2010 Supreme(SC) 319

2010 (3) Supreme 124
SUPREME COURT OF INDIA
S.H. Kapadia and Swatanter Kumar, JJ.
M/s. Vijaya Bank — Appellant
versus
Commissioner of Income Tax & Anr. — Respondents
Civil Appeal Nos.3286-3287 of 2010
(Arising out of S.L.P. (C) Nos.21568-21569 of 2009)
Decided on : 15-04-2010

Headnote:Income Tax Act,1961-Section 36(1)(vii)-Order passed by Assessing Officer disallowing a sum of Rs.7,10,47,161/- which the assessee-Bank had reduced from Loans and Advances or Debtors on the ground that impugned bad debt had not been written off in an appropriate manner as required under the Accounting principles. –On appeal Commissioner of Income Tax (A) opined 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”. –Appeal- Tribunal, held that since the assessee had written off the impugned bad debt in it’s Books by way of a debit to the Profit and Loss Account simultaneously reducing the corresponding amount from Loans and Advances or Debtors depicted on the asset side in the Balance Sheet at the close of the year, assessee was entitled to deduction under Section 36(1)(vii) of 1961 Act- Appeal-Allowed by High Court-Appeals - No finding of the Assessing Officer that assessee had unauthorisedly claimed the benefit of deduction under Section 36(1)(vii), twice over- However held that it is always open to the Assessing Officer to call for details of individual debtor’s account if the Assessing Officer had reasonable grounds to believe that assessee has claimed deduction, twice over- In fact, that exercise had been undertaken in subsequent years- There was also a flip- side to the argument of the Department- Assessee had instituted recovery suits in Courts against it’s debtors- If individual accounts are to be closed, then the Debtor/Defendant in each of those suits would rely upon Bank statement and contend that no amount is due and payable in which event the suit would be dismissed- Hence impugned judgment of High Court set aside and that of Tribunal restored-Appeals allowed. (Paras 7 to 10)

       Facts of the Case :

       Issue in consideration in present appeals was 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.

       Findings of the Court :

       There is no dispute that Section 36(1)(vii) of 1961 Act applies both to Banking and Non-Banking businesses. Admittedly assessee-Bank had not only been debiting the Profit and Loss Account to the extent of the impugned bad debt, it was simultaneously reducing the amount of loans and advances or the debtors at the year-end. In other words, the amount of loans and advances or the debtors at the year-end in the balance-sheet was shown as net of the provisions for impugned debt. However, what was being insisted upon by the Assessing Officer was that mere reduction of the amount of loans and advances or the debtors at the year-end would not suffice and, in the interest of transparency, it would be desirable for the assessee-Bank to close each and every individual account of loans and advances or debtors as a pre-condition for claiming deduction under Section 36(1)(vii) of 1961 Act. This view had been taken by the Assessing Officer because the Assessing Officer apprehended that the assessee-Bank might be taking the benefit of deduction under Section 36(1)(vii) of 1961 Act, twice over. There was no finding of the Assessing Officer that assessee had unauthorisedly claimed the benefit of deduction under Section 36(1)(vii), twice over. However held that it is always open to the Assessing Officer to call for details of individual debtor’s account if the Assessing Officer has reasonable grounds to believe that assessee has claimed deduction, twice over. In fact, that exercise has been undertaken in subsequent years. There is also a flip- side to the argument of the Department. Assessee has instituted recovery suits in Courts against it’s debtors. If individual accounts are to be closed, then the Debtor/Defendant in each of those suits would rely upon the Bank statement and contend that no amount is due and payable in which event the suit would be dismissed. Hence impugned judgement of High Court was set aside. Appeals were allowed.