Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, COCHIN BENCH, COCHIN
Before: SHRI GEORGE GEORGE K.
Per GEORGE GEORGE K.,JUDICIAL MEMBER:
The Hon’ble High Court of Kerala in I.T.A. No. 1441 of 2009 (judgment dated
23/08/2016) had remitted this case to the Tribunal. The Hon’ble High Court
directed the Tribunal to consider Explanation 1 to section 36(1)(vii) of the I.T.
Act, while disposing of the case afresh. The relevant finding of the Hon’ble High
Court reads as follows:
“Reading of the aforesaid conclusions of the Tribunal would show that while arriving at its conclusion, the Tribunal has not adverted to the statutory provisions particularly Explanation 1. Therefore, we are unable to sustain the order passed by the Tribunal, and are of the view that the matter is required to be remitted for fresh consideration. Accordingly, setting aside the order passed
2 I.T.A. No.960/Coch/2005
by the Tribunal in I.T.A. No. 960/Coch/2006, the matter is remitted to the Tribunal for fresh consideration with notice to the parties.”
The brief facts of the case are as follows:
The assessee is a non banking financial company engaged in the business of
leasing, hire purchase finance and money lending. The assessment u/s. 143(3)
r.w.s. 147 of the Act was completed vide order dated 24/12/2003. The Assessing
Officer in the said order had added a sum of Rs.9,02,904/- which was claimed by
the assessee as bad debts written off. The Assessing Officer held that this is
nothing but only a provision for bad and doubtful debts and in view of
Explanation 1 to section 36(1)(vii) of the I.T. Act, the same cannot be allowed as
a deduction.
Aggrieved by the order of the Assessing Officer, the assessee preferred an
appeal before the first appellate authority. The CIT(A) vide order dated
31/03/2005 allowed the appeal of the assessee and deleted the above addition.
The relevant observation of the CIT(A) reads as follows:
“….In the instant case, the appellant has debited PL A/c with bad debit as corresponding credit entry made in the provision for bad debt a/c. Hence the condition u/s. 36(1)(vii) and explanation thereof having been fulfilled, the appellant is eligible for deduction.”
3 I.T.A. No.960/Coch/2005
Aggrieved by the order of the CIT(A), the Revenue filed an appeal before the
Tribunal. The Tribunal vide its order dated 28/01/2008 dismissed the appeal of
the Revenue and confirmed the CIT(A)’s order.
The Revenue filed further appeal u/s. 260A of the I.T. Act before the Hon’ble
High Court of Kerala. The Hon’ble High Court remitted the issue back to the
Tribunal. The Hon’ble High Court directed the Tribunal to consider the relevant
statutory provisions, in particular, Explanation 1 to section 36(1)(vii) of the I.T.
Act.
Pursuant to the judgment of Hon’ble High Court, the present appeal was
taken up for hearing on 20/04/2017. None appeared on behalf of the assessee
inspite of a notice being served and the concerned Assessing Officer informing
the MD of the assessee of the posting of the case.
The Ld. DR submitted that it is only the provision for bad and doubtful debts
which is claimed for deduction u/s. 36(1)(vii) of the I.T. Act and in view of
Explanation 1 to the said section, the provision cannot be allowed as a
deduction.
I have heard the Ld. DR and perused the material on record. The balance
sheet filed along with the return for the year ending 31/03/1999 showed the
4 I.T.A. No.960/Coch/2005
provision of non performing assets at Rs.36,14,959/-. The corresponding figure
as on 31/03/1998 was Rs.6,68,992/-. Thus there is an increase in the liability
during the year amounting to Rs.29,45,967/-. The Assessing Officer on
examination of the account copies had noticed that the assessee had deducted
the following items in its P&L account:-
(1) Provision for doubtful assets : 4,77,784/- (2) Provision for substandard assets : 15,98,948/- (3) Bad debts written off : 9,02,904/- 29,79,636/-
It was further noticed by the Assessing Officer that the P&L account was credited
with an amount of Rs.33,669/- as substandard provision reversed which was
deducted from the income computed. The assessee had also added back the
provision for doubtful debts and provision for substandard assets amounting to
Rs.4,77,784/- and Rs.15,98,948/- respectively. Therefore, it was clear that bad
debts written off at Rs.9,02,904/- and debited in the P&L account was out of the
provision made during the relevant previous year. The Explanation to sec.
36(1)(vii) reads as follows:
“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 for bad and doubtful debts made in the accounts of the assessee.”
8.1 In the instant case, it is clear what is written off as bad debts u/s.
36(1)(vii), is only provision for bad debts. In view of Explanation to sec.
36(1)(vii), the provision for bad and doubtful debts cannot be allowed as a
5 I.T.A. No.960/Coch/2005
deduction. Moreover the accounting entry show that the assessee had debited
to the P&L account of bad debts and had credited the same to provision for NPA
account. Unless the party’s account is debited specifically, it cannot be stated
that there is actual writing off bad debts. Therefore, the order of the CIT(A) is
reversed and that of the Assessing Officer is sustained on this issue. It is ordered
accordingly.
In the result, the appeal filed by the Revenue is allowed.
Pronounced in the open court on 21 st -04-2017.
sd/- (GEORGE GEORGE K.) JUDICIAL MEMBER
Place: Kochi Dated: 21st April, 2017 GJ Copy to: 1. M/s. Transworld Hire Purchase India Ltd., Beach Road, Kollam. 2. The Deputy Commissioner of Income-tax, Circle-1, Kollam. 3. The Commissioner of Income-tax(Appeals), Trivandrum. 4. The Commissioner of Income-tax,Trivandrum. 5. D.R., I.T.A.T., Cochin Bench, Cochin. 6. Guard File. By Order
(ASSISTANT REGISTRAR) I.T.A.T., Cochin