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TMI Blog2021 (8) TMI 111X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the issue is no longer 'Res-Integra'. So, we are inclined to dispose of this appeal of the revenue after hearing the Additional Commissioner of Income Tax Smt. Ranu Biswas the Ld. Sr. DR. 4. The sole ground of appeal of the Revenue is that the Ld. CIT(A) erred in deleting the addition made by the AO of Rs. 94,22,355/- on account of 'provision for bad and doubtful debts' in the computation of book profit u/s 115JB of the Income Tax Act, 1961 (hereinafter referred to as the Act). The AO has disallowed the claim of the assessee by noting as under: "02. Addition of Provision of Doubtful Debts on Book Profit u/s 115JB: It is seen from the assessment order u/s 143(3) dated 27.12.2011 that the assessee made "provision for bad & doubtful debtors' amounting Rs. 94,22,355/- as shown in the Schedule Q- administrative expenses to the Profit and loss account for the year ended 31.03.2009 required to be added was not considered for the purpose of computing the book profit u/s 115JB of the I. T. Act. The language of Section 115JB clearly speaks: for the purpose for this section "book profit means the net profit as shown in the profit and loss account for the relevant previous year prepared ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nation stood inserted in the 1961 Act by the Finance Act, 2001, with effect from April 1, 1989. The assessee carried the matter in appeal before the Commissioner of Income-tax (Appeals) ['CIT(A)', for short], who opined that it was not necessary for the purpose of writing off of bad debts to pass corresponding entries in the individual account of each and every debtor and that it would be sufficient if the debit entries are made in the profit and loss account and corresponding credit is made in the 'bad debt reserve account'. Against the decision of the Commissioner of Income-tax (Appeals) on this point, the Department preferred an appeal to the Income-tax Appellate Tribunal ('Tribunal', for short). Before the Tribunal, it was argued on behalf of the Department that write-off of each and every individual account under the head 'Loans and advances' or 'debtors' was a condition precedent for claiming deduction u/s.36(1)(vii) of the 1961 Act. According to the Department, the claim of actual write-off of bad debts in relation to banks stood on a footing different from the accounts of the non-banking assessee(s), though it was not disputed that S. 36(1) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e case of ITO v. Wipro Infotech Limited that in view of the insertion of the Explanation, vide the Finance Bill 2001, with effect from April 1. 1989 the decision of the Gujarat High Court in the case of Vithaldas H. Dhanjibhai Bardanwala (supra) no more held the field and, consequently mere creation of a provision did not amount to actual write-off of bad debts. In the appeals filed against the order of the High Court, the Supreme Court observed that broadly, two questions arose for its determination. The first question that arose for determination was, whether it was imperative for the assessee bank to close the individual account of each debtor in its books or a mere reduction in the loans and advances account or debtors to the extent of the provision for bad and doubtful debt was sufficient. According to the Supreme Court the first question was considered by it in Southern Technologies Ltd. v. Joint CIT (2010) 320 ITR in which it had an occasion to deal with the first question and in that case it been held that after 1st April 1989 if an assessee debits an amount of doubtful debt to the profit & Loss account and credits the asset account like 'sundry debtors' account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eduction, twice over. The Supreme Court observed that the assessee has instituted recovery suits in courts against its debtors. If individual accounts were to be closed, then the debtor /defendant in each of those suits would rely upon the bank statement and contend that no amount is due and payable in which event the suit would be dismissed. The Supreme Court further observed that according to the Department, it was necessary to square off each individual account failing which there was likelihood of escapement of income from assessment. According to the Department, in cases where a borrower's account is written off by debiting the profit and loss account and by crediting loans and advances or debtors account on the asset side of the balance sheet then as and when in the subsequent years if the borrower repays the loan the assessee will credit the repaid amount to the loans and advances account not to the profit & Loss Account which would result escapement of income from assessment. On the other hand, if bad debt is written off by closing the borrower's account individually, then the repaid amount in subsequent years will be credited to the profit and loss account on whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tracted and the AO erred in doing so. 8. From a perusal