2023 (1) TMI 442

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....return of income under Section 139 of the Income Tax Act, 1961 on 31.10.2002 for the Assessment Year 2002- 2003. In the return, the appellant had declared a "taxable income" of Rs.52,51,21,000/-. 2. The said return was processed under Section 143(1) of the Income Tax Act, 1961. Thereafter, the return was scrutinized. A notice under Section 143(2) of the Income Tax Act, 1961 was issued to the appellant on 11.08.2003. The Assessment was thereafter completed under Section 143(3) of the Income Tax Act, 1961 on 31.05.2005. The income of the appellant was re-determined as Rs.57,36,86,630/-. 3. The Commissioner of Income Tax later invoked Section 263 of the Income Tax Act, 1961 and issued a Show Cause Notice dated 04.04.2006 to the appellant....

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.... Tax u/s.263 in revising the assessment order? ii. Whether on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the loss computed by the Appellant on account of diminution in value of repossessed vehicles is only a notional and unascertained loss and hence cannot be allowed as a deduction? 8. We have considered the arguments advanced by the learned counsel for the appellant and the respondent. 9. Wherever defaults were committed by lessees, the appellant repossessed the vehicles. The appellant treated the amount due from the defaulting lessees as "receivable" in its books of account. 10. A further sum was reduced from the aforesaid amount as diminution in the value based on the p....

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....alt with therein, in computing the income referred to in section 28 - (vii) subject to the provisions of subsection (2), the amount of any bad debt or part thereof which is written off as irrecoverable in the accounts of the assessee for the previous year: Provided that in the case of an assessee to which clause (viia) applies, the amount of the 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; Explanation. - 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 fo....

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....l, 1988, or any earlier assessment year) and the Assessing Officer is satisfied that such debt or part became a bad debt in any earlier previous year not falling beyond a period of four previous years immediately preceding the previous year in which such debt or part is written off, the provisions of sub-section(6) of section 155 shall apply; v. where such debt or part of debt relates to advances made by an assessee to which clause (viia) of sub- section (1) applies, no such deduction shall be allowed unless the assessee has debited the amount of such debt or part of debt in that previous year to the provisions for bad and doubtful debts account made under that clause. 14. By Circular No.12/2016, dated 30.05.2016, the Income Tax....

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....d guideline for accounting of the repossessed assets was given by RBI vide RBI Circular dated 01.01.2002 bearing reference Ref.DNBS(PD).CC.No.18/02.01/2001-02. Relevant portion of the RBI Circular dated 01.01.2002 bearing reference Ref.DNBS(PD). CC.No.18/02.01/2001-02 reads as follows:- Existing Guidelines Revised Guidelines In case the asset is taken as part of fixed asset for own use i. The repossession of the least or hire purchase asset should be treated as foreclosure of the contract of lease or hire purchase finance; ii. The accounting adjustment should be done in these cases by taking the assets at its book value; iii. In Case of Hire Purchase Assets, in arriving at the book value, the asset value ....

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....my has been brought. Consequently, a mere provision for bad debt is not sufficient to claim deduction unless there is a write-off in full or part. Explaining the concept, the Court gave an illustration. If an assessee debits an amount of doubtful debt to the Profit and Loss Account and credits the asset like sundry debtors account, it would constitute 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 liability side of the balance sheet, then it would constitute a provision for doubtful debt. In the latter case, it would not be entitled to deduction after 01.04.1989. 21. The loss from t....