TMI Blog2022 (3) TMI 1188X X X X Extracts X X X X X X X X Extracts X X X X ..... s. Respectfully following the same we hold that assessee is eligible for deduction on account of provision for doubtful debts in the given facts and circumstances. It is for this reason that the assessee in the present case has written off the provision of doubtful debts in the profits and loss account and also has given effect in the balance sheet of the assessee. Thus to our understanding the principle laid down by the Hon ble S.C in the case Vijay Bank [ 2010 (4) TMI 46 - SUPREME COURT] cannot be denied for its application merely on the reasoning that the word provision for doubtful debts has been used by the assessee in its Financial Statements. Assessee has not written off the provision for doubtful debts in the individual ledger account of the sundry debtors for the reason that it will lose it right in the Civil proceedings for recovery of its dues from the sundry debtors. This argument of the Ld. A.R was not controverted by the Ld. DR for the assessee at the time of hearing. Accordingly, we hold that the assessee is entitled to the deduction for the provision of doubtful debts in the given facts and circumstances. - Decided in favour of assessee. - ITA Nos. 1725-1726/A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parties. Therefore, the same cannot be allowed as a deduction merely on the basis of the provision for doubtful debts and doubtful advances. 5. The Ld. CIT(A), also held that the principles laid down by the Hon ble SC in the case of Vijaya Bank (Supra) are different from the facts of the present case in as much as there was no provision made by the Vijya Bank in the case of bad debts. As such, the bad debts were actually written off in the books of accounts. 5.1 The Ld. CIT(A) also held that the principles laid down by the Jurisdictional High Court in the case of CIT vs. Vodafone Essar Gujarat Ltd in appeal No. 749 of 2012 are different as in that case the issue was related to the computation of book profit. In view of the above the Ld. CIT(A) confirmed the order of the AO. 6. Being aggrieved by the order of Ld. CIT(A), the assessee is in appeal before us. 7. The Ld. AR, before us filed a paper book running from pages 1 to 165 and contended that the amount of provision for bad debts and doubtful advances was actually debited in the profit and loss accounts which were also adjusted against the sundry debtors as well as advances. Therefore, the same needs to be allowed i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is eligible for deduction with respect to the provisions made against the debtors provided it were claimed in the profit and loss account as well as such provision was adjusted against the sundry debtors/ bad and doubtful debts as shown in the balance sheet. The question raised before the Hon ble Supreme Court in the case of Vijaya Bank (supra) which reads as under: The second question which arises for determination in these civil appeals is, whether it is 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 is sufficient? 15.2 The above question was answered by the Hon ble Supreme Court in the manner as detailed below: 8. Coming to the second question, we may reiterate that it is not in dispute that section 36(1)(vii) of 1961 Act applies both to Banking and Non-Banking businesses. The manner in which the write off is to be carried out has been explained hereinabove. It is important to note that the assessee-bank has not only been debiting the profit and loss account to the extent of the impugned bad deb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 55,69,760/- which was adjusted against the trade receivables as evident from the relevant schedule of the Balance Sheet of the assessee placed on page 34 of the paper book. 15.4 Besides this we also note that the tribunal in the own case of the assessee for the assessment year 2013-14 involving identical facts and circumstances has allowed the issue on hand in its favour in ITA No. 2521/AHD/2017 vide order dated 17.5.2019. The relevant extract is reproduced as under: 6. Heard the respective parties, perused the relevant materials available on record. It appears that the assessee has actually debited the provision of ₹ 5,23,625/- to Profit and Loss account in respect of such doubtful debts and the same was also reduced in the balance sheet from sundry debtors/trade receivable. It also appears from the records that the judgment passed by the Hon ble Supreme Court in the case of Vijaya Bank has been distinguished by the authorities below on the ground that said judgment relates to actual write off bad debts and not provision of bad debts. However, the judgment relied upon by the Learned AR has clearly laid down the ratio that mere debit to profit and loss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount to the account of the debtor, the assessee was still entitled to deduction under section 36(1)(vii). [See CIT v. Jwala Prasad Tiwari (1953) 24 ITR 537 (Bom.) and Vithaldas H. Dhanjibhai Bardanwala v. CIT (1981) 130 ITR 95 (Guj.)] Such state of law prevailed up to and including the assessment year 1988-89. However, by insertion (with effect from April 1, 1989) of a new Explanation in section 36(1)(vii), it has been clarified that any bad debt written off as irrecoverable in the account of the assessee will not include any provision for bad and doubtful debt made in the accounts of the assessee. The said amendment indicates that before April 1, 1989, even a provision could be treated as a write off. However, after April 1, 1989, a distinct dichotomy is brought in 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 constitu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 debt . In the judgement of the Gujarat High Court in the case of Vithaldas H. Dhanjibhai Bardanwala [supra], a mere debit to the Profit and Loss Account was sufficient to constitute actual write off whereas, after the Explanation, the assessee(s) is now required not only to debit the Profit and Loss Account but simultaneously also reduce loans and advances or the debtors from the asset side of the Balance Sheet to the extent of the corresponding amount so that, at the end of the year, the amount of loans and advances/debtors is shown as net of provisions for impugned bad debt. This aspect is lost sight of by the High Court in it's impugned 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y debtors amounts to actual write off and hence we are of the considered opinion to delete the addition made by the authorities below. We order accordingly. 15.5 At the time of hearing, the learned DAR drew our attention on the various orders of the Hon ble Courts and the Tribunal. But in our considered view those judgments are not applicable to the facts of the present case in the given circumstances. 15.6 In view of the above, we hold that the assessee is entitled to claim the deduction with respect to the provisions made by it against the trade receivables in the given facts and circumstances. Accordingly, we are not convinced with the finding of the authorities below and therefore the same deserves to be reversed. Thus we set aside the finding of the learned CIT (A) and direct the AO to delete the addition made by him. Hence the ground of appeal of the assessee is allowed. 9.2 From the above, we note that the ITAT in the case of Vidras India Ceramics (P.) Ltd (Supra) after considering and relying on the judgment of Hon ble SC in the case of Vijaya Bank (Supra) has granted relief to the assessee for the provision made with respect to doubtful debts. Respectfully fo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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