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2009 DIGILAW 268 (KAR)

Commissioner of Income Tax v. Vijaya Bank

2009-04-02

ARALI NAGARAJ, V.GOPALA GOWDA

body2009
JUDGMENT V. Gopala Gowda, J.— These two Income Tax Appeals are filed by the Department framing the following Common question of law: Whether the appellate authorities were correct in holding that for the purpose, of writing off of bad debts it was not essential to square off each individual account of every debtor and it would be sufficient if the debit entries are made into the profit and loss, account and corresponding credit is made in a bad debt reserve account contrary to the provision of the Act and especially explanation to clause vii of Section 36(1) of the Act brought into effect from 1.4.1989 by Finance Act 2001?. In support of the same, reliance is placed on the finding of fact recorded by the Assessing Officer at para 4 in his order and re-affirmed by the first appellate authority at para 12, its order, which has been set aside by the Second Appellate Tribunal, after referring to Section 36(1)(vii) and Explanation read with Section 36(2) of Income Tax Act of on the Gujarath High Court judgment in the case of Vithaldas H. Dhanjibhai Bardanwala Vs. Commissioner of Income Tax, Gujarat-V, (1981) 130 ITR 95 Guj and holding that the provision for bad and doubtful debts was not merely a provision but is to be viewed as an actual written off. The explanation inserted to Section 36(1)(vii) of the Act by way of through Finance Act 2001 with retrospective effect from 1-4-1989 was subsequent to the decision of Gujarath High Court. This aspect of the case has been examined by this Court in ITA No. 499/2002 and connected cases disposed of on 25.6.2008, wherein similar question was framed and answered in favour of tile Revenue. 2. No doubt, in the aforementioned case the matter was remanded for the reasons recorded therein. In the instant cases, such situation does not arise as there is a clear finding of fact recorded at paragraph 4 of the order of Assessing Authority that the assessee has only created a provision classified as "non-performing assets". At para 9 it is held that mere creation of provision does not amount to written off of "bad debts". It is further held that deduction of provision for non-performing assets out of advances does not amount to written off. At para 9 it is held that mere creation of provision does not amount to written off of "bad debts". It is further held that deduction of provision for non-performing assets out of advances does not amount to written off. Even though these findings are affirmed by the first appellate authority, the same have been set aside by the Appellate Tribunal without noticing that it is only a provision and in reality it does not amount to writing off of bad debts. No material document is produced by the Assessee before the Assessing Officer to show actual written off of bad debts. 3. Mr. Sarangan. learned Senior Counsel submitted that the concurrent findings recorded by the Assessing officer and first appellate authority has been rightly set aside by the Second Appellate Tribunal in exercise of its Appellate jurisdiction and power by recording reasons at paragraph 5 of the impugned order by holding that it is not only a provision but there is actual written off bad debt and therefore the substantial question of law framed in these appeals does not arise for our consideration. The above suuraission of the learned Senior counsel cannot be accepted by us for the reason that the explanation inserted to Section 36(1)(vii) of the Act was subsequent to Gujarath High Court decision referred to supra, which amended provision by way of explanation has got retrospective effect from 1989. Since the question is already answered in favour of the Revenue in ITA No. 499/2002 and connected cases referred to supra, it cannot be answered differently in these matters. 4. Accordingly, the appeals are allowed and the question is answered in favour of the Revenue.