TaxTMI 
TaxTMI 
2024 (12) TMI 187
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....deduction, for the reasons mentioned in the impugned order or otherwise. 3. On the facts and circumstances of the Appellant's case and in law the Id. CIT(A) erred in confirming the action of the Ld. A.O. in disallowing the employees contribution of PF amounting to Rs. 1,96,127/-, by invoking the provisions of section 36(1)(va) of the Income Tax Act 1961. 4. The appellant craves leaves to alter, amend, withdraw or substitute any ground or grounds or to add any new ground or grounds of appeal on or before the hearing. 2. At the very outset, the Ld. AR appearing on behalf of the assessee made statement at bar that he is not pressing Ground No. 1 and 3, consequently, considering his statement ground No. 1 and 3 stands dismissed as not pressed. 3. Now there remains only one ground for adjudication i.e Ground No. 2, wherein the assessee has challenged the order of the CIT(A) in confirming the action of the Ld.AO in making addition of Rs. 1,48,50,000/- on account of provision for doubtful debts claimed as deduction. 4. We have heard the counsels for both the parties and we have perused the material placed on record, judgments cited by the Ld. AR and also orders passed by the re....
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....e vide Paragraph (25), which reads as under: "Prior to April 1, 1989, the law, as it then stood, took the view that even in cases in which the assessee(s) makes only a provision in its accounts for bad debts and interest thereon and even though the amount is not actually written off by debiting the profit and loss account of the assessee and crediting the amount to the account of the debtor, the assessee was still entitled to deduction under section 36(1)(vii). [See CIT v. Jwala Prasad Tiwari (1953) 24 ITR 537 (Bom) and Vithaldas H. Dhanjibhai Bardanwala vs. CIT (1981) 130 ITR 95 (Guj)] Such state of law prevailed up to and including the assessment year 1988-89. However, by insertion (with effect from April 1, 1989) of a new Explanation in section 36(1)(vii), it has been clarified 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). Conseque....
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.... 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 judgement 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 write off whereas, after the Explanation, the assessee(s) is now required not only 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 bene....
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....- side to the argument of the Department. Assessee has instituted recovery suits in Courts against it's 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 would be dismissed. Before concluding, we may refer to an argument advanced on behalf of the Department. According to the Department, it is necessary to square off each individual account failing which there is likelihood of escapement of income from assessment. According to the Department, in cases where a borrower's account is written off by debiting Profit and Loss Account and by crediting Loans and Advances or Debtors Accounts on the asset side of the Balance Sheet, then, as and when in the subsequent years if the borrower repays the loan, the assessee will credit the repaid amount to the Loans and Advances Account and not to the Profit and Loss Account which would result in escapement of income from assessment. On the other hand, if bad debt is written off by closing the borrower's account individually, then the repaid amount in subsequent years will be credite....
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.... in the balance sheet as on 31/03/2010. This fact can be verified from the necessary details which are available in the Annual Account of the assessee, placed on pages 8 to 37 of the paper book. 9.1 Now the controversy arises whether the assessee can claim a deduction for the provision of doubtful debts without giving adjustment in the individual ledger account of the sundry debtors. This issue has been decided in 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....
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....nd advances or debtors as a pre-condition for claiming deduction under section 36(1)(vii) of 1961 Act. This view has been taken by the Assessing Officer because the Assessing Officer apprehended that the assessee-bank might be taking the benefit of deduction under section 36(1)(vii) of1961 Act, twice over. [See Order of CIT (A) at pages 66, 67 and 72 of the Paper Book, which refers to 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....
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....ration of the judgment passed in the matter of Vijaya Bank and observed as follows: "16. We may however, appreciate the implication of the ratio laid down by the Supreme Court in case of Vijaya Bank (supra), on the true interpretation of clause(i) to the explanation 1 and the decisions of Karnataka High Court in cases of Yokogawa India Ltd. (supra) and 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)(vil), even the provision for the bad debt could be treated as write off. After 1.4.1989 however, a mere provision for bad d....
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....Department, the view expressed by the Gujarat High Court in the case of Vithaldas H. Dhanjibhai Bardanwala [supra] was prior to the insertion of the Explanation vide Finance Act, 2001, with effect from 1st April, 1989, hence, that law is no more a good law. According to the learned counsel, in view of the insertion of the 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 m....
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....ya Bank (supra) by observing that in case on hand, the assessee besides debiting the profit and loss account and creating a provision for bad and doubtful debt, had simultaneously obliterated the said provision from its 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 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 advance....
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.... 9.3 It is also important to note that the assessee has not written off the provision for doubtful debts in the individual ledger account of the sundry debtors for the reason that it will lose it right in the Civil proceedings for recovery of its dues from the sundry debdtors. This argument of the Ld. A.R was not controverted by the Ld. DR for the assessee at the time of hearing. Accordingly, we hold that the assessee is entitled to the deduction for the provision of doubtful debts in the given facts and circumstances. 9.4 Regarding the provision for doubtful advances, we note that the same stand on the footing of doubtful debts as long as they were given in the course of the business. Therefore, on the same line of reasoning we also hold that the assessee is allowed for the deduction of the provision for doubtful advances under the provision of section 37 of the Act. In view of the above and after considering the facts in totality we reverse the order of the authority below and direct the AO to delete the addition made by him. Hence the ground of appeal of the assessee is allowed. 9.5. In the result the appeal filed by the assessee is allowed. 8. Apart from the above, we have....