TMI Blog2018 (11) TMI 258X X X X Extracts X X X X X X X X Extracts X X X X ..... ed as exception to the general provision contained in Explanation to section 36(1)(vii), which prohibits granting of deduction of any provision for bad and doubtful debts. Unfortunately, the present assessee is not covered by section 36(1)(viia) of the I.T. Act and so much so, explanation to section 36(1)(vii) squarely applies or in other words, the assessee is not entitled to deduction of any provision created for bad and doubtful debts, no matter such provision is created based on the prevalent accounting policies. - Decided against assessee. - I.T.A. No.29/Coch/2018 And I.T.A. No.30/Coch/2018 - - - Dated:- 1-11-2018 - SHRI CHANDRA POOJARI, AM AND GEORGE GEORGE K., JM For The Revenue : Smt. A.S. Bindhu, DR For The Assessee : Shri Pankajakshan C. Govind, CA ORDER Per CHANDRA POOJARI, AM: The appeal filed by the Revenue and the appeal filed by the assessee are directed against the order of the CIT(A), Trivandrum dated 24/11/2017 and pertain to the assessment year 2009-10. 2. The Revenue has raised the following grounds: 1. The CIT(A) erred in deleting the addition made u/s. 43B of the I.T. Act amounting to ₹ 248,91,12,986/- bein the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... B of the I.T. Act, any amount payable by way of tax, duty, cess or fee under any law for the time being in force is allowable as deduction only in that previous year in which such sum is actually paid. In the absence of such payment made during the year under consideration, the Assessing Officer brought the said amount of ₹ 248,91,12,986/- by invoking the provisions of section 43B of the Act. 4. On appeal, the CIT(A) deleted the addition by relying on the judgment of the Jurisdictional High Court in assessee s own case in ITA Nos. 1703 of 2009, 1710 of 2009, 1716 of 2009 and 127 of 2010 dated 12/11/2010 pertaining to AYs 2002-03 to 2005-06 wherein it was held as under: 27. On a plain reading of section 43B we are of the opinion that the only clause if at all, is relevant in the context of the facts of the appellant s case is clause (a) which deals with any sum payable by the assessee by way of tax, duty, ..under any law for the time being in force . In our opinion, the words by way of tax are relevant as they are indicative of the nature of liability. The liability to pay and the corresponding authority of the State to collect the tax (flowing from a statute) is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6(1)(vii) of the Act allowed deduction only for the bad and doubtful debts actually written off. The Explanation to section 36(1)(vii) clearly states that for the purpose of this clause, any bad debt or part thereof written off as irrecoverable in the accounts of the assessee shall not include any provision for bad and doubtful debts made in the accounts of the assessee . In view of the above Explanation and the assessee could not produce any evidence to show that the amounts were actually written off and were accounted as income in the preceding years as required u/s. 36(2), the claim of provision for bad and doubtful debts amounting to ₹ 153,91,29,948/- was rejected and accordingly, brought to tax. 9. Against this, the assessee went in appeal before the CIT(A). The CIT(A) confirmed the finding of the Assessing Officer by observing that the reliance placed on the decision of the Hon'ble Supreme Court in the case of Vijaya Bank vs. CIT (3 taxman.com 90) is totally misplaced and is not applicable to the case of the assessee since the issue involved in the assessee's case is centered around to Explanation to Section 36(l)(vii) which clarified that any bad debt writ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e details, the assessee had resorted to explaining certain difficulties which in no way would help the assessee to get away from the limitations of the provisions of sections 36(l)(vii) and 36(2) which the Assessing Officer had invoked to disallow the claim made. Accordingly, the disallowance made by the Assessing Officer was confirmed. The CIT(A) rejected another argument of the assessee that in the immediate previous year, appeal on the same ground was allowed in favour of them since appeal in the previous year was allowed under different circumstances in which substantial amount of the debt was liable to be paid by the Kerala Water Authority and under a direction from the State Government, the assessee was to write off the debts against the assurance that the written off money would be paid to the assessee through budget allocation. In view of all the above, the CIT(A) was of the opinion that the assessee had not explained satisfactorily as to why the provisions of sections 36(l)(vii) and 36(2) should not have been invoked and accordingly, found no infirmity in the decision of the Assessing Officer to disallow the claim for provision for bad and doubtful debts. 10. Against th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10.2 Therefore, it was submitted that on grounds of law the action of the CIT(A) is not in conformity with the order of the Supreme Court in the cases referred to above, which are directly on the point. As regards, the statement of the CIT(A) in para 3.4 that, the assessee had not furnished party-wise details of bad debts written off and also the years in which the debt was taken credit for as income, it was submitted that the assessee is a large public sector utility undertaking engaged in the generation and distribution of electricity to millions of consumers across the State of Kerala and therefore, there was sheer practical difficulty in furnishing a consumer list of bad debts, which would run into thousands of pages considering the large population being serviced / looked after by the public utility undertaking. It was submitted that a one-to-one correlation and matching of the debt with the income taken credit for in the earlier years is a sheer impossibility due to practical difficulties on account of large volume of consumers involved and that as per the accounting system followed by the assessee, what is debited under trade receivables is credited to Sale of Power a/c ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2.1 Now the question is whether an express provision in section 36(1)(vii) of the Act which prohibits granting deduction of any provision for bad and doubtful debts can be got over by the assessee by relying on the judgment of the Supreme Court in the case of Vijaya Bank Ltd. (supra). In fact, section 36(1)(viia) is a complete answer to this query raised by the assessee wherein special provisions are made in the I.T. Act for allowing provision for bad and doubtful debts of scheduled banks, non-scheduled banks, co-operative banks etc. to the extent permissible thereunder. In fact, u/s. 36(1)(viia), the eligible banks are authorized to create provision subject to certain limits in respect of rural advances and other loans referred to therein and claim deduction of the same. This provision clearly indicates that Parliament is well aware of the risk undertaken by the banks in making advance to the rural sector in terms of the guidelines issue by the Government and the RBI and only such cases are treated as exception to the general provision contained in Explanation to section 36(1)(vii), which prohibits granting of deduction of any provision for bad and doubtful debts. Unfortunately, t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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