of records, we note that in this case though in the computation of income filed the provision for bad and doubtful debts amounting to Rs. 94,22,355/- had been added back to the total income, however, the Sundry Debtors on the asset side of the Balance Sheet have been reduced by an equivalent amount i.e. Rs. 94,22,355; and since such amount of provision having not been transferred to the liability side of the Balance sheet as "current Liabilities and provisions", such provision for bad and doubtful debt is allowable u/s. 36(1)(vi) of the Act. 9. Therefore, in the light of the aforesaid Hon'ble Supreme Court decision in the case of Vijaya Bank (supra), the Ld. CIT(A) has rightly allowed the claim of the assessee. And since it has been found that it was actual write off of bad debts and not provision as erroneously noted by AO, clause (c) or (i) of Explanation (1) to sub-section (2) of section 115JB of the Act will not be attracted. For that legal proposition we rely on the ratio of the decision of this Tribunal in DCIT Vs. The Peerless General Finance & Investments Co. Ltd., ITA No. 50/Kol/2009 for AY 2002-03 dated 03.12.2020 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ause (i) of Explanation (1) of section 115JB of the Act is attracted. However, the assessee's case is that though these two items have been shown as provision "it is not a provision but it is actual write off", therefore, clause (i) of Explanation (1) to sub-section (2) of section 115JB of the Act is not applicable and for urging so, the assessee has relied on the decision of the Hon'ble Gujarat High Court in the case of Vodafore Essar Gujarat Ltd. (supra) wherein the Hon'ble High Court while deciding a similar issue had held as under: "13. Thus, the Supreme Court in case of HCL Comnet Systems & Services Ltd. (supra) held that clause (c) of the explanation would apply to the debt payable by the assessee. In such a case, if the amount is set aside as a provision and provision is made for meeting a liability other than ascertained liability, clause (c) would come into force and such provision would be added in computation of book profit for the purpose of 115JA of the Act. This clause, however, would not cover a provision made for a debt which is receivable by the assessee. It was observed that the provision for bad and doubtful debts which is made to cover up probable diminution i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... side of its balance sheet to the extent of the provision for bad debt, would be sufficient to constitute a write-off. In this context, the Supreme Court considered the issue as to the manner in which the actual write off takes place under the accounting principle. It was noticed that prior to 1.4.1989 amendment in section 36(1)(vii), even the provision for the bad debt could be treated as write off. After 1.41989 however, a mere provision for bad debt would not be entitled to deduction under section 36(1)(vii) of the Act. In context of such statutory change, the Supreme Court referred to the decision in case of Southern Technologies Ltd. Vs. Jt. CIT (2010) 320 ITR 577/187 Taxman 346, in which the following observations were made: "Prior to April, 1, 1989, the law, as it then stood, took the view that even in cases in which the assessee(s) makes only a provision in its accounts for bad debts and interest thereon and even though the amount is not actually written off by debiting the profit and loss account of the assessee and crediting the amount to the account of the debtor, the assessee was still entitled to deduction under section 36(1)(vii). (See CIT V. Jawala Prasad Tiwari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it and Loss Account would constitute a provision for bad and doubtful debt, it would not constitute actual write off and that was the very reason why the Explanation stood inserted. According to him, prior to Finance Act, 2001, many assessees used to take the benefit of deduction under Section 36(1)(vii) of 1961 Act by merely debiting the impugned bad debt to the Profit and Loss Account and, therefore, the Parliament stepped in by way of Explanation to say that mere reduction of profits by debiting the amount to the Profit and Loss Account per se would not constitute actual write off. To this extent, we agree with the contentions of Shri Bhattacharya. However, as stated by the Tribunal, in the present case, besides debiting the Profit and Loss Account and creating a provision for bad and doubtful debt, - the assessee-Bank. had correspondingly /simultaneously obliterated the said provision from it's accounts by reducing the corresponding amount from Loans and Advances/debtors on the asset side of the Balance Sheet and. end of the year, the figure in the loans and advances or the debtors on the asset side of the Balance Sheet was shown as net of the provision "for impugned bad de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt in case of Southern Technologies Ltd. (supra) and Vijaya Bank (supra) thus bring out a clear distinction between a case where the assessee may make a provision for doubtful debt and a case where the assessee after creating such a provision for bad and doubtful debt by debiting in Profit and Loss account also simultaneously removes such provision from its account by reducing the corresponding amount from the loans and advances on the asset aside of the balance sheet. The later would be an instance of write- off and not a mere provision. 