2017 (11) TMI 1304 - HC - Income Tax

Tax Appeal Upheld: Bad Debts & Dividend Income Decision

The Commissioner of Income Tax And Another Versus Muzaffarnagar District Co-Operative Bank Ltd.

The Commissioner of Income Tax And Another Versus Muzaffarnagar District Co-Operative Bank Ltd. - TMI Issues:1. Disallowance of bad debts claimed by the assessee.2. Taxation of dividend income of the assessee.Analysis:Issue 1: Disallowance of Bad DebtsThe appeal was filed against the order of the Income Tax Appellate Tribunal regarding the disallowance of bad debts claimed by the assessee. The Assessing Authority disallowed the provision for bad debts under Section 36(1)(vii) of the Income Tax Act, 1961. However, the first appellate authority allowed the appeal, stating that as a District Cooperative Bank making advances in rural areas, the assessee was entitled to the allowance on account of 'provision' of bad debts without actually writing off such debts. The Tribunal also upheld this decision, citing the provisions of Section 36(1)(viia), which do not require the debt to be written off for the allowance to be claimed. The Supreme Court's decision in a similar case supported this interpretation, clarifying that making a provision for bad debts may be allowable without insisting on an actual write-off. Therefore, the Tribunal's decision was upheld, and the appeal lacked merit.Issue 2: Taxation of Dividend IncomeThe second issue concerned the taxation of dividend income of the assessee. The Tribunal did not allow the claim of the assessee but settled the principle to be applied. The department acknowledged that the source of income of Rs. 20,03,000 was dividend income received by the assessee, which was exempted. The Court referred to a previous case where it was held that the department should not take advantage of the assessee's ignorance, and the unclaimed exemption did not make the receipt taxable. Therefore, the Tribunal's decision was upheld, and it was noted that the Assessing Officer could have examined the correct aspect and granted the benefit if the amount was not taxable. The assessee's right to raise the claim before the first appellate authority was also recognized, and the department was required to verify the correctness of the claim and grant the benefit if found valid. Consequently, the second question was answered in favor of the assessee, and the appeal was dismissed with no costs awarded.