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Ms.Nicco Uco Alliance Credit Limited. Vs. the Deputy Commissioner of Income Tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtChennai High Court
Decided On
Case NumberTax Case (Appeal) Nos.1379 and 1380 of 2012
Judge
ActsIncome Tax Act, 1961 - Section 260A, 36(1)(4), 143(3)
AppellantMs.Nicco Uco Alliance Credit Limited
RespondentThe Deputy Commissioner of Income Tax
Appellant AdvocateMr.R.Venkatanarayanan, Adv
Respondent AdvocateMr.N.V.Balaji, Adv
Excerpt:
[chitra venkataraman; k.ravichandra baabu, jj.] income tax act, 1961 - section 260a, 36(1)(4), 143(3) -- aggrieved by the assessment, the assessee went on appeal before the commissioner of income tax (appeals). the assessee contended that a sum of rs.36,22,691/- was an allowable deduction. the commissioner of income tax (appeals) allowed the claim of the assessee following his earlier order. the opening provision existed in the accounts at rs.43,51,034/-......the the assessment under section 143(3), the assessing officer disallowed the provision for doubtful debts on the ground that the assessee would be entitled to the relief only in respect of the doubtful debts actually written off in the accounts as against the provisions made. aggrieved by the assessment, the assessee went on appeal before the commissioner of income tax (appeals). the assessee contended that a sum of rs.36,22,691/- was an allowable deduction. even though the same was described as a provision, the intention to treat the debt as having become irrecoverable was clear from the deduction made in the profit and loss account. consequently, the assessee sought for a relief that the claim as bad debt be allowed under section 36(1)(vii).3. the commissioner of income tax.....
Judgment:

PRAYER: Tax Case Appeals filed under Section 260A of the Income Tax Act, 1961 against the order of the Income Tax Appellate Tribunal "B" Bench, Chennai, dated 20.1.2005 in ITA No.26/(Mds)/97 and ITA No.59(Mds)/98.

JUDGMENT

(Judgment of the Court was delivered by CHITRA VENKATARAMAN,J.)

1. The following is the substantial question of law raised by the assessee as against the order of the Income Tax Appellate Tribunal in respect of the assessment years 1993-94 and 1994-95:

" Whether on the facts and in the circumstances, the Tribunal was right in disallowing the claim of the appellant for deduction of Rs.36,22,691/- being receivables arising in the course of business which have become irrecoverable and reduced from the profits for the year? "

2. The assessee herein is a non-banking finance company, engaged in the business of hire purchase financing and equipment leasing. While completing the the assessment under Section 143(3), the Assessing Officer disallowed the provision for doubtful debts on the ground that the assessee would be entitled to the relief only in respect of the doubtful debts actually written off in the accounts as against the provisions made. Aggrieved by the assessment, the assessee went on appeal before the Commissioner of Income Tax (Appeals). The assessee contended that a sum of Rs.36,22,691/- was an allowable deduction. Even though the same was described as a provision, the intention to treat the debt as having become irrecoverable was clear from the deduction made in the profit and loss account. Consequently, the assessee sought for a relief that the claim as bad debt be allowed under Section 36(1)(vii).

3. The Commissioner of Income Tax (Appeals) allowed the claim of the assessee following his earlier order. Aggrieved by this, the Revenue went on appeal before the Tribunal. The Tribunal allowed the Revenue's appeal holding that only such of those amounts which were actually written off would go for deduction as doubtful debts. In the circumstances, the Tribunal restored the order of the Assessing Officer. Aggrieved by this, the present appeal has been filed by the assessee.

4. Learned counsel appearing for the assessee pointed out that when the debts had become irrecoverable, they had identified the same and claimed it as a deduction in the profit and loss account and hence, the claim of the assessee is covered by the decision of the Gujarat High Court reported in [1981] 130 ITR 95 (Guj) (Vithal Dass H. Dhanjibhai Bardanwala Vs. CIT) as well as that of this Court reported in [2001] 248 ITR 670 (Commissioner of Income Tax Vs. Crescent Films (P) Ltd.). In support of his claim, learned counsel appearing for the assessee placed before us the balance sheet as on 31.3.1993 and 31.3.1995. We do not think, the balance sheet as on 31.3.1995 would be of any relevance in respect of the assessment year 1994-95. The discussion in the order proceeds from the details available in the balance sheet pertaining to the period as on 31.3.1993.

5. Learned counsel appearing for the assessee also placed reliance on the decision reported in [2010] 323 ITR 166 (Vijaya Bank Vs. Commissioner of Income Tax) and pointed out that when the assessee had debited the profit and loss account, the doubtful debts are simultaneously taken to the balance sheet, bringing the reduction on the assets side. Thus the facts of the case fit in with the law declared by the Apex Court in the decision reported in [2010] 323 ITR 166 (Vijaya Bank Vs. Commissioner of Income Tax). Hence, the Tribunal committed a serious error in rejecting the assessee's case.

