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TMI Blog2023 (6) TMI 520X X X X Extracts X X X X X X X X Extracts X X X X ..... iod of delay covered within the period specified in the order of the Apex Court, is excluded, then, there is no delay in filing appeal. 2.1 The learned AR, on the other hand, fairly agreed that delay may be condoned in the interest of justice. 2.2 Having heard both sides and considered reasons given by the learned DR, we find that the Hon'ble Supreme Court in Miscellaneous Petition No. 21 of 2022 in Suo Motu Writ Petition (C) No.3 of 2020, has extended limitation applicable to all proceedings in respect of courts and tribunals across the country on account of spread of Covid-19 infections w.e.f. 15.03.2020, and said general exemption has been extended from time to time up to 28.02.2022. We further noted that delay noticed by the Registry pertains to the period of general exemption provided by the Hon'ble Supreme Court extending limitation period applicable for all proceedings before Courts and Tribunals, 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 fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provision for bad debts in respect of amount receivables from M/s.VTX Industries Ltd., amounting to Rs. 5,66,98,830/- by debiting into P & L A/c and reducing the same from sundry debtor's account in the assets side of the balance sheet. The AO called upon the assessee to file necessary details, including reasons for claiming deduction for provision for bad debts. In response, the assessee submitted that it has made a provision for bad debts towards amount receivable from M/s.VTX Industries Ltd., because, the party was not paying the outstanding dues for many years. The assessee further submitted that the company filed a creditor's winding up petition under the Companies Act, against M/s.VTX Industries Ltd., and the Hon'ble Madras High Court passed an order of liquidation and also order of decree for recovery of proceedings. Even after the decree, the assessee perused the matter with the company, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the decision of the Hon'ble Court is reproduced below:- "According to the revenue, in view of the insertion of the Explanation in section 36(1)(vii) with effect from 1-4-1989, a mere debit of the impugned amount of bad debt to the profit and loss account would not amount to actual write off. According to it, the Explanation makes it very clear that there is a dichotomy between actual write off on the one hand and a provision for bad and doubtful debt on the other. It was submitted that a mere debit to the profit 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 the department, prior to the Finance Act, 2001, many assesses used to take the benefit of deduction u/s 36(1)(vii) by merely debiting the impugned bad debts to the profit and 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndividual 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 was due and payable, in which event the suit would be dismissed. 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 was written off by debiting profit and loss account and by crediting loans and advances or debtors accounts on the asset side of the balance sheet, then as and when in the subsequent years the borrower would repay the loan, the assessee would result in escapement of income from assessment. On the other hand, if bad debt was written off by closing the borrower's account individually, then the repaid amount in the subsequently years would 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evious year and the assessee obliges to prove to the AO that the case satisfy the ingredients of sec. 36(1)(vii) r.w.s.36(2) of the Act. In this case, there is no dispute with regard to fact that the assessee has made a mere provision in the books without actual write off of bad debts by crediting into debtor's account in the books of accounts of the assessee. The AO, after considering relevant facts has rightly disallowed the claim for bad debts. However, the Ld.CIT(A) by wrong appreciation of facts, followed the decision of the Hon'ble Supreme Court in the case of Vijaya Bank v. CIT (supra), and allowed relief to the assessee. 7. The Ld.Counsel for the assessee, supporting the order of the Ld.CIT(A) submitted that there is no dispute with regard to the fact that the debt receivable from M/s.VTX Industries Ltd., is bad and irrecoverable. Further, the Hon'ble Madras 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 sun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rest payable thereon. The assessee has made provision when the party did not make the payment even after the Hon'ble Madras High Court passed an order of liquidation and also order of decree for recovery of debt. It is also an admitted fact that the assessee has made only provision for bad debts by debiting to P & L A/c and reducing the same from the sundry debtor's account in the balance sheet without any actual write off bad debts by crediting to the party account in the books of accounts of the assessee. Further, as per provisions of Sec. 36(1)(vii) of the Act, any bad debt write off as irrecoverable in the accounts of the assessee, would not include any provision for bad debts made in the accounts of the assessee. In other words, w.e.f.01.04.1989, a mere provision for bad debts per se was not entitled for deduction u/s. 36(1)(vii) of the Act, and 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 debi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents in Southern Technologies (supra), and Catholic Syrian Bank (supra) spelt out the conditions subject to which an assessee could write off a bad and doubtful debt. Interestingly, Kapadia, C.J was a party to T.R.F and Catholic Syrian Bank; he in fact authored the judgment in Southern Technologies. Furthermore, Catholic Syrian Bank (supra) is by a bench of three judges, whereas the other decisions are by benches of two Judges. In the circumstances, this Court has to accord primacy to Southern Technologies (supra). 17. It is evident from the above rulings of this court, that: (i) The amount of any bad debt or part thereof has to be written-off as irrecoverable in the accounts of the assessee for the previous year; (ii) Such bad debt or part of it written-off as irrecoverable in the accounts of the assessee cannot include any provision 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not really mean any bad debt which, when it was a good debt, would not have come in to swell the profits." 17. A debt in such cases is an outstanding which if recovered would have swelled the profits. It is not money handed over to someone for purchasing a thing which that person has failed to return even though no purchase was made. In the section a debt means something more than a mere advance. It means something which is related to business or results from it. To be claimable as a bad or doubtful debt it must first be shown as a proper debt..." 19. In view of the above discussion, it is held that the assessee's claim for deduction of Rs. 10 crore as a bad and doubtful debt could not have been allowed. The findings of the ITAT and the High Court, to the contrary, are therefore, insubstantial and have 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 ..... 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