TMI Blog2021 (8) TMI 111X X X X Extracts X X X X X X X X Extracts X X X X ..... attracted. As relying on THE PEERLESS GENERAL FINANCE INVESTMENT CO. LTD.[ 2020 (12) TMI 1249 - ITAT KOLKATA] CIT(A) rightly allowed the claim of assessee since the said provision was an actual write off and therefore, it does not attract clause (i) or (c) of Explanation (1) of sub-section (2) of section 115JB of the Act. Therefore, we find no infirmity in the order passed by the Ld. CIT(A) which is confirmed. Appeal of revenue is dismissed. - I.T.A. No. 2074/Kol/2019 - - - Dated:- 30-7-2021 - Shri A. T. Varkey, Hon ble Judicial Member And Dr. M. L. Meena, Hon ble Accountant Member For the Appellant : Smt. Ranu Biswas, Addl. CIT For the Respondent : None ORDER PER BENCH: This is an appeal preferred by the Revenue against the order of the Ld. CIT(A)-10, Kolkata dated 20.09.2019 for AY 2009-10. 2. The Grounds of appeal raised by the Revenue are as under: 1. That on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition made by the AO of ₹ 94,22,355/- on the account of provision for bad and doubtful debts in the computation of book profit u/s 115JB of the Act. 2. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... crystallizes and attains finality. Therefore on the basis of this factual finding the Ld. CIT(A) has allowed the claim of the assessee by relying on the decision of Hon ble Supreme Court in the case of (i) Vijaya Bank vs. CIT (2010) 322 ITR 166 (SC) (ii) Southern Technologies Ltd. vs. CIT (2010) 320 ITR 577 (SC) (iii) T.R.F. Ltd. vs. CIT (2010) 323 ITR 397 (SC) 6. We note that the Ld. CIT(A) has taken note of the decision/ratio of Hon ble Supreme Court in the case of Vijaya Bank (supra) and at page 18-21 of the impugned order has reproduced the analysis of the case which is as under: Bad debt - Write-off - After 1st April, 1989, if an assessee debits an amount of doubtful debt to the profit and loss account and credits the asset account like Sundry Debtors' Account, it could constitute a write off of an actual debt and it is not necessary to square off each individual account. Detailed facts decision in Vijaya Bank (supra) For the A. Y.1994-95, the Assessing Officer disallowed a sum of 7,10,47,161 which the assessee- bank had reduced from loans and advances or debtors on the ground that the impugned bad debt had not been written off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so as to reduce the profit of the year. Secondly, the provision account so created was debited and simultaneously the amount of loans and advances or debtors stood reduced and, consequently, the provision account stood obliterated. Lastly, according to the Tribunal loans and advances or the sundry debtors of the assessee as at the end of the year lying in the balance sheet was shown as net of 'provision for doubtful debt' created by way of debit to the profit loss account of the year. Consequently, the Tribunal, on this point, came to the conclusion that deduction u/s.36(1)(vii) of the 1961 Act was allowable. On the question whether it was imperative for the assessee each and every individual account and its debtors in its books or a mere reduction in the loans and advances to the extent of the provision for bad and doubtful debt was sufficient, the answer given by the Tribunal was that, in view of the decision of the Gujarat High Court in the case of Vithaldas H Dhanjibhai Bardanwala v. CIT, reported in (1981) 130 ITR 95 the Commissioner of Income-tax (Appeals) was right in coming to the conclusion that since the assessee had written off the impugned had in its b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion, the assessee is now required not only to debit the profit and loss account, but simultaneously also reduce the loans and advances or the debtors from the assets side of the balance sheet to the extent of the corresponding amount so that at the end of the year, the amounts of loans and advances/debtors is shown as net of the provisions for the impugned bad debt. According to the Supreme Court, the High Court had lost sight of this aspect in its impugned judgment. The Supreme Court, on the first question, therefore held that the assessee was entitled to the benefit of deduction u/s. 36(1)(vii) of the 1961 Act as there was actual write-off by the assessee in its books. Coming to the second question the Supreme Court noted that what is being insisted upon by the Assessing Officer is that mere reduction of the amount of loans and advances or the debtors at the end would not suffice and. in the interest of transparency, it would be desirable for the assessee bank to close each and every individual account of loans and advances or debtors as a pre-condition for claiming deduction u/s.36(1)(vii) of the 1961 Act. This view has been taken by the Assessing Officer because the Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt, S. 41(4) of the 1961 Act, inter alia, lays down that where a deduction has been allowed in respect of a bad debt or a part thereof u/s. 36( l)(vii) of the 1961 Act, then if the amount subsequently recovered on any such debt is greater than the difference between the debt and the amount so allowed, the excess shall be deemed to the profit and gains of business and, accordingly, chargeable to income-tax as the income of the previous year in which it is recovered. In the circumstances the Supreme Court was of the view that the Assessing Officer was sufficiently empowered to tax such subsequent repayments u/s. 41(4) of the 1961 Act and, consequently, there was no merit in the contention that if the assessee succeeded then it would result in escapement of income from assessment. The Supreme Court therefore, upheld the judgment of the Tribunal and set aside the impugned judgment of the High Court. 