2004 (5) TMI 12

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....laim for deduction of the provision for bad debts to Rs. 1,19,36,000 under section 36(1)(viia) has been upheld. The facts of the case are that in the return of income for the assessment year 1985-86, the assessee had claimed deduction of Rs. 1,94,21,000 under section 36(1) (viia) of the Act. The Assessing Officer observed that in the books of account pertaining to the relevant assessment year, the assessee had made a provision for bad debts at Rs. 1,19,36,000 only. He, therefore, restricted the allowance to Rs. 1,19,36,000 only and disallowed the balance amount. The disallowance was upheld by the Commissioner of Income-tax (Appeals) (for short the CIT(A)) in appeal vide order dated July 20, 1988. The assessee further preferred an appeal ....

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....is of the unamended section 36(1) (viia) of the Act. However, in view of the amendment of section 36(1)(viia) of the Act with effect from April 1, 1985, it filed a revised return on April 24, 1986, enhancing the claim for deduction from Rs. 1,19,36,000 to Rs. 1,94,21,000. Learned counsel explained that since the amendment in this section had been made after the finalisation of the balance-sheet for the assessment year 1985-86, the assessee could not have possibly made the higher provision in that balance-sheet and accordingly it made up the shortfall in the provision in the balance-sheet of the subsequent assessment year. Thus, according to him, there was substantial compliance with the requirement of law and accordingly the authorities bel....

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....t clause." This also clearly shows that making of provision equal to the amount claimed as deduction in the account books is necessary for claiming deduction under section 36(1) (viia) of the Act. The Tribunal has distinguished various authorities relied upon by the assessee wherein deductions had been allowed under various provisions which also required creation of reserve after the assessee had created such reserve in the account books before the completion of the assessment. It has been correctly pointed out that in all those cases, reserves/provisions had been made in the books of account of the same assessment year and not of the subsequent assessment year. In the present case, the assessee has not made any provision in the books....