TaxTMI 
TaxTMI 
2019 (5) TMI 1884
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....of the case. 2. The learned CIT(A) has erred in confirming addition of provision for bad and doubtful debts of Rs. 5,23,625/- under Section 36(1)(vii) in as much as the assessee is covered by SC decision in the case of CIT vs. Vijya Bank 323 ITR 166 (SC)." 2. Ground No.1 : At the time of hearing of the instant appeal the Learned Counsel appearing for the assessee submitted before us that he does not want to proceed with this ground of appeal. Therefore, the same is dismissed as not pressed. 3. Ground No.2 : This ground of appeal relates to confirming addition of provision for bad and doubtful debts of Rs. 5,23,625/- u/s 36(1)(iii) of the Act. 4. The assessee engaged in the business of manufacturing and trading of ceramic tiles chemicals and trading of ceramic machine spares, filed its return of income on 29.11.2013 declaring total income at Rs. 19,68,48,120/- which was processed u/s 143(1) of the Act. Subsequently, notice u/s 143(2) under scrutiny dated 08.09.2014 followed by a notice u/s 143(2) r.w.s.129 and 142(1) dated 04.06.2015 was served upon the assessee. Further that, on 09.07.2015 a questionnaire was issued to the assessee along with note of information regarding the ....
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....contrary, the Learned DR relied upon the order passed by the authorities below. 6. Heard the respective parties, perused the relevant materials available on record. It appears that the assessee has actually debited the provision of Rs. 5,23,625/- to Profit and Loss account in respect of such doubtful debts and the same was also reduced in the balance sheet from sundry debtors/trade receivable. It also appears from the records that the judgment passed by the Hon'ble Supreme Court in the case of Vijaya Bank has been distinguished by the authorities below on the ground that said judgment relates to actual write off bad debts and not provision of bad debts. However, the judgment relied upon by the Learned AR has clearly laid down the ratio that mere debit to profit and loss account is not sufficient and simultaneously obliterating of provision from accounts by reduction from loans and advances or debtors on assets side of balance sheet amounts to writing off for grant of deduction. Moreso, disallowance for failure to close individual account of each debtors in account books is not justified. Further that, we have also carefully considered the judgment passed by the Hon'ble Jurisdict....
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....rified that any bad debt written off as irrecoverable in the account of the assessee will not include any provision for bad and doubtful debt made in the accounts of the assessee. The said amendment indicates that before April 1, 1989, even a provision could be treated as a write off. However, after April 1, 1989, a distinct dichotomy is brought in by way of the said Explanation to section 36(1) (vii). Consequently, after April 1, 1989, a mere provision for bad debt would not be entitled to deduction under Section 36(1)(vii). To understand the above dichotomy, one must understand `how to write off'. If an assessee debits an amount of doubtful debt to the profit and loss account and credits the asset account like sundry debtor's account, it would constitute a write off of an actual debt. However, if an assessee debits `provision for doubtful debt' to the profit and loss account and makes a corresponding credit to the `current liabilities and provisions' on the liabilities side of the balance-sheet, then it would constitute a provision for doubtful debt. In the latter case, the assessee would not be entitled to deduction after April 1, 1989." 17. The Supreme Court (....
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....to debit the Profit and Loss Account but simultaneously also reduce loans and advances or the debtors from the asset side of the Balance Sheet to the extent of the corresponding amount so that, at the end of the year, the amount of loans and advances/debtors is shown as net of provisions for impugned bad debt. This aspect is lost sight of by the High Court in it's impugned judgement. In the circumstances, we hold, on the first question, that the assessee was entitled to the benefit of deduction under Section 36(1)(vii) of 1961 Act as there was an actual write off by the assessee in it's Books, as indicated above." 18. It can thus be seen that in case of Southern Technologies Ltd. (supra), the Supreme Court explained that if an assessee debits an amount of doubtful debt to the Profit and Loss account and credits the asset account like sundry debtor's account, it would constitute a write-off of an actual debt. On the other hand, if an assessee debits provision for doubtful debt to the Profit and Loss account and makes a corresponding credit to the current liabilities and provisions on the liabilities side of the balance sheet, then it would constitute a provision for do....