LexM/S. VIJAYA BANK versus COMMISSIONER OF INCOME TAX AND ANR.
Open in Lexace · Ask the AI about this caseJudgment (excerpt)
[2010] 4 S.C.R. 721
M/S. VIJAYA BANK
v.
COMMISSIONER OF INCOME TAX AND ANR.
(Civil Appeal Nos.3286-3287 of 2010)
APRIL 15, 2010
[S.H. KAPADIA AND SWATANTER KUMAR, JJ.)
Income Tax Act, 1961:
A
B
s.36(1)(vii), Explanation - Deduction under s.36{1)(vii) -
c
Held: With effect from April 1, 1989, mere provision for bad
debt would not be entitled to deduction under s.36(1)(vii) - For
availing benefit of the deduction, assessee has to write off the
debt by debiting the Profit and Loss Account to the extent of
provision for bad debt and simultaneously reducing 0
corresponding amount from loans and advances/debtors from
the asset side of Balance Sheet - It is not imperative for
assessee to close the individual account of each of its debtors
in the books.
The question which arose for consideration in these
appeals was whether it was imperCJtive 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 its Balance
·Sheet to the extent of the provision for bad debt would
be sufficient to constitute a write off.
Allowing the appeals, the Court
E
F
HELD: 1.1. Prior to April 1, 1989, the law, as it then
G
stood, was that even in cases in which the assessee
made only a provision in its accounts for bad debts and
interest thereon and even though the amount was not
actually written off by debiting the profit and loss account
of the assessee and crediting the amount to the account
721
H
722
SUPREME COURT REPORTS
[2010] 4 S.C.R.
A of the debtor, the assessee was still entitled to deduction
under Section 36(1 )(vii) of the Income Tax Act, 1961.
However, by insertion (with eff1;1ct from April 1, 1989) of a
new Explanation in Section 36(1 )(vii), it was clarified that
any bad debt written off as irrecoverable in the account
B of the assessee would not include any provision for bad
and doubtful debt made in the accounts of the assessee.
Consequently, after April 1, 1989, a mere provision for bad
debt would not be entitled to deduction under Section
36(1 )(vii). [Paras 6] [727-G-H; 728-A-B]
c
D
Southern Technologies Limited v. Joint Commissioner
of Income Tax (2010) 320 ITR 577, relied on.
Vithaldas H. Dhanjibhai Bardanwala vs. CIT (1981) 130
ITR 95 (Guj), referred to.
1.2. In the instant case, besides debiting the Profit
and Loss Account and creating a provision for bad and
doubtful debt, the assessee-Bank had correspondingly/
simultaneously obliterated the said provision from its
E accounts by reducing the corresponding amount from
Loans and Advances/debtors on the asset side of the
Balance Sheet and, consequently, at the end of the year,
the figure in the loans and advances or the debtors on
the asset side of the Balance Sheet was shown as net of
the provision "for impugned bad debt". After the
F Explanation, the assessee is required not only to debit
the Profit and Loss Account but simultaneously also
reduce loans and advances or the debtors from the asset
side of the Balance Sheet to the extent of the
corresponding amount so that, at the end of the year, the
G amount of loans and advances/debtors is shown as net
of provisions for impugned bad debt. In the
circumstances, the assessee was entitled to the benefit
of deduction under Section 36(1)(vii) of 1961 Act as there
was an actual write off by the assessee in it's Books.
H [Para 7] [729-D-H; 730-A-B]
VIJAYA BANK v. COMMISSIONER OF INCOME TAX 723
AND ANR.
1.3. Section 36(1 )(vii) of 1961 Act applies both to
A
Banking and Non-Banking businesses. The assessee-
Bank has not only been debiting the Profit and Loss
Account to the extent of the impugned bad debt, it is
simultaneously reducing the amount of loans and
advances or the debtors at the year-end. In other words,
B
the amount of loans and advances or the debtors at the
year-end in the balance-sheet is shown as net of the
provisions for impugned debt. However, what is being
insisted upon by the Assessing Officer is that mere
reduction of the amount of loans and advances or the c
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)
0
of 1961 Act. This view has been taken by the Assessing
Officer because he apprehendedExcerpt shown. Read the full judgment & AI analysis in Lexace.