2020 (5) TMI 141

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....8,02,810/-. On this, the Pr. CIT observed that the bad debts did not represent debts which had become irrecoverable or written off as bad debts in the accounts in the previous year. Further, the Pr. CIT found that in computing the total income, the assessee had added back Rs. 1,00,00,000/- and hence, he directed the Assessing Officer to examine the applicability of sec. 115BBE of the I.T. Act. Since these issues were not verified by the Assessing Officer, the Pr. CIT held the order passed u/s. 143(3) of the I.T. Act dated 22/12/2016 as erroneous and prejudicial to the interest of the Revenue and remitted the issue to the file of the Assessing Officer for re-examination of th above two issues. 3. The assessee is in appeal before us with regard to re-examination of bad debts allowed in the original assessment u/s. 36(1)(vii) of the I.T. Act. The Ld. AR submitted that the Principal Commissioner of Income Tax erred in exercising his powers under 263 since twin conditions stipulated in section 263 have not been fulfilled i.e., there should be an error in the assessment order passed u/s. 143(3) and also that the assessment should be prejudicial to the interest of revenue. In thi....

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....o need to close the account of individual account of debtor in the books of accounts which means that the provision for doubtful debts and the debt due under trade receivable can be carried forward in the books of accounts without being closed by mutual set off in the books of accounts. The Ld. AR relied on the relevant para in page 7 & 8 of the judgment of the Supreme Court in the case of Vijaya Bank Ltd. (supra) which reads as follows: " However, as stated by the Tribunal, in the present case, besides debiting the Profit and Loss Account and creating a provision for bad and doubtful debt, the assessee - Bank had correspondingly/simultaneously obliterated the said provision from it's accounts by reducing the corresponding amount from Loans and Advances/debtors on the asset side of the Balance Sheet and, consequently, at the end of the year, the figure in the loans and advances or the debtors on the asset side of the Balance Sheet was shown as net of the provision "for impugned bad debt". In the judgment of the Gujarat High Court in the case of Vithaldas H. Dhanjibhai Bardanwala [supra], a mere debit to the Profit and Loss Account was sufficient to constitute actual wr....

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....was submitted that the order of the Pr. CIT passed u/s. 263 of the Act may be set aside. 3.5 Further, the Ld. AR submitted that the issue regarding the claim on account of Rs. 1,00,00,000/- added back in the computation of income was examined by the assessing officer based on the direction of the Commissioner of Income-tax u/S.263 and has been found to be not warranting any modification in the order u/s. 143(3). The Ld. AR drew our attention to the order of the assessing officer giving effect to the order u/s. 263 of the I.T. Act dt. 28.06.2019 wherein in Para 3(iii) of the order of the assessing officer, the details of claim of Rs..1,00,00,000/- were given and the AO had noted that there was no debit of Rs.l,00,00,000/- in P&L account and also no such amount was added either in the computation of income part of return of income. Thus, according to the Ld. AR, the order u/s.263 passed by the Pr. CIT by on this ground was not based on any facts. 3.6 Regarding the claim for deduction of aggregating to Rs. 1,58,02,810/- towards provision for bad and doubtful debts/advances, the Ld. AR submitted that the admissibility of deduction of Rs. 1,20,99,633/- towards provision for bad....

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..... 263 cannot be invoked for change of opinion when the assessing officer had taken one of the possible view on the matter. The Ld. AR relied on the judgment of the Supreme Court in the case of CIT vs. Kwality Steel Suppliers Complex [2017] (84 taxmann.com 234) wherein it was held that where two views are possible and the Assessing Officer has taken one view, the Commissioner is not within his rights to revise the order u/s. 263 by substituting his view with that of assessing officer. On the above grounds, the Ld. AR submitted that the order of learned Pr. CIT passed u/s. 263 of the I.T. Act may be set aside as being not in accordance with the provision of the section read along with jurisdictional pronouncements as above. 4. The Ld. DR relied on the order of the Pr. CIT. The Ld. DR submitted that the Assessing Officer allowed deduction towards provision for bad and doubtful debts in the profit and loss account without writing off such debts in the individual accounts in the books of accounts of the assessee. Being so, the Ld. DR submitted that excessive deduction was given to the assessee which is erroneous and prejudicial to the interests of the Revenue. Hence, the CIT(A) was j....

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....nue. Being so, we do not find any infirmity in exercising power u/s. 263 of the I.T. Act by the Pr. CIT. 5.1 The main contention of the Ld. AR is that the Assessing Officer had duly verified the accounts of the assessee and allowed deduction and also there is no mandate to write off of bad debts by debiting to the P&L account so as to claim deduction u/s. 36(1)(vii) of the I.T. Act. The Ld. AR relied on the judgment of the Supreme Court in the case of Vijaya Bank Ltd. (323 ITR 166). We are unable to accept the proposition because profit and loss account is the final computation of profit made by the assessee based on which assessment is to be framed. Unless the bad debt is written off by debiting to the P&L account which necessarily means that the debtors' account should be credited or so much of the amount debited in the profit and loss account should be written off from the amount due from the debtors, the condition as contemplated u/s. 36(1)(vii) of the I.T. Act is not satisfied. Even though the assessee's Counsel contended that when bad debt is recovered, there is provision for assessment of the same u/s. 41 of the I.T. Act, we do not think that such a safety provision wi....

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....s. 36(2)(i)(b), assessee cannot claim any deduction for bad debts. "Irrecoverable" in s. 36(2)(i)(b) means the amount that is not recoverable. Assessee, in the P&L a/c, has made a provision for bad and doubtful debts. Such a provision will not fall within the meaning of s. 36(2)(i)(b). Doubtful debt had not been written off as bad debt. Consequently, the Tribunal is justified in holding that the claim of bad debt was not legally sustainable and allowable,-Travancore Tea Estates Co. Ltd. vs.CIT (1992) 102 CTR (Ker) 253 : (1992) 197 ITR 528 (Ker), Travancore Tea Estates Co. Ltd. vs. CIT (1999) 151 CTR (SC) 231 : (1998) 233 ITR 203 (SC) and CIT vs. Coates of India Ltd. (1998) ISO CTR (Cat) 311 : (1998) 232 ITR 324 (Cal) relied on." 5.3 In the case of CIT vs. Hotel Ambassador 253 ITR 430),the Jurisdictional High Court held as follows: "Writing off of bad debts, without charging the same in the P&L a/c is not a write off at all because assessment is made based on the audited accounts and the P&L a/c and balance sheet filed along with the returns. It is not enough if the assessee writes off the same in some of the books maintained by it, which do not form part of the audited ....