TaxTMI 
TaxTMI 
TaxTMI 
2019 (9) TMI 994
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....nting disallowance of bad debt under proviso to section 36(1)(vii)." iii.* ' "Whether on facts and in the circumstances of the case and in Law, the Ld. CIT(A) was justified in allowing deduction of Rs. 3,26,86,648/- on account of gratuity payment made after close of the previous year when the said gratuity amount was not debited to P&L AI c of the previous year and therefore could have only been allowed deduction on payment basis in the subsequent Assessment Year." 2. Brief facts of the case are that the assessee is a Multi-state Scheduled Co-op. Bank, filed its return of income for Assessment Year 2011-12 on 29.09.2011 declaring loss at Rs. 4,18,452/-. The return of income was revised on 07.10.2011, declaring Nil income. The Assessing Officer while passed the assessment order besides the other disallowances disallowed bad-debts written off Rs. 7,79,92,836/- and gratuity payment of Rs. 3,26,86,648/- On appeal before the ld. CIT(A), both the disallowances//additions were deleted. Therefore, aggrieved by the order of ld. CIT(A), the revenue has filed the present appeal before us. 3. We have heard the submission of ld. Departmental Representative (DR) for the revenue and ld. A....
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....he deduction relating to any such debt or part thereof shall be limited to the amount by which such debt or part thereof exceeds the credit balance in the provision for bad and doubtful debts account made under that clause]" 6. Section 36(1)(vii) of the Act allows deduction in respect of any bad debt or part thereof, which is written off as irrecoverable in the accounts of the assessee during the previous year. The deduction is only subject to the provision of Section 36(2). Section 36(1)(viia)(a) of the Act allows deduction in respect of provision made for bad and doubtful debts in relation to rural advances up to the specified limit. 7. The Assessing Officer disallowed the claim of bad-debt by taking view that entire liability worked out by the assessee. The assessee has not clarified the issue but merely claimed that entire amount has been paid in April 2011. The submission of assessee was not repudiated by assessing officer in express manner. Before the ld. CIT(A), the assessee furnished written submission dated 16.10.2014 explaining the bad-debt written off of Rs. 1.13 crore in respect of 47 borrowed accounts as well as in respect of amount of Rs. 6.66 Crore advanced to Madh....
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....clarified that such a reserve has not been created by way of any deduction claimed under the Income-tax Act. Since the Reserve for Bad & Doubtful Debts. A/c does not include any amounts, which were claimed 'as deductions under the Income-tax Act, any write off of the Bad Debts have to be allowed as a deduction u/s. 36(1)(vii) of the Act, independent of the credit balance in the Reserve for Bad & Doubtful Debts A/c. I find that the explanation offered by the appellant adequately support the allowability of the claim u/s. 36(1)(vii) of the Act. and accordingly the addition is hereby deleted." Write off of individual accounts of 47 debtors, aggregating to Rs. 1,13,40,191/- 3.7. The AO has not examined and discussed this issue at all in the assessment order. He has merely included this amount as a part of the 'total disallowance of Bad Debts. DECISION: 3.8. It is evident from the written submissions and paper book-filed during the appellate proceedings that the appellant had filed a detailed reply with enclosures before the AO on 30.08.2013 so as to explain the admissibility of the claim of Bad Debts written off. It is seen from the paper book that the appellant had sub....
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....debtors accounts. It is seen from the Item no. 5 of the Notes on Accounts that the appellant had explained the methodology of write off. On the facts and in the circumstances of the case, I hereby hold that the write off of Bad Debts, as per the methodology followed by the appellant, also qualifies for a deduction u/s. 36(l)(vii) of the Act, Accordingly the disallowance is hereby deleted." 9. The Hon'ble Supreme Court in Catholic Syrian Bank Ltd. vs. CIT (supra) held that the language of Section 36(1)(vii) of the Act is unambiguous and does not admit of two interpretations. It applies to all banks, commercial or rural, scheduled or unscheduled. It gives a benefit to the assessee to claim a deduction on any bad debt or part thereof, which is written off as irrecoverable in the accounts of the assessee for the previous year. This benefit is subject only to Section 36(2) of the Act. It is obligatory upon the assessee to prove to the assessing officer that the case satisfies the ingredients of Section 36(1)(vii) on the one hand and that it satisfies the requirements stated in Section 36(2) of the Act on the other. The proviso to Section 36(1)(vii) does not, in absolute terms, control ....
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....emaining amount of Rs. 3.26 crore in the computation of income. In the notes to the audit report, the assesse mentioned that due to enhancement of gratuity limit from Rs. 3.50 lakhs to Rs. 10 lakhs following the amendment to the Payment of Gratuity Act, 1972, the gratuity liability as per actuarial valuation of book is Rs. 447.42 lakhs. However, as per RBI Circular dated 24.05.2011, bank has been allowed to bank gratuity liability over a period of five years in five equal installments starting from year ending 31.03.2011. Accordingly, the bank has provided Rs. 81,71,662/- towards gratuity liability being first installment of amortization and balance of Rs. 3.26 crore is shown under the head "Bank Revenue Expenditure" under the head "Other Assets". The Assessing Officer correctly treated the as Bank Expenses. 12. On the other hand, the ld. AR of the assessee supported the order of ld. CIT(A). The ld. AR of the assessee further submits that the Assessing Officer without appreciating the fact disallowed the claim of gratuity. The entire payment is allowable as deduction in the relevant previous year in which it was paid. In support of his submission, the ld. AR of the assessee relied....