7. In the light of the decision of the Hon ble Supreme Court in the case of Vijaya Bank (supra), when the facts pertaining to this assessee was examined by the Ld CIT(A), wherein it was brought to his notice that a sum of ₹ 94,22,355/- has been reduced from the Sundry D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s section, book profit means the profit as shown in the statement of profit and loss for the relevant previous year prepared under sub-section (2), as increased by . (a) . (b) .. (c) the amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities; or (d) . (e) . (f) .. (g) .. (h) .. (i) the amount or amounts set aside as provision for diminution in the value of any asset 7. We note that the Ld. CIT(A) has correctly held that while computing book profit, provision for diminution in value of investments and provision for non-performing asset, since were not liabilities, clause (c) in Explanation (1) to sub-section (2) of section 115JB of the Act was not attracted. And hence, he rightly directed the AO not to add back these amounts to the book profit. However, the question now before us is whether clause (i) of Explanation (1) to sub-section (2) of section 115JB of the Act could be attracted in the facts of this case. We note that sub-clause (i) of Explanation (1) to section 115JB of the Act has been inserted by the Finance Act, 2009, with retrospective eff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovide that if any provision for diminution in the value of any asset has been debited to the profit and loss account, it shall be added to the net profit as shown in the profit and loss account for the purpose of computation of book profit. This legislative change thus was clearly necessitated on account of the judgment of the Supreme Court in case of HCL Comnet Systems Services Ltd. (supra) holding that under clause(c) to the explanation any provision for bad or doubtful debts for diminution in the value of any asset cannot be added to the book profit of the assessee. 15. This Court in Deepak Nitrite Ltd. (supra), as noted, held that in view of such statutory change, the decision of Supreme Court in case of HCL Comnet Systems Services Ltd. (supra), would allow the Revenue to make such addition. Delhi High Court in case of ClT v. lLPEA Paramount (P.) Ltd. [2010] 192 Taxman 65/[2011] 336 ITR 54 had come to similar conclusion. Seen from this light and in this context, the decision in case of Deepak Nitrite Ltd. (supra), lays down the correct proposition. 16. We may however, appreciate the 'implication of the ratio laid down by the Supreme Court in case of Vijay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by way of the said Explanation to section 36(1)(vii). Consequently, after April 1, 1989, a mere provision for bad debt would not be entitled to deduction under Section 36(1)(vii). To understand the above dichotomy, one must understand 'how to write off. If an assessee debits an amount of doubtful debt to the profit and loss account and credits the asset account like sundry debtor s account, it would constitute a write off of an actual debt. However, if an assessee debits provision for doubtful debt' to the profit and loss account and makes a corresponding credit to the 'current liabilities and provisions' on the liabilities side of the balance-sheet, then it would constitute a provision for doubtful debt. In the latter case, the assessee would not be entitled to deduction after April 1, 1989. 17. The Supreme Court (in Vijaya Bank) further observed as under: 7. One point needs to be clarified. According to Shri Bishwajit Bhattacharya, learned Additional Solicitor General appearing for the Department, the view expressed by the Gujarat High Court in the case of Vithaldas H. Dhanjibhai Bardanwala [supra] was prior to the insertion of the Explanation vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gned judgement. In the circumstances, we hold, on the first question, that the assessee was entitled to the benefit of deduction under Section 36(1)(vii) of 1961 Act as there was an actual write off by the assessee in it's Books, as indicated above. 18. It can thus be seen that in case of Southern Technologies Ltd. (supra), the Supreme Court explained that if an assessee debits an amount of doubtful debt to the Profit and Loss account and credits the asset account like sundry debtor's account, it would constitute a write-off of an actual debt. On the other hand, if an assessee debits provision for doubtful debt to the Profit and Loss account and makes a corresponding credit to the current liabilities and provisions on the liabilities side of the balance sheet, then it would constitute a provision for doubtful debt and in such a case after 1.4.1989, the assessee could claim no deduction under section 36(1 )(vii) of the Act. 19. This principle was further clarified in case of Vijaya Bank (supra) by observing that in case on hand, the assessee besides debiting the profit and loss account and creating a provision for bad and doubtful debt, had simultaneously obli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... impugned bad debt. Therefore, in the first place if the bad debt or doubtful debt is reduced from the loans and advances or the debtors from the assets side of the balance sheet the Explanation to s.115JA or JB is not at all attracted. 