The Commissioner Of Income-Tax, Chandigarh-Ii v. M/S Swaraj Mazda Ltd

Income-tax Appeal No.324 of 2004 *** IN THE HIGH COURT OF PUNJAB AND HARYANA ATCHANDIGARH Income-tax Appeal No.324 of 2004Date of decision: 28.3.2011 The Commissioner of Income-Tax, Chandigarh-II ...Appellant Versus M/s Swaraj Mazda Ltd. ...Respondent CORAM: HON'BLE MR.JUSTICE ADARSH KUMAR GOEL HON'BLE MR.JUSTICE AJAY KUMAR MITTAL Present: Ms. Urvashi Dhugga, Senior Standing Counsel for the appellant. Mr. Pankaj Jain, Advocate for the respondent. **** AJAY KUMAR MITTAL, J. This appeal has been preferred by the revenue underSection 260A of the Income Tax Act, 1961 (hereinafter referred to as“the Act”) against order dated 28.2.2003 passed by the Income TaxAppellate Tribunal, Chandgiarh Bench 'B', Chandigarh in ITANo.1321/Chandi/95, relating to the assessment year 1992-93,claiming the following substantial question of law:- “Whether on the facts and in the circumstances of thecase, the ITAT was right in law in deleting the addition ofRs.36,76,974/- made on account of disallowance of baddebts keeping in view the facts conditions laid downunder Section 36(I)(vii) of the Act are not fulfilled?” 2.The facts as narrated in the appeal necessary foradjudication for the present appeal may be noticed. The assessee *** had filed return declaring loss of Rs.5,12,29,870/- on 29.12.1992.However, the assessment was framed under Section 143(3) of theAct on 28.2.1995 at nil income. The Assessing Officer amongstother disallowances had made a disallowance regarding claim forprovision for bad and doubtful debts amounting to Rs.36,76,974/-.The assessee filed appeal before the Commissioner of Income-Tax(Appeals) (for short “the CIT(A)”) which was partly allowed on4.9.1995. However, the disallowance for provision for bad anddoubtful debts was upheld. On further appeal filed by the assessee,the Tribunal accepted the claim of the assessee relating to provisionfor bad and doubtful debts vide order dated 28.2.2003. The Revenuefeeling dissatisfied with the order of the Tribunal has approachedthis Court. 3.We have heard learned counsel for the parties and haveperused the record. 4.Learned counsel for the Revenue submitted that theTribunal was in error in allowing the provision for bad and doubtfuldebts as claimed by the assessee. According to the learnedcounsel, Explanation to Section 36(1)(vii) inserted by Finance Act,2001 retrospectively with effect from 1.4.1989 provided that provisionfor bad and doubtful debts was inadmissible as expense and thedebt which had become bad and doubtful alone could be claimed asdeduction. It was further urged that such bad and doubtful debt hadto be written off with relation to the account of the debtor. Learnedcounsel for the assessee on the other hand supported the orderpassed by the Tribunal. *** 5.It would be advantageous to refer to Explanation toSection 36(1)(vii) inserted by Finance Act, 2001 with effect from1.4.1989 which reads as under:- “Explanation:- For the purposes of this clause, any baddebt or part thereof written off as irrecoverable in theaccounts of the assessee shall not include any provisionfor bad and doubtful debts made in the accounts of theassessee.” 6.A perusal of the said explanation clearly spells out thatprovision for bad and doubtful debt is not to be included in any baddebt or part thereof written off as irrecoverable in the accounts of theassessee. In other words, it is only actual debt whose recovery hasbecome bad which is written off is admissible and no provision forbad and doubtful debt is admissible as expenditure under Section 36(1)(vii) of the Act. The Tribunal had thus erred in reversing theorder of CIT(A) and allowing the provision for bad and doubtful debtas expense under Section 36(1)(vii) of the Act. 7. In view of the above, the appeal is allowed and substantial question of law is answered in favour of the revenue. ( Ajay Kumar Mittal) Judge 6.A perusal of the said explanation clearly spells out thatprovision for bad and doubtful debt is not to be included in any baddebt or part thereof written off as irrecoverable in the accounts of theassessee. In other words, it is only actual debt whose recovery hasbecome bad which is written off is admissible and no provision forbad and doubtful debt is admissible as expenditure under Section 36(1)(vii) of the Act. The Tribunal had thus erred in reversing theorder of CIT(A) and allowing the provision for bad and doubtful debtas expense under Section 36(1)(vii) of the Act. 7. In view of the above, the appeal is allowed and substantial question of law is answered in favour of the revenue. ( Ajay Kumar Mittal) Judge March 28, 2011Pka (Adarsh Kumar Goel) Judge