TaxTMI 
TaxTMI 
2022 (3) TMI 1188
X X X X Extracts X X X X
X X X X Extracts X X X X
....ny and engaged in the business of selling, erection, installation and repairs & maintenance of elevators. The assessee in the year under consideration has claimed the deduction on account of provision for doubtful debts and doubtful advances amounting to Rs. 24,31,091/- and Rs. 2,15,496/- under the provision of 36(1)(vii) and section 37 of the Act. However, the AO was of the view that the assessee has just created the provision for doubtful debts and advances which cannot be allowed as a deduction. According to the AO, as per the principle laid down by the Hon'ble SC in the case of Vijaya Bank Vs. CIT reported in 323 ITR 166 is different from the present facts of the case in as much as the word provision was not used by the bank while writing off the bad debts. 3.1 The AO also observed that the conditions specified u/s 36(2) of the Act, with respect to the provision for doubtful advances has not been complied with, therefore the same cannot be allowed as deduction. 3.2 In view of the above, the AO disallowed the claim made by the assessee for the provision of doubtful debts and doubtful advances aggregating to Rs. 26,46,587/- and added to the total income of the assessee. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....favour of the assessee by this Tribunal in the case of Vidras India Ceramics (Pvt.) Ltd. Vs D.C.I.T. bearing ITA No. 2412/Ahd/2018 for AY 2014-15 vide order dated 09/07/2021. The relevant extract of the order is reproduced as under: 15. We have heard the rival contentions of both the parties and perused the materials available on record. The facts relating to the case have already been elaborated in the preceding paragraph which are not in dispute. Therefore, we are not inclined to repeat the same for the sake of brevity and convenience. The controversy that needs to be addressed so as to whether the assessee is eligible for deduction with respect to the provisions made against the trade debtors in pursuance to the explanation 1 to clause (vii) of section 36(1) of the Act. The relevant explanation reads as under: [Explanation 1].-For the purposes of this clause, any bad debt or part thereof written off as irrecoverable in the accounts of the assessee shall not include any provision for bad and doubtful debts81 made in the accounts of the assessee;] 15.1 As per the above explanation there remains no ambiguity to the fact that the provisions made by the ass....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the apprehensions of the Assessing Officer]. In this context, it may be noted that there is no finding of the Assessing Officer that the assessee had unauthorisedly claimed the benefit of deduction under section 36(1)(vii), twice over. The Order of the Assessing Officer is based on an apprehension that, if the assessee fails to close each and every individual account of its debtor, it may result in assessee claiming deduction twice over. In this case, we are concerned with the interpretation of section 36(1)(vii) of 1961 Act. We cannot decide the matter on the basis of apprehensions/desirability. It is always open to the Assessing Officer to call for details of individual debtor's account if the Assessing Officer has reasonable grounds to believe that assessee has claimed deduction, twice over. In fact, that exercise has been undertaken in subsequent years. There is also a flipside to the argument of the Department. Assessee has instituted recovery suits in Courts against its debtors. If individual accounts are to be closed, then the debtor/defendant in each of those suits would rely upon the Bank statement and contend that no amount is due and payable in which event the suit ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Kirloskar Systems Ltd. (supra). Vijaya Bank (supra) was a case arising under section 36(1)(vii) of the Act. The assessee before the Supreme Court was a bank. The issue considered by the Supreme Court was whether it was imperative for the assessee bank to close the individual account of each of its debtors in its books or a mere reduction in the loans and advances or debtors on the asset side of its balance sheet to the extent of the provision for bad debt, would be sufficient to constitute a write-off. In this context, the Supreme Court considered the issue as to the manner in which the actual write off takes place under the accounting principle. It was noticed that prior to 1.4.1989 amendment in section 36(1)(vii), even the provision for the bad debt could be treated as write off. After 1.4.1989 however, a mere provision for bad debt would not be entitled to deduction under Section 36(1)(vii) of the Act. In context of such statutory change, the Supreme Court referred to the decision in case of Southern Technologies Ltd. v. Jt. CIT [2010] 320 ITR 577/187 Taxman 346, in which the following observations were made : "Prior to April 1, 1989, the law, as it then stood, took th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....said Explanation in Section 36(1)(vii) with effect from 1st April, 1989, a mere debit of the impugned amount of bad debt to the Profit and Loss Account would not amount to actual write off. According to him, the Explanation makes it very clear that there is a dichotomy between actual write off on the one hand and a provision for bad and doubtful debt on the other. He submitted that a mere debit to the Profit and Loss Account would constitute a provision for bad and doubtful debt, it would not constitute actual write off and that was the very reason why the Explanation stood inserted. According to him, prior to Finance Act, 2001, many assessees used to take the benefit of deduction under Section 36(1)(vii) of 1961 Act by merely debiting the impugned bad debt to the Profit and Loss Account and, therefore, the Parliament stepped in by way of Explanation to say that mere reduction of profits by debiting the amount to the Profit and Loss Account per se would not constitute actual write off. To this extent, we agree with the contentions of Shri Bhattacharya. However, as stated by the Tribunal, in the present case, besides debiting the Profit and Loss Account and creating a provision for ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... side of the balance sheet and consequently, at the end of the year, the figure of loans and advances or the debtors on the asset side of the balance sheet was shown as net of the provision for the bad debt. Thereafter, the Supreme Court rejecting the Revenue's contention that for the bank to take benefit of section 36(1)(vii), must close the account of the debtors, decided the question in favour of the assessee. 20. Above decisions of Supreme Court in cases of Southern Technologies Ltd. (supra) and Vijaya Bank (supra) thus bring out a clear distinction between a case where the assessee may make a provision for doubtful debt and a case where the assessee after creating such a provision for bad and doubtful debt by debiting in Profit and Loss account also simultaneously removes such provision from its account by reducing the corresponding amount from the loans and advances on the asset aside of the balance sheet. The later would be an instance of write- off and not a mere provision." Respectfully, relying upon the judgment cited above, we do not hesitate to conclude that the assessee is entitled to be allowed the provision for bad and doubtful debts on the iden....