TaxTMI 
TaxTMI 
2010 (4) TMI 46
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....ugned bad debt supposedly written off by the assessee-Bank was a mere provision and the same could not be equated with the actual write off of the bad debt, as per the requirement of Section 36(1)(vii) of the Income Tax Act, 1961 ['1961 Act', for short] read with Explanation thereto which Explanation stood inserted in 1961 Act by Finance Act, 2001 with effect from 1st April, 1989. The assessee carried the matter in appeal before the Commissioner of Income Tax (A) ['CIT(A)', for short], who opined that it was not necessary for the purpose of writing off of bad debts to pass corresponding entries in the individual account of each and every debtor and that it would be sufficient if the debit entries are made in the Profit and Loss Account and corresponding credit is made in the "Bad Debt Reserve Account". Against the decision of CIT (A) on this point, the Department preferred an appeal to the Income Tax Appellate Tribunal ['Tribunal', for short]. Before the Tribunal, it was argued on behalf of the Department that write off of each and every individual account under the Head 'Loans and Advances' or Debtors was a condition precedent for claiming deduction under Section 36(1)(vii) of 196....
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....vances or Debtors depicted on the asset side in the Balance Sheet at the close of the year, the assessee was entitled to deduction under Section 36(1)(vii) of 1961 Act. This view was not accepted by the High Court which came to the conclusion by placing reliance on a relied upon judgement in the case of Commissioner of Income Tax & Anr. vs. M/s. Wipro Infotech Limited [See Page 5 of the Paper Book], that, in view of the insertion of the Explanation vide Finance Act, 2001, with effect from 1st April, 1989, the decision of the Gujarat High Court in the case of Vithaldas H. Dhanjibhai Bardanwala [supra] no more held the field and, consequently, mere creation of a provision did not amount to actual write off of bad debts, hence, these civil appeals. 5. At the outset, we may state that, in these civil appeals, broadly, two questions arise for determination. The first question which arises for determination concerns the manner in which actual write off takes place under the Accounting principles. The second question which arises for determination in these civil appeals is, whether it is imperative for the assessee-Bank to close the individual account of each debtor in it's Books or a ....
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....e entitled to deduction after April 1, 1989." 7. One point needs to be clarified. According to Shri Bishwajit Bhattacharya, learned Additional Solicitor General appearing for the Department, the view expressed by the Gujarat High Court in the case of Vithaldas H. Dhanjibhai Bardanwala [supra] was prior to the insertion of the Explanation vide Finance Act, 2001, with effect from 1st April, 1989, hence, that law is no more a good law. According to the learned counsel, in view of the insertion of the said Explanation in Section 36(1)(vii) with effect from 1st April, 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 him, 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. He 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 him, prior to Finance Act, 2001, many assesses used to take the benefit of deduction under....
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....the year-end in the balance-sheet is shown as net of the provisions for impugned debt. However, what is being insisted upon by the Assessing Officer is that mere reduction of the amount of loans and advances or the debtors at the year-end would not suffice and, in the interest of transparency, it would be desirable for the assessee-Bank to close each and every individual account of loans and advances or debtors as a pre-condition for claiming deduction under Section 36(1)(vii) of 1961 Act. This view has been taken by the Assessing Officer because the Assessing Officer apprehended that the assessee-Bank might be taking the benefit of deduction under Section 36(1)(vii) of 1961 Act, twice over. [See Order of CIT (A) at Pages 66, 67 and 72 of the Paper Book, which refers to the apprehensions of the Assessing Officer]. In this context, it may be noted that there is no finding of the Assessing Officer that the assessee had unauthorisedly claimed the benefit of deduction under Section 36(1)(vii), twice over. The Order of the Assessing Officer is based on an apprehension that, if the assessee fails to close each and every individual account of it's debtor, it may result in assessee claimin....