Per A. Kalyanasundharam, Senior Vice President. - The assessee, a non-banking financial company, has filed these two appeals aggrieved by the orders of the Commissioner of Income-tax (Appeals) - II, Chennai [CIT(A) for short] dated 9-11-1998 and 27-7-1999 respectively. These two appeals involve a common issue that is concerned with the claim for deduction from total income the provision made for doubtful advances categorized as Non-Performing Assets under the guidelines issued by the Reserve Bank of India [RBI for short] covering all Non-Banking Financial Companies [NBFC for short]. The issues in both appeals involve appreciation of the concept of income and its computation with reference to the provisions of Income-tax Act, 1961 [hereinafter referred to as the Act]. Considering the fact that the appeals involve a common issue, the two appeals are grouped together, heard together and are disposed of by this common order.

2. There are few issues in both the appeals that are specific to an assessment year and by means of this order we first shall deal with these independent issues in the order in which it has been so raised in the grounds of appeal. These independent issues shall be dealt with year by year.

ASSESSMENT YEAR: 1995-96

3. The issue that is raised is with reference to the claim for deduction from the total income of an amount of Rs. 2,78,000 under the head 'provision for doubtful debts'. The Assessing Officer [AO for short] did not allow the claim for the only reason that it was not written off in the books as is required by section 36(1)(vii) of the Act. The counsel for the appellant company Mr. Vijayaraghavan relied on the Gujarat High Court in Vithaldas H. Dhanjibhai Bardanwala v. CIT [1981] 130 ITR 95¹ and submitted that Court had appreciated the provision made by debit to Profit & Loss Account and credit to a Reserve Account as equivalent to write off and that it is unnecessary to give credit to individual parties account. He also made reliance on the jurisdictional High Court in CIT v. Srivinayaga Pictures [1986] 161 ITR 65² (Mad.) for highlighting the proposition that consequent upon the dishonour of a cheque when parties account is reversed through the bank account the assessee must be allowed deduction as bad debt notwithstanding the fact that there had been no credit to the income side of the Profit & Loss account. He further relied on the decision of the Tribunal in State Bank of Bikaner& Jaipur v. Dy. CIT [2000] 74 ITD 203 (Jp) for the proposition that debit to Profit & Loss account and credit to a provision account is sufficient for allowability of deduction as a bad debt. The learned Senior Departmental Representative [DR for short] opposed the arguments vehemently and pleaded that when the section requires write off for allowability as deduction the claim had to be rejected.

The authorities relied by the learned counsel suggest that commercial meaning of bad debt must be adopted because it would reflect the correct position allowing the party to have legal recourse against the defaulting parties. Provision for doubtful debt is made only when the recovery is difficult or may not be possible and this is termed as equivalent to a write off. In the light of the authorities that support the claim of the appellant, we uphold the claim and allow the provision for bad & doubtful debts to be deducted from the total income of the appellant company.

4. The other issue specific to the assessment year 1995-96 is the foreclosure premium on loans totalling Rs. 56,15,126. The facts as emerge out of the records is that the appellant company had taken certain fixed term loans in the earlier years and the said loans had few more years remaining for normal closure of the said loans. The assessee approached the financial institution from which the loans had been taken for closing of these loans and took fresh loans. The accepted fact is the loans taken earlier carried high rate of interest as against the fresh loans adv