TMI Blog2023 (6) TMI 520X X X X Extracts X X X X X X X X Extracts X X X X ..... te off bad debts in the books of accounts of the assessee by crediting into respective debtors account. Therefore, in our considered view, the assessee did not satisfied the conditions prescribed u/s. 36(1)(vii) r.w.s. 36(2) of the Act, to claim deduction towards bad debts. Hon ble Supreme Court in the case of Southern Technologies Ltd. [ 2010 (1) TMI 5 - SUPREME COURT] very clearly held that write off of bad debts cannot include any provision for bad debts made in the accounts of the assessee. Thus the assessee is not entitled for deduction towards provision for bad and doubtful debts, because, the conditions prescribed u/s. 36(1)(vii) r.w.s.36(2) of the Act, are not satisfied. The Ld.CIT(A) without appreciating relevant facts deleted the additions made by the AO, and thus, we reversed the findings of the Ld.CIT(A) and sustained the additions made by the AO towards disallowance of provision for bad debts. Alternative arguments of the assessee in light of provisions of Sec. 28 - W e find that once any expenditure or allowance falls under particular provision of Income Tax Act, 1961, then, said expenditure/allowance cannot be considered under general provision of sec. 37 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and thus, considering facts and circumstances of the case, and also in the interest of natural justice, we condone delay in filing appeal filed by the Revenue. 3. The Revenue has raised the following grounds of appeal: 1. The order of the CIT(A) is opposed to law on the facts and in the circumstances of the case. 2. The CIT(A) erred in allowing the appeal of the assessee claiming deduction u/s 36(l)(vii) of the provision for bad and doubtful debts, ignoring the fact that deduction u/s. 36(1)(vii) is allowable for only the bad debts actually written off as irrecoverable from the books of the assessee. 3. The CIT(A) has erred in allowing the appeal of the assessee based on the decision of the Hon'ble Supreme Court in the case of Vijaya Bank reported in (2010) 323 ITR 166. Vijaya Bank is an entity eligible for deduction of provision for bad debts u/s 36(1)(viia). In view of the first proviso to sec. 36(1)(vii), there is a difference in the applicability of sec. 36(1)(vii) between the banking companies eligible for deduction u/s. 36(1)(viia) and other entities. 4. The CIT(A) failed to take cognizance of the fact that even in the relied case of Vijaya Bank, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany, but they did not pay any amount to the assessee. As amount had become bad debt, the assessee company debited the said amount to the P L A/c and reduced the same from the trade receivables shown in the balance sheet. In order to keep the balance receivables alive, the amount was directly not credited to debtor s account and in this regard, relied upon decision of the Hon ble Supreme Court in the case of Vijaya Bank v. CIT reported in [2010] 323 ITR 166 (SC). The AO, however, was not convinced with the explanation furnished by the assessee and according to the AO, the deduction is allowable only in a case where the assessee has write off bad debt by debiting to P L A/c and crediting to respective sundry debtor s account in the books of accounts of the assessee. Since, the assessee has made merely a provision for bad debts by debiting into P L A/c and reducing the same from sundry debtor s account in the balance sheet without actually crediting to respective debtor s account as required u/s. 36(1)(vii) r.w.s. 36(2) of the Income Tax Act, 1961 (in short the Act ), the claim of its case, cannot be allowed. Therefore, rejected the arguments of the assessee and disallowed c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loss account and, therefore, the parliament stepped in by way of the 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 that extent, the contentions of the revenue were to be accepted. However, as stated by the Tribunal, in the instant case, besides debiting the profit and loss account and creating a provision for bad and doubtful debt, the assessee-bank had corresponding amount form loans and advances/debtors on the asset side of the balance sheet and, consequently, at the end of the year, the figure in the loans and advances or the debtors on the assets side of the balance sheet was shown as net of the provision 'for impugned bad debt'. After the insertion of the Explanation the assessee(s) is now required not only to debit the profit and loss account but simultaneously, also to reduce 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 amount of loans and advances/debtors is shown as net of provisions for impugned bad debt. However, what was being insisted upon by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld be credited to the profit and loss account on which the assessee-bank would have to pay tax. Although, prima-facie, the argument of the department appeared to be valid, on a deeper consideration, it was not so for three reasons. Firstly, the head officer accounts clearly indicated in the instant case that on repayment in subsequent years, the amounts were duly offered for tax. Secondly, one has to keep in mind that, under the accounting practice, the accounts of the rural branches have to tally with the accounts of the head office. If the repaid amount in subsequent years would not be credited to the profit and loss account of the head office, which is