Vijaya Bank vs Commissioner of Income Tax and Another [SUPREME COURT OF INDIA, 15 Apr 2010]
Income Tax & Direct Taxes -
Income Tax Act, 1961, s. 36(1)(vii) - A/ys. 1993-1994 and 1994-1995 - Deduction u/s. 36(1)(vii) - For the a/y 1994-1995,
the Assessing Officer (AO) 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 - On appeal, Commissioner held that it was not necessary for the purpose of writing off of bad debts to pass corresponding entries in the individual account of each and every debtor and that 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’ - Tribunal affirmed the decision of Commissioner - However, HC held that mere creation of a provision did not amount to actual write off of bad debt - Hence, present appeal - Whether it is imperative for the assessee-Bank to close the individual account of each of it's debtors in it's books or a mere reduction in the Loans and Advances or Debtors on the asset side of it's Balance Sheet to the extent of the provision for bad debt would be sufficient to constitute a write off? - Held, no finding of the AO that the assessee had unauthorisedly claimed the benefit of deduction u/s. 36(1)(vii), twice over - Order of the AO is based on an apprehension that, if the assessee fails to close each and every individual account of it's debtor, it may result in assessee claiming deduction 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’ - Hence, assessee was entitled to the benefit of deduction u/s. 36(1)(vii) of 1961 Act as there was an actual write off by the assessee in it's Books - Impugned order of HC set aside - Tribunal’s order restored - Appeal allowed.
