TMI Blog2016 (10) TMI 1094X X X X Extracts X X X X X X X X Extracts X X X X ..... his year to the credit of the debtor, was created in earlier years to the debit of profit and loss account but added back as provision is not tax deductible. As regards the learned CIT(A)’s reference to proviso to section 36(1)(vii), which, in turns, refers to section 36(1)(viia), to provisions made under section 36(1)(viia) which admittedly is not the case here. In view of these discussions, as also bearing in mind entirety of the case, the grievance of the assessee must be upheld. Accordingly, disallowance of deduction for bad debts is deleted. - Decided in favour of assessee. Excess provision of interest payable written back - provision was never claimed as deduction - Held that:- CIT(A) has justified the same by observing that “consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... follows :- 1) On the facts in the circumstances of the case, your appellant most respectfully submits that Ld. Assessing Officer has erred in law in disallowing claim of Bad Debts of ₹ 11,72,22,554/- and Hon ble CIT(A) has further erred in law in continuing such disallowance the claim of Bad Debts of ₹ 11,72,22,554/- without appreciating the full facts, and details submitted on record and explained during the course of hearing, that the borrowers A/cs are credited by debiting the Bad Doubtful Debts Reserve A/c, and no amounts remain outstanding receivable in the borrowers A/c. 2) Your appellant most respectfully submits that Ld. Assessing Officer has erred in law in making addition of ₹ 10 Crores in respect of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made in the preceding years. The methodology of such abrupt and arbitrary reduction of income is illogical to the core. The mercantile system of accounting calls for the determination of profit on due basis. Also, each year of account is distinct for determination of profit under the Taxation Laws. Simply because there was an excess provisions made in any preceding year, the profit of the current year cannot be reduced. Hence, the write back becomes irrelevant for the computation of income for this year. The write back is denied and the impugned amount of ₹ 10,00,00,000/- is added back to the returned income. 4. Aggrieved, assessee carried the matter in appeal before the learned CIT(A) but without any success. Learned CIT(A) uphe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted the bad debts reserve account by the amount of bad debts, the same did not exceed the credit balance and therefore the bad debts are not allowable. Therefore apart from the arguments taken by the assessing officer in not allowing the claim of bad debts, appellant's claim of bad debts is not allowable even as per this provision. Accordingly the disallowance made by the AO is confirmed. 3.3 I have considered the facts of the case; assessment order and appellant's submission. Assessing officer did not allow the reduction of interest provision reversed by the appellant on the ground that the same is revenue in nature and cessation of liability. Appellant submitted that it did not claim the interest expenses in the relevant year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rable in the books of the assessee . The requirement for write off by debit to profit and loss account in the year of claim does not exist. In the present case, the debt has been written off in the sense that account of the debtor is squared up by crediting the debtor and debiting the bad debt reserve account. This accounting treatment, in our considered view, does amount to actual writ off of the debit. However, since this entry does not touch upon the profit and loss account at this stage directly, the authorities below have declined to treat it as a write off of the debts. What is overlooked in the process is that provision, which is partially squared up in this year to the credit of the debtor, was created in earlier years to the debit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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