in the case of TRF Ltd. vs. CIT 223 ITR 397. We find that the Hon'ble Apex Court in the case of TRF Ltd.(supra), has held as under:- 4. This position in law is well-settled. After 1st April, 1989, it is not necessary for the assessee to establish that the debt, in fact, has become irrecoverable. It is enough if the bad debt is written off as irrecoverable in the accounts of the assessee. However, in the present case, the AO has not examined whether the debt has, in fact, been written off in accounts of the assessee. When bad debt occurs, the bad debt account is debited and the customer's account is credited, thus, closing the account of the customer. In the case of companies, the provision is deducted from sundry debtors. As stated above, the AO has not examined whether, in fact, the bad debt or part thereof is written off in the accounts of the assessee. This exercise has not been undertaken by the AO. Hence, the matter is remitted to the AO for de novo consideration of the above-mentioned aspect only and that too only to the extent ..... X X X X Extracts X X X X X X X X Extracts X X X X
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