TaxTMI 
TaxTMI 
TaxTMI 
2011 (9) TMI 756
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....annual accounts of the assessee in Schedule II under the head "Reserve and Surplus". Thus the position of the special reserve account in the books of the assessee stood as under: Rs. in lakhs Balance as on 01.04.1995 26,963.00 Reserve created during the year 12,906.18 Transferred to bad & doubtful debts 5,000.00 Balance as on 31.3.1996 34,869.18 2. The sum of Rs.12,906.18 lacs added by the assessee to special reserve has been debited by the assessee by way of appropriation of profit as per Profit & Loss Account. In the computation of income chargeable to tax, this amount was claimed as deduction under Section 36(1)(viii) of the Act. 3. As to the "provision for bad and doubtful loans" account to which the sum of Rs.50 Crores has been transferred by the assessee from special reserve account, the assessee had an opening balance of Rs.25,012.14 lacs. The assessee credited thereto not only the sum of Rs.50 Crores transferred from special reserve account, but also the sum of Rs.570 lacs provided for under the provisions of Section 36(1)(viia)(c) by way of an expenditure debited to Profit & Loss Account. The aggregate sum of Rs.30,582.14 lacs as at the end of the year on 3....
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....l before the Commissioner of Income Tax (Appeals). The CIT(A) held that the deduction on account of bad debts written off had to be reduced to the extent of - (a) The amount of Rs.5000 lacs withdrawn from special reserve and credited to the profit and loss account. (b) Amount of Rs.570 lacs being provision for bad and doubtful debts claimed deduction under Section 36(1)(viia)(c) of the Act. 6. According to the CIT(A), if the deduction for bad debts was not to be reduced to the extent of the aforesaid amounts, the assessee would have enjoyed double deduction which, according to the CIT(A) is contrary to the provisions of law. The CIT(A), however, held that "in absence of specific provisions enabling the AO in this regard, the benefits claimed or granted, even if erroneously as per the interpretation of Section 36(1)(vii) pertaining to the earlier years could not have been withdrawn during the current assessment year. Therefore, insofar as denying the benefit of writing off of the bad debts to the extent of reserves withdrawn in the earlier years and the deductions claimed under Section 36(1)(viia)(c), is not as per law and cannot be supported. Nothing, howeve....
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....e (viia) applies, the amount of deduction under Section 36(1)(vii) shall be limited to the amount by which bad debt or any part thereof exceeds the credit balance in the provision made under Section 36(1)(viia). Similarly the provisions of Section 36(2)(v) provide that in the case of an assessee to which provisions of Section 36(1)(viia) apply, no deduction shall be allowed on account of bad debt or part thereof unless the assessee has debited the amount of such debt or part of debtin that previous year to the provision for bad and doubtful loan account made under Clause (viia) of Sub-section (1) of Section 46. We further find that the learned CIT(A) has erred in restricting the addition made by the Assessing Officer on this count to the amount of Rs. 570 lakhs only. During the course of assessment proceedings the learned Assessing Officer found that the assessee had created provision under Section 36(1)(viia)(c) in different assessment years in the following manner:- Assessment year 1992-93 4,94,63,176 Assessment year 1993-94 4,97,58,313 Assessment year 1994-95 6,35,18,063 Assessment year 1995-96 12,34,54,934 Assessment year 1996-97 5,70,00,000 Total 34,31,90,547 We find t....
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....refore, the bad debts written off will be reduced by the amount of Rs.5.70 crores if not already done. To this extent the AO's action is upheld." 11. CIT (A) thereafter took up the issue of transferring of an amount of Rs.129 Cores to be special reserve and then withdrawing an amount of Rs.50 Crores and while affirming the disallowance of Rs.50 Crores, the CIT (A) restricted the bad debts claim to Rs.50 Crores to Rs.5.70 Crores in the following manner: "9.9 In view of the above discussion a disallowance of Rs.50.00 crores out of the withdrawal made from the reserve is upheld. In the final result the disallowance out of the bad debt and the claimed u/s 36(1)(viii) will be restricted to Rs.5.7 crores plus Rs.50.00 crores. The remaining disallowance would stand deleted." 12. On the aforesaid facts, plea of Mr. Vohra is that the Revenue had accepted the order without challenging the appeal and it is the assessee which had filed the appeal. In these circumstances, the Revenue could not have tinkered with the order of the CIT (A), which was in favour of the assessee and which was accepted by the Revenue as well. He, thus, argued that the discussion contained in Pa....