22. In case of Kirloskar Systems Ltd. (supra), the Karnataka High Court adopted the same principle. 23. By way of culmination of above judicial pronouncements and statutory provisions, the situation that arises is that prior to the introduction of clause (i) to the explanation to section 115JB, as held by the Supreme Court in case of HCL Comnet Systems Services Ltd. (supra), the then existing clause (c) did not cover a case where the assessee ,made a provision for bad or doubtful debt. With insertion of clause (i) to the explanation with retrospective effect, any amount or amounts set aside for provision for diminution in the value of the asset made by the assessee, would be added back for computation of book profit under section 115JB of the Act. However, if this was not a mere provision made by the assessee by merely debiting the Profit and Loss Account and crediting the provision for bad and doubtful debt, but by simultane ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t from the loans and advances on the asset side of the balance sheet and consequently, at the end of the year shows the loans and advances on the asset side of the balance sheet as net of the provision for bad debt, it would amount to an actual write off and such actual write off would not attract clause (i) of the Explanation to sub-section (2) of section 115JB of the Act. 10. When we apply this law to the facts of this case, Ld. AR Shri S. K. Tulsiyan, Advocate drew our attention to the P L Account for the year ending on 31.03.2002 which is found placed at page 34 of the paper book wherein we note that the assessee has debited provision for diminution in value of investments amounting to ₹ 29,81,59,433/- which is shown as ₹ 298.16 million in the Balance Sheet and provision for NPA amounting to ₹ 19,57,60,485/- has been shown as ₹ 195.76 million . According to Ld. AR, the said provision for diminution in value of investments and provision for non-performing assets was not a mere provision debited in the P L Account but is an actual write off, since the said provisions were simultaneously removed from the corresponding asset side of the Balance Sheet a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .4l million. The break up of ₹ 454.41 million is as follows: Provision for Diminution in Investments - ₹ 312.07 million Provision for Non-Performing Assets ₹ 451.41 million - ₹ 139.34 million 12. We note from a perusal of page 35 of paper book that this closing balance of ₹ 2111.82 million was reduced from Schedule 6 - Investments (Trade) of the audited accounts. Thus, we note that the Provision of ₹ 298.16 million created during the year was debited in the Profit and Loss A/c for the year and Provision written back during the year amounting to ₹ 312.08 million was credited in the Profit and Loss A/c. This shows that it was not only a mere creation of 'Provision for diminution in Investments' by debiting the Profit and Loss account but simultaneously the corresponding amount from Investments shown on the Asset side of the Balance Sheet was also reduced/adjusted. In other words, the Investments in the Asset Side that was recorded in the books were the net of provision. Thus, in view of the above facts, the said Provision for dimi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 19.93 v) Loan/deposit to companies (incl. Subsidiaries) 1056.86 vi) Amount recoverable in cash or kind or for value to be received (unsecured) 281.61 vii) Amount receivable from subsidiaries 46.94 viii) Sundry Deposit 7.31 Sum total 2564.11 Add: Provision made in the current year (FY 2001-02)(Note 1) 195.76 Total 2759.87 Less: Write back of Provision (Note 2) (139.34) Closing provision as on 31.03.2002 2620.53 The break up of ₹ 2620.53 million is as follows: (Refer schedule 7 of Audited Accounts, page 36) Particulars Rs. In Million Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or non-performing assets is ₹ 139.34 million and total is ₹ 451.41 million) (supra). We note that the closing balance of ₹ 2620.53 million was reduced from Schedule 7 - Loans and Advances of the audited accounts in this regard, refer page 36 of paper book. The Provision of ₹ 195.76 million created during the year was debited in the Profit and Loss A/c for the year and Provision written back during the year amounting to ₹ 139.34 million was credited in the Profit and Loss A/c. This clearly suggests that not only a mere 'Provision for Non-Performing Assets' was created by the assessee by debiting the Profit and Loss account but simultaneously the corresponding amount from Loans and Advances shown on the Asset side of the Balance Sheet was also reduced/adjusted. In other words, the Loans and Advances were recorded in the books as net of provision. Thus, in view of the above facts, the said Provision for diminution in non-performing assets would amount to an actual write off of Provision from the Assets side and therefore would not get attracted by clause (i) of the Explanation to sub-section (2) of section 115JB of the Act as held by the Hon&# ..... X X X X Extracts X X X X X X X X Extracts X X X X
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