TMI Blog2003 (11) TMI 286X X X X Extracts X X X X X X X X Extracts X X X X ..... made provisions for bad debts amounting to Rs. 75,37,058 in addition to the opening balance in that account to the tune of Rs. 54,67,094. The Assessing Officer, during the scrutiny assessment proceedings, held that the admissible deduction under section 36(1)(viia)(b) works out to Rs. 40,48,390, being 5% of adjusted total income assessable to tax, and he further held that the aforesaid amount of R;. 40,48,390 is also to be taken into account for computation of deduction under section 36(1)(vi). In other words, the Assessing Officer held that the deduction in respect of provision for bad debts is to be restricted to the amount in excess of aggregate of (a) opening balance in provision for bad debts made under section 36(1)(viia)(b); plus (b) further provision under that section held to be admissible for the year. The assessee's claim that provision under section 36(1)(viia)(b) held to be allowable for the year is not to be taken into account for computation of deduction under section 36(1)(vi) was, thus, declined. Aggrieved, assessee carried the matter in appeal before the CIT(A) but without any success. While rejecting the assessee's appeal, the CIT(A), inter alia, observed as fol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peal before us. 4. We have conscientiously heard the rival contentions, carefully perused the orders of the authorities below, and duly considered the applicable legal position as also factual matrix of the case. 5. We consider it useful to reproduce the relevant legal provisions before proceeding to address ourselves to the core issue in this appeal. The relevant provisions are as follows: Section: 36 (1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28- (vii) Subject to the provisions of sub-section (2), the amount of any bad debt or part thereof which is written off as irrecoverable in the accounts of the assessee for the previous year: Provided that in the case of an assessee to which clause (viia) applies, the amount of the deduction relating to any such debt or part thereof shall be limited to the amount by which such debt or part thereof exceeds the credit balance in the provision for bad and doubtful debts account made under that clause; (viia)(b) in respect of any provision for bad and doubtful debts made by- (a) [Not relevant for our purpose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion can only be quantified after computing the taxable business income of the assessee, though before making any deduction under section 36(1)(viia)(b) itself. This process of determining the taxable business profits necessarily takes into account all other deductions under section 36, including, inter alia, deduction admissible under section 36(1)(vi). In other words, deduction under section 36(1)(vi) is required to be computed and allowed before computation of deduction of section 36(1)(viia). Therefore, at the stage of computing admissible deduction under section 36(1)(vi), admissible deduction under section 36(1)(viia)(b) cannot be worked out. In this view of the matter, in our considered view, the scheme of the Act does not visualize taking into account admissible provision under section 36(1)(viia)(b) for the current previous year, for the purpose of computing deduction under section 36(1)(vi) of the Act. The computations made by the Assessing Officer in the impugned order show that deduction allowed under section 36(1)(viia) is Rs. 40,48,390 and net business income is Rs. 6,41,77,764, but then the deduction under section 36(1)(viia) does not work out to 5% of the profits be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of loan and advances made at the end of the year. The above observation has been made in the context of section 36(1)(vii) and state that the provision under that section can only be made in respect of a bad and doubtful debt which is outstanding at the beginning or end of the relevant previous year. There is no dispute about the fact that even a debt at the end of the year can be subject-matter of provision under section 36(1)(vii), and it need not be confined to the debt outstanding at the beginning of the year. It is noteworthy that the reference is for the debts not the provision at the end of the year. There is no suggestion, however, that for the purpose of computing shortfall of provision for the purpose of section 36(1)(vii), it is open to the Assessing Officer to take into account balance of provision created under section 36(1)(viia)(b) at the end of the relevant year. The above observations made by the Hon'ble Rajasthan High Court, therefore, do not come in our way in taking the stand that we have taken in the preceding paragraph. 8. We now come to another plea strenuously argued by the learned Departmental Representative, and that is with regard to the proposition tha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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