ultimately what matters, then there would be a mismatch between the rural branch's accounts and the head office accounts. Lastly, in any event section 41(4), inter alia, lays down that, where a deduction has been allowed in respect of a bad debt or a part thereof under section 36(a)(vii), 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 be profits and gains of business and, accordingly, chargeable to income-tax as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dras High Court has passed an order for recovery of dues and also winding up of the company, which clearly proves that the amount receivable from said company is a bad and doubtful. The assessee had also write off the debt by debiting to provision for bad and doubtful debts account and reducing the same from outstanding sundry debtor s account in the balance sheet. The Ld.Counsel for the assessee further referring to the decision of the Hon ble Supreme Court in the case of Vijaya Bank v. CIT and also decision of ITAT Chennai in the case of M/s.Tamil Nadu Generation and Distribution Corporation Ltd. (supra), submitted that no doubt, the co-ordinate Bench had distinguished the Vijaya Bank case, while dealing with provision for bad debts and fact remains that in the case of M/s.Tamil Nadu Generation and Distribution Corporation Ltd., the assessee has made an adhoc provision for bad debts, whereas, in the present case, the assessee has identified the debt which is bad and irrecoverable and also reduced the same from the sundry debtor s balance in the balance sheet which tantamount to write off of bad debts. Therefore, the case of the assessee squarely covered by the decision of the Hon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this legal position is reiterated by the Hon ble Supreme Court in the case of Southern Technologies Ltd. v. JCIT reported in [2010] 320 ITR 571 (SC). Therefore, from the above, it is very clear that in order to claim deduction for any bad debts, such bad debts should be write off as irrecoverable in the accounts of the assessee by debiting into P L A/c and crediting into sundry debtor s account in the books of accounts of the assessee. In this case, the assessee has made a mere provision for bad debts without actual write off bad debts in the books of accounts of the assessee by crediting into respective debtors account. Therefore, in our considered view, the assessee did not satisfied the conditions prescribed u/s. 36(1)(vii) r.w.s. 36(2) of the Act, to claim deduction towards bad debts. 11. In so far as, the arguments of the Ld. Counsel for the assessee in light of the decision of the Hon ble Supreme Court in the case of Vijaya Bank v. CIT (supra), we find that the decision rendered by the Hon ble Supreme Court in the case of Vijaya Bank v. CIT (supra), is on unique facts, because, considering the nature of banking industry and accounting treatment given for provision for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion for bad and doubtful debts made in the accounts of the assessee; (iii) No deduction is allowable unless the debt or part of it has been taken into account in computing the income of the assessee of the previous year in which the amount of such debt or part thereof is written off or of an earlier previous year , or represents money lent in the ordinary course of the business of banking or money-lending which is carried on by the assessee; (iv) The assessee is obliged to prove to the AO that the case satisfies the ingredients of Section 36(1)(vii) as well as Section 36(2) of the Act. 18. In the present case, the record shows that the accounts of the assessee nowhere showed that the advance was made by it to M/s C. Bhansali Developers Pvt. Ltd. in the ordinary course of business. Its primary argument was that the amount of ₹ 10 crores was given for the purpose of purchasing constructed premises. However, the amount was written-off on 28.03.2009. As noted by the CIT(A), there was no material to substantiate this submission, in respect of payment of the amount, the time by which the constructed unit was to be given to it, the area agreed to be purchased, etc. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve to be set aside 12. In this view of the matter and considering the facts and circumstances of case, we are of the considered view that the assessee is not entitled for deduction towards provision for bad and doubtful debts, because, the conditions prescribed u/s. 36(1)(vii) r.w.s.36(2) of the Act, are not satisfied. The Ld.CIT(A) without appreciating relevant facts deleted the additions made by the AO, and thus, we reversed the findings of the Ld.CIT(A) and sustained the additions made by the AO towards disallowance of provision for bad debts. 13. In so far as alternative arguments of the assessee in light of provisions of Sec. 28 of the Act, we find that once any expenditure or allowance falls under particular provision of Income Tax Act, 1961, then, said expenditure/allowance cannot be considered under general provision of sec. 37(1) or 28 of the Act, for deduction. This principle is upheld by the Hon ble Supreme Court in the case of PCIT v. Khyati Realtors Pvt. Ltd. (supra), where, the issue has been dealt as under: 23. This court is of the opinion however, that in the facts of this case, the judgment in Southern Technologies (supra) on this issue (where the cl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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