TaxTMI 
TaxTMI 
TaxTMI 
2019 (10) TMI 468
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....e-tax Appellate Tribunal [ITAT] dated 29 April 2016, was erroneous and prejudicial to the interest of the Revenue. 2. The Ld. PCIT erred in not appreciating that the provisions of section 263 cannot be invoked in the present case as the AO has made adequate enquiries and verification in relation to the claim for deduction under section 36(1)(vii). Without prejudice, the Ld. PCIT erred in not appreciating that no proceedings can be initiated u/s 263 in case of an inadequate enquiry. 3. The Ld. PCIT erred in not appreciating that when two views are possible and the AO has adopted one of the views, the power of revision u/s 263 cannot be exercised. 4. The Ld. PCIT erred in not appreciating that where the AO decides an issue by following the judgement of the Supreme Court, no proceedings can be initiated u/s 263. 5. The Ld. PCIT erred in directing the AO to allow the deduction u/s 36(1)(vii) after obtaining the required details, and only the amount by which bad debts written off exceeds the credit balance in the provision for bad and doubtful debts account made u/s 36(1)(viia) subject to the debit of bad debts to provision account in accordance with section 36(2)(v). 6. The L....
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....(SC), CIT v Tainwala Chemicals & Plastics India Ltd 34 taxmann.com 159(Bombay High Court), CIT v Vodafone Essar Gujarat ltd 85 taxmann.com 32 (Gujarat High Court), CIT v. Newanagar Co-operative Bank Ltd. 54 taxmann.com 28 (Gujarat High Court), CIT v. Amrutanjan Finance Ltd 15 taxmann.com 392 (Madras High Court), KEC International Ltd. v. DCIT 33 taxmann.com 243 (Mumbai ITAT), Arrow Coated Products Ltd. v. ACIT 22 taxmann.com 31 (Mumbai ITAT), JCIT v. Dena Bank 20 taxmann.com 278 (Mumbai ITAT). It was also submitted before the Pr. CIT that section 36(2)(v) only applies in respect of debt or part of debt in relation to advances made by an assessee to which clause 36(1)(viia) applies and in the present case, the assessee has not made any claim u/s 36(1)(viia) and hence provisions of section 36(2)(v) are not applicable. It was further explained to the Pr. CIT that the intention of introduction of section 36(2)(v) and first proviso to section 36(1)(vii) was only to check that no double deduction is claimed by the assessee, in case a deduction is already claimed u/s 36(1)(viia). In other words, it was stated that when a deduction is claimed once u/s 36(1)(viia) at the time of provision,....
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.... the Pr. CIT held that the AO was required to allow deduction under clause (vii) of section 36(1) after obtaining the required details and only the amount by which bad debts written off exceeds the credit balance in the provision for bad and doubtful debt accounts made under clause (viia). Further, he observed from the records that the assessee had neither furnished the aforesaid details nor furnished the computation of deduction under clause (vii) in accordance with the proviso to that clause and therefore, the allowance of deduction under clause (vii) without obtaining the requisite details and without computing the eligible amount of deduction in accordance with the proviso to clause (vii) and clause (v) of section 36(2) has rendered the order passed by the AO erroneous and prejudicial to the interest of revenue. In response to the submission of the assessee regarding applicability of section 263 of the Act, the Pr. CIT observed that as per clause (a) to Explanation to section 263 (amended by Finance Act, 2015 w.e.f. 01.06.2015), an order passed by the AO shall be deemed to be erroneous in so far as it is prejudicial to the interests of revenue, if the order is passed without m....
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....e AO allowed a deduction of Rs. 706,29,84,022/- u/s 36(1)(viia) of the Act. In the computation of the assessment order, the AO started with the net profit as per the return of income, meaning thereby, the profits as already increased by the amount of provision for bad and doubtful debts of Rs. 833,30,47,694/- and therefore, it is explained that at that stage, the assessee was allowed deduction u/s 36(1)(viia) of the Act and no deduction was claimed or allowed u/s 36(1)(vii) of the Act. It is further stated that in the return of income for AY 2011-12, relying on the decision in Vijaya Bank (supra), delivered on 25.04.2010, the assessee claimed deduction for the entire amount of provision towards bad and doubtful debts as write off of bad debts in terms of section 36(1)(vii) of the Act and consequently, no deduction was claimed u/s 36(1)(viia) of the Act. It is explained that the said position was accepted by the AO in the assessment order passed for AY 2011-12. Similar claims made by the assessee for AYs 2012-13 to 2015-16 were accepted by the AO in the assessment orders passed for the respective years. Further, it is stated by the Ld. counsels that since in the case of Vijaya Ba....