21. Karnataka High Court in case of Yokogawa India Ltd. (supra) applying such principle found that case on hand was one of a debt which was an amount receivable by the assessee and not any liability payable by the assessee and observed that clause (c) of the explanation to section 115JA/115JB, would not apply. In context of applicability of clause (i) to the explanation, relying on the decision of Supreme Court in case of Vijaya Bank (supra), the Court observed that there is a dichotomy between actual write off and provision for bad and doubtful debt. A mere debit to the Profit and Loss account would constitute a bad and doubtful debt but it wou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hemicals Corpn. Ltd. (supra), fell in the later category. 24. Viewed from this angle and subject to the observations and clarifications made above, in our view, there is no conflict between the two judgments and both operate in different fields. Reference is answered accordingly." 8. We note that in the above judgment, the Hon'ble High Court has considered the following judgments: i. CIT v. Deepak Nitrite Ltd. [Tax Appeal o. 1918 of 2009, dated 17-8-2011] (para 4) ii. CIT v. HCL Comnet Systems & Services Ltd. (2008) 305 ITR 409/174 Taxman 118 (SC) iii. CIT v. Indian Petrochemicals Corpn. Ltd. [2016] 74 taxmann.com 163 (Guj.) (para 4), iv. CIT v. Yokogawa India Ltd. [2012] 17 taxmann.com 151204 Taxman 305 (Kar.) (para 4), v. CIT v. Kirloskar Systems Ltd. [2013] 40 taxmann.com 124/[2014] 220 Taxman 1 CKar.) (para 4), vi. Vijaya Bank v. CIT [2010] 323 ITR 166/190 Taxman 257 (SC) (para 4), vii. CIT v. ILPEA Paramount (P.) Ltd. [2010] 192 Taxman 65/[2011] 336 ITR 54 (Delhi) (para 15) and viii. Southern Technologies Ltd. v. Jt. CIT [2010] 320 ITR 577/187 Taxman 346 (SC) (para 16). 9. We note that after considering the aforesaid judgments rendered in the above ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... panies vi) Investment in debentures vii) Investments in PSU Bonds viii) Investments in Government Securities Less: provision for Diminution in value of investments Rupees in Million Rs. 13375075064.56 Rs. 4448034179.70 Rs. 376614266.17 Rs. 222506969.00 Rs. 2678873378.26 Rs. 3555071423.29 Rs. 28465712148.14 Rs. 18096837590.63 Rs. 71218723999,75 Rs. 2111824110.95 Rs. 69106899888.80 Rs. 69106.90 11. Thus we note from a perusal of page 34 of paper book that Rs. 298.16 million which was the amount shown as provision for diminution in the value of investment for the current year AY 2002-03 (FY 2001-02) was debited to the Profit & Loss Account. Further, we note that provision for diminution in the value of Investments has been written back during the year which amounts to Rs. 312.08 million. This amount it can be seen from a perusal of page 2 of the paper book that it has been credited in the Profit and Loss A/c under the head 'Miscellaneous Income'. Moreover, our attention was drawn to page 26 of paper book, which is the Schedule - 9 of the Audited Accounts wherein Point No.13(f) we note it has been clearly mentioned that Miscellaneous Income include 'Provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted Provision for non- performing assets amounting to Rs. 2620.53 million, the closing balance of Loans and Advances was arrived at Rs. 5576.16 million. 14. And thereafter, the Ld. AR drew our attention to page 36 of the paper book schedule 7 which shows current assets, loans and advances and pages 6 and 7 of the written statement which is reproduced as under: Non-performing asset (bad debt). The opening provision of Rs. 2564.11 as on 01.04.2011 million was arrived at as under: Opening Balance as on 01.04.2001 (refer Schedule-7 of the Audited Accounts, page 36 of the paper book) Rs. In Million Rs. In million i) Loan to State Govt./Govt. Company, Undertaking dept. etc. ii) Loan secured against Mortgage/hypothecation of properties 2.98 Shares/Vehicles (incl. subsidiaries) 1144.65 iii)Unsecured loan to Field Force & others against Personal guarantee 3.83 iv) Loan to Certificate holders 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 Deposi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 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'ble Gujarat High Court in the case of Vodafone Essar (supra) since the Assets side of the Balance Sheet has also been accordingly reduced in the present case of the assessee. Thus, we note that the accumulated closing provision of Rs. 2620.53 million was reduced from the current assets, loans and advances which are evident from page 36 of the paper book, which we find to be correct. Thus, the said provision of Rs. 195.76 million was an actual ..... X X X X Extracts X X X X X X X X Extracts X X X X
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