Deputy Commissioner of Income-tax,, v. Nevis Networks India Pvt. Ltd.,, Pune

ITA 134/PUN/2015 | 2010-2011
Pronouncement Date: 07-10-2016 | Result: Dismissed

Appeal Details

RSA Number 13424514 RSA 2015
Assessee PAN AABCN7163P
Bench Pune
Appeal Number ITA 134/PUN/2015
Duration Of Justice 1 year(s) 8 month(s) 8 day(s)
Appellant Deputy Commissioner of Income-tax,,
Respondent Nevis Networks India Pvt. Ltd.,, Pune
Appeal Type Income Tax Appeal
Pronouncement Date 07-10-2016
Appeal Filed By Department
Order Result Dismissed
Bench Allotted B
Tribunal Order Date 07-10-2016
Date Of Final Hearing 28-09-2016
Next Hearing Date 28-09-2016
Assessment Year 2010-2011
Appeal Filed On 29-01-2015
Judgment Text
] ]] ] IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B PUNE ! ' $ % BEFORE MS. SUSHMA CHOWLA JM AND SHRI ANIL CHATURV EDI AM ITA NO.134/PN/2015 ASSESSMENT YEAR : 2010-11 THE DY. COMMISSIONER OF INCOME TAX CIRCLE 2 PUNE. . APPELLANT VS. NEVIS NETWORKS INDIA PVT. LTD. NO.3 VISHWA KALYAN S.NO.149/3 OFF. ITI AUNDH PUNE 411 007. PAN : AABCN7163P . RESPONDENT / APPELLANT BY : SHRI HITENDRA NINAWE / RESPONDENT BY : SHRI C. H. NANIWADEKAR / DATE OF HEARING : 28.09.2016 / DATE OF PRONOUNCEMENT: 07.10.2016 & / ORDER PER ANIL CHATURVEDI AM : THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-II PUNE DATED 31.10.2014 FOR THE ASSESSMENT YEAR 2010-11. 2. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERI ALS ON RECORD ARE AS UNDER :- 2.1 ASSESSEE IS A COMPANY STATED TO BE ENGAGED IN T HE BUSINESS OF EXPORT OF SOFTWARE. THE ASSESSEE FILED ITS RETURN OF INCOME FOR ASSESSMENT YEAR 2010-11 ON 31.03.2012 DECLARING TOTAL TAXABLE INCOME IS NIL. THE CASE WAS SELECTED FOR SCRUTINY AND THEREAFTER THE ASSESSMENT WAS FRAMED U NDER SECTION 143(3) OF THE 2 ITA NO.134/PN/2015 INCOME TAX ACT 1961 (IN SHORT THE ACT) VIDE ORDE R DATED 26.03.2013 AND THE TOTAL TAXABLE INCOME WAS DETERMINED AT RS.95 98 259/-. A GGRIEVED BY THE ORDER OF LD. ASSESSING OFFICER ASSESSEE CARRIED THE MATTER BEFO RE THE LD. CIT(A) WHO VIDE ORDER DATED 31.10.2014 (IN APPEAL NO.PN/CIT(A)-II/D CIT.CIR.2/207/2013-14/69) ALLOWED THE APPEAL OF THE ASSESSEE. AGGRIEVED BY T HE ORDER OF LD. CIT(A) REVENUE IS NOW IN APPEAL BEFORE US AND HAS RAISED THE FOLLO WING GROUNDS :- 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) ERRED IN ALLOWING THE DEDUCTION OF PROVISION FOR BAD DEBTS FOR RS.15 02 8 6 161/-. A) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN HOLDING THAT THE DEBTS HAVE BECOME BAD AND DEDUCTABLE EVEN WHEN ONLY A PROVISION THEREOF FOR BAD DEBTS HAS BEEN MADE AND NOT ACTUALL Y WRITTEN OFF. B) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN HOLDING THAT THE DECISION OF THE APEX COURT IN THE CASE OF VIJAY A BANK VS CIT (2010) 323 ITR 163 IS APPLICABLE TO THIS CASE EVEN WHEN TH E ASSESSEE HAS FAILED TO ESTABLISH THAT THE DEBTS HAD BECOME BAD AS ONLY A PROVISION THEREOF FOR BAD DEBTS WAS MADE AND NOT ACTUALLY WRITTEN OFF . C) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN HOLDING THAT THE DECISION OF THE APEX COURT IN THE CASE OF VIJAY A BANK VS CIT (2010) 323 ITR 163 IS APPLICABLE TO THIS CASE EVEN WHEN TH E CASE IS DISTINGUISHABLE FROM THE PRESENT CASE AS THE VIJAYA BANK IS AN ASSESSEE IN BANKING BUSINESS WHERE PROVISION FOR BAD AND DOU BTFUL DEBTS ARE ALLOWABLE. FURTHER IN THE CASE OF VIJAYA BANK THE PROVISION FOR BAD DEBTS HAS BEEN REDUCED FROM THE ASSETS SIDE WHILE IN THE PRESENT CASE IT HAS BEEN SHOWN AS PROVISION FOR BAD DEBTS IN THE DEBTOR S. D) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN ALLOWING THE DEDUCTION FOR BAD DEBTS EVEN WHEN THE AMOUNTS HAVE NOT BEEN PERMANENTLY REDUCED FROM THE ASSETS SIDE OF THE BAL ANCE SHEET BUT ONLY THE PROVISIONS HAVE BEEN MADE FOR THE SAME. 2. THE APPELLANT CRAVES LEAVE TO ADD ALTER OR AMEN D ANY OR ALL THE GROUNDS OF APPEAL. 3. BEFORE US AT THE OUTSET THE LD. DR SUBMITTED T HAT THOUGH THE REVENUE HAS RAISED VARIOUS GROUNDS BUT THE SOLITARY ISSUE IS WI TH RESPECT TO DELETION OF ADDITION MADE ON ACCOUNT OF PROVISION FOR BAD DEBTS. 3.1 DURING THE COURSE OF ASSESSMENT PROCEEDINGS TH E ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD DEBITED RS.15 02 86 161/- ON ACCOUNT OF PROVISION FOR BAD AND DOUBTFUL DEBTS. THE ASSESSING OFFICER NOTED TH AT THE PROVISION WAS WITH 3 ITA NO.134/PN/2015 RESPECT TO THE MAJOR CUSTOMER AND HOLDING COMPANY O F THE ASSESSEE NAMELY NEVIS NETWORKS INC. USA. HE NOTED THAT RBI HAD NOT PERM ITTED THE ASSESSEE TO WRITE-OFF THE DEBTS IN THE BOOKS OF ACCOUNT. THE ASSESSING O FFICER WAS FURTHER OF THE VIEW THAT AS PER THE PROVISIONS OF SECTION 36(1)(VII) R. W.S. 36(2) OF THE ACT THE DEDUCTION ON ACCOUNT OF BAD DEBTS IS ALLOWABLE ONLY WHEN SUCH DEBTS ARE IRREVOCABLY WRITTEN- OFF IN THE BOOKS OF ACCOUNT BY THE ASSESSEE AND FUR THER EVEN THE EXPLANATION TO SECTION 36(1)