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....2014-15 and the order giving effect to the Tribunal's order passed by him for AY 1996-97, he allowed a deduction for the entire amount of provision towards bad and doubtful debts of Rs. 833,30,47,694/- as a write off of bad debts u/s 36(1)(vii) of the Act. Consequently, he withdrew the deduction of Rs. 706,29,84,022/- as earlier allowed by him u/s 36(1)(viia) of the Act. The Ld. counsels submit that the Pr. CIT, without any basis has held that the compliance of the condition in section 36(2)(v) of the Act has not been fulfilled and the assessee has been allowed an excess deduction of Rs. 127,00,63,672/-. It is argued that the Pr. CIT failed to appreciate that the amount of Rs. 706,29,84,022/- has not been allowed as a deduction u/s 36(1)(viia) of the Act and therefore, such amount could not be reduced as per the first proviso below section 36(1)(vii) and section 36(2)(v) of the Act. Further, it is explained that in any event, assuming without admitting the deduction u/s 36(1)(viia) of the Act had been allowed in respect of Rs. 706,29,84,022/-, there was no bar in the Act for allowing a deduction of excess of the write off over provision as per the statutory provisions. The Ld. co....
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....he Act and in the said decision the scope and applicability of clause (viia) of section 36(1), clause (v) of section 36(2) and proviso to clause (vii) of section 36(1) have not been examined or considered. The Ld. DRs argue that the deduction on account of bad debt written off u/s 36(1)(vii) is limited to the amount by which such debt exceeds the credit balance in the provision for bad and doubtful debts account made under clause (viia). It is pointed out by them that clause (v) of section 36(2) provides that in case of assessee covered under clause (viia), no deduction shall be allowed unless the assessee has debited the amount to the provision for bad and doubtful debts account made under clause (viia). Thus it is stated that deduction on account of bad debts written off, as in the present case, should be allowed only when the assessee has debited the amount of such debts to the provision for bad and doubtful debts account u/s 36(1)(viia) of the Act, as required by section 36(2)(v) of the Act. Referring to the decision in Catholic Syrian Bank Ltd. (supra), the Ld. DRs argue that the case is covered under clause (viia), the proviso to clause (vii) of section 36(1) and clause (v) o....
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....part thereof exceeds the credit balance in the provision of bad and doubtful debts account made under that clause. Simultaneously, clause (v) was added to sub-section (2) of section 36 which provided that no deduction for bad debt shall be allowed unless the bank has debited the amount of such debt or part thereof in that previous year to the provision for bad and doubtful debts account made under clause (viia) of sub-section (1). We are of the considered view that the above provisions of the Act are applicable to the present case. At this juncture we turn to the case-laws infra. 6.1 In the case of Vijaya Bank (supra), for the AYs 1993-94 and 1994-95, the AO disallowed the amount which the assessee-bank had reduced from loans and advances or debtors on the ground that the impugned bad debts had not been written off in an appropriate manner as required under the accounting principles. According to him, write off of each and every individual account under the head 'loans and advances' or debtors was a condition precedent for claiming deduction u/s 36(1)(vii). On appeal, the CIT(A) held that it was not necessary for the purpose of writing off of bad debts to pass corresponding entri....
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....e (viia) applies are concerned, they are entitled to claim deduction of provision under sub-clause (viia ), but at the same time when bad debt written off is also claimed as deduction under clause (vii), the same will be allowed as a deduction only to the extent it is in excess of the provision created and allowed as a deduction under clause (viia). On appeal to the Supreme Court, the assessee contended that the view taken by the Full Bench of the Kerala High Court could not be sustained in law as there are distinct and different items of account that are maintained by the bank in the normal course of its business and it is not permissible to interchange these items in accordance with the settled standards of accountancy or even in law and, as such, the claim of doubtful and bad debts could not have been added back to taxable income as it was an additional liability of the bank being shown as an independent item. The Hon'ble Supreme Court held : "To conclude, the provisions of sections 36(1)(vii) and 36(1)(viia ) are distinct and independent items of deduction and operate in their respective fields. The bad debts written off in accounts, other than those for which the provisio....
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....ered on 25.04.2010, the assessee has claimed deduction for the entire amount of provision towards bad and doubtful debts as a write off of bad debts u/s 36(1)(vii) of the Act. Consequently, it did not claim deduction u/s 36(1)(viia) of the Act. The said provision was accepted by the AO in the assessment order passed by him for the AY 2011-12. Similar claims made by the assessee for AYs 2012-13 to 2015-16 were accepted by the AO in the assessment orders passed for the respective years. 6.5 The assessee filed an application before the AO requesting him to give effect to the Tribunal's order dated 29.04.2016 for the AY 1997-98. In the said letter, it gave detailed submission on why its case is covered by the principle laid down in Vijaya Bank (supra), which was followed by the AO in assessee's own case while passing the assessment order for AYs 2011-12 to 2014-15 and also for AY 1996-97. The AO passed an order allowing a deduction for the entire amount of provision towards bad and doubtful debts of Rs. 833,30,47,694/- as a write off of bad debts u/s 36(1)(vii) of the Act. 6.6 In CIT v. Max India Ltd., [2007] 295 ITR 282 (SC), the Hon'ble Supreme Court referring to its own decision ....