Tribunal Orders Recalculation of Deductions by Excluding Current Year Provision for Bad Debt, Directs Necessary Amendments.

The Tribunal allowed the appeal, directing the AO to recompute deductions under s. 36(1)(vi) without considering the provision for the current year under s. 36(1)(viia)(b). It rejected the AO's view of restricting the bad debt deduction by including current year's provision and instructed necessary amendments for deductions under s. 36(1)(viia)(b).

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Issues Involved:
1. Interpretation of the proviso to section 36(1)(vii) regarding the inclusion of 'credit balance in the provision for bad and doubtful debts made under clause (viia)'.
2. Computation of deduction under section 36(1)(vi) and section 36(1)(viia)(b).

Summary:

Issue 1: Interpretation of Proviso to Section 36(1)(vii)
The core issue was whether the 'credit balance in the provision for bad and doubtful debts made under clause (viia)' includes the provision for the relevant previous year held to be admissible u/s 36(1)(viia)(b). The Tribunal held that the deduction u/s 36(1)(vi) is supplemental and comes into play only when the provision for bad debts allowed u/s 36(1)(viia)(b) falls short of the actual bad debts written off as irrecoverable. The Tribunal rejected the Assessing Officer's view that the deduction for bad debts should be restricted by including the provision for the current year u/s 36(1)(viia)(b).

Issue 2: Computation of Deduction under Section 36(1)(vi) and Section 36(1)(viia)(b)
The Tribunal analyzed the legal provisions and concluded that the deduction u/s 36(1)(vi) should be computed without considering the admissible deduction u/s 36(1)(viia)(b) for the relevant previous year. The Tribunal noted that the scheme of the Act does not visualize taking into account the provision for the current year u/s 36(1)(viia)(b) while computing the deduction u/s 36(1)(vi). The Tribunal directed the Assessing Officer to allow the deduction u/s 36(1)(vi) without considering the provision for the current year u/s 36(1)(viia)(b) and to make consequential amendments in the deduction admissible u/s 36(1)(viia)(b).

Additional Observations:
The Tribunal also addressed the CIT(A)'s reliance on the judgment of the Hon'ble Punjab & Haryana High Court in the case of Nandlal Sohanlal v. CIT, stating that the view canvassed by the revenue was not correct or acceptable. The Tribunal further discussed the judgment of the Hon'ble Rajasthan High Court in CIT v. Bank of Rajasthan Ltd., clarifying that the observations made therein did not affect their decision.

Conclusion:
The Tribunal allowed the appeal, directing the Assessing Officer to recompute the deductions as per their observations and to make necessary amendments in the deductions admissible u/s 36(1)(viia)(b).

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