6. Per contra, learned Standing Counsel appearing for the Revenue, contended that while the law laid down in the decision reported in [2010] 323 ITR 166 (Vijaya Bank Vs. Commissioner of Income Tax) would guide the issue on appeal, the facts herein, however, do not entitle the assessee, the relief. He pointed out that even as per the accounts of the assessee, the provision towards bad debts as on 31.3.1992 was Rs.43,51,034/-. For the assessment year 1993-94, the provision for doubtful debts in Schedule 4 show a sum of Rs.36,22,691/-. However, as per Schedule 11, in the current assets, the provision for doubtful debts made was to the tune of Rs.57,93,447/-. Thus out of the provision for doubtful debts of Rs.79,73,725/- (Rs.43,51,034/- + Rs.36,22,691/-), the provision made as on 31.3.1993 was only to the tune of Rs.57,93,447/-, which means, the assets side of the balance sheet went down only to an extent of Rs.21,80,278/-. Thus this sum alone being written off in the books of accounts for bad and doubtful debts, qualified for deduction.

7. Referring to the decision of the Apex Court reported in [2010] 323 ITR 166 (Vijaya Bank Vs. Commissioner of Income Tax), learned Standing Counsel pointed out that the law declared by the Apex Court was, when whatever had been debited to the profit and loss account goes for a corresponding or simultaneous reduction from loans and advances/debts on the assets side of the balance sheet, then the assessee would be entitled to succeed in its claim. However, given the fact that the assessee had claimed as a provision in the accounts to the tune of Rs.57,93,447/-, the assessee is not entitled to the benefit of the decision for the entire amount as claimed by the assessee. Consequently, the assessee is not entitled to succeed. Hence the challenge.

8. Heard learned counsel appearing for the assessee and the learned Standing Counsel appearing for the Revenue and perused the material placed on record.

9. A perusal of the Apex Court reported in [2010] 323 ITR 166 (Vijaya Bank Vs. Commissioner of Income Tax) shows that the law declared by the Gujarat High Court reported in [1981] 130 ITR 95 (Guj) (Vithal Dass H. Dhanjibhai Bardanwala Vs. CIT) that the mere debit of the profit and loss account was sufficient to constitute actual write off under Explanation to Section 36(1)(vii), was held to be bad.

10. The Apex Court pointed out that with the amendment to Section 36(1)(vii) with effect from 1.4.1989 inserting the Explanation, apart from debiting the profit and loss account, the assessee is required simultaneously, to reduce the amount of loans and advances or the debtors from the assets 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 or the debtors is shown as net of the provisions of the impugned bad debt. The Apex Court held that to the extent that there was an actual reduction by the assessee in its books that the benefit of deduction under Section 36(1)(vii) would be available to the assessee. Thus the Apex Court held that mere reduction of profits or debiting the amount to the profit and loss account, per se, would not constitute actual write off.

11. Applying the said decision to the facts herein, as already noted, as far as assessment year 1993-94 is concerned, under Schedule 4, the assessee claimed provision of doubtful debts to the extent of Rs.36,22,691/-. The opening provision existed in the accounts at Rs.43,51,034/-.

12. As rightly pointed out by the learned Standing Counsel appearing for the Revenue, the provision for bad debts thus available in the balance sheet on the assets side as on 01.04.1992 was to a balance of Rs.57,93,457/-. Looking the total provision at the end of 31.03.1993 of Rs.79,73,725/- (Rs.43,51,034/- + Rs.36,22,691/-), effectively, the assessee seems to have written off the bad debts only to the extent of Rs.21,80,278/-. Since these are the figures culled out from the papers given by the assessee in respect of the assessment year 1993-94, the question of how much of an amount had actually been written off has to be seen only by the Assessing Authority by looking into the accounts of the assessee. The balance sheet, being a summation of the account results, we feel, the proper course herein would be to set aside the order of the Tribunal and remit the matter back to the Assessing Officer for a fresh consideration to find out how much of the debt had been actually written off, to apply the decision of the Apex Court reported in [1981] 130 ITR 95 (Guj) (Vithal Dass H. Dhanjibhai Bardanwala Vs. CIT).

13. We may point out that unlike in the case of a Banking Company, if the assessee goes for only a portion of a bad debt to be written off and on the netting of the assets, the provision is made, the exercise has to be looked into only by the Assessing Officer as to what extent relief could be granted under Section 36(1)(vii).

14. In the above circumstances, the Tax Case Appeals are disposed of and remanded back to the files of the Assessing Officer for passing a fresh order of assessment, after giving an opportunity to the assessee to explain his case in the light of the decision of the Apex Court reported in [1981] 130 ITR 95 (Guj) (Vithal Dass H. Dhanjibhai Bardanwala Vs. CIT). No costs.


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