Income Tax Act, 1961 — Section 36(1)(vii) — deduction under — the Assessing Officer disallowed a sum of Rs.7,10,47,161/- which the assessee-Bank had reduced from Loans and Advances or Debtors on the ground that the impugned bad debt had not been written off in an appropriate manner as required under the Accounting principles —
(Case No: Civil Appeal Nos. 3286 and 3287 of 2010) M/s. Vijaya Bank Appellant(s) versus Commissioner of Income Tax and another Respondent(s) Date of Decision(mm/dd/yy): 4/15/2010. Judge(s): Hon'ble Mr. Justice S.H. Kapadia and Hon'ble Mr. Justice Swatanter Kumar.
Commissioner of Income Tax CIT(A) opined that for the purpose of writing off of bad debts it would be sufficient if the debit entries are made in the Profit and Loss Account and corresponding credit is made in the "Bad Debt Reserve Account" — IT Tribunal affirmed the decision of the CIT(A). However, High Court reversed the order of the Tribunal and held that mere creation of a provision did not amount to actual write off of bad debts — appeals — whether it is imperative for the assessee-Bank to close the individual account of each debtor in it's Books or a mere reduction in the "Loans and Advances Account" or Debtors to the extent of the provision for bad and doubtful debt is sufficient — no finding of the Assessing Officer that the assessee had unauthorisedly claimed the benefit of deduction under Section 36(1)(vii), twice over — 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", thus, this Court held the assessee entitled to the benefit of deduction under Section 36(1)(vii) as there was an actual write off by the assessee in it's Books — impugned orders of the High Court set aside and that of the Tribunal restored — appeals allowed — no costs.