“Section 36(1)(viia)(a)”
The decision most relied on for Section 36(1)(viia)(a) is Maxopp Investment Ltd. v. CIT (347 ITR 272), cited in 516 judgments on BharatTax.
Leading authorities on Section 36(1)(viia)(a)
Disallowance under Section 14A cannot exceed the exempt income earned. The Assessing Officer must record satisfaction regarding the assessee's accounts before making any disallowance.
The mixed fund theory is affirmed, holding that no disallowance of interest expenditure under Section 14A can be made if the assessee possesses sufficient non-interest bearing funds, such as capital and reserves, to cover investments made in tax-free securities.
A provision for bad and doubtful debts debited to the profit and loss account and reduced from advances on the balance sheet constitutes a write-off for deduction purposes. This is true even if individual debtor accounts are not closed.
The case concerns the allowability of deductions for provisions made under Section 36 of the Income Tax Act, 1961, especially those related to bad and doubtful debts. It distinguishes such deductions from the recognition of interest income on non-performing assets (NPAs).
When following the mercantile system of accounting, provisions for liabilities made on a scientific and rational basis are allowable as deductions, even if their actual quantification and discharge are deferred to a future date.
For a bad debt deduction under Section 36(1)(vii), the debt must be actually written off as irrecoverable in the assessee's accounts, distinct from merely making a provision for bad and doubtful debts. The assessee bears the onus to satisfy the conditions under both Section 36(1)(vii) and Section 36(2) of the Income-tax Act.
Liabilities accrued on a notional basis are allowable as deductions under the mercantile system of accounting even if their exact quantification or discharge is deferred to a future date or if the demand itself is disputed.
Amendments to tax law that impose new obligations or change existing legal positions apply prospectively, even if stated to be "for the removal of doubts." The judgment also clarifies that deductions under Section 43B are allowed only on actual payment, overriding the mercantile system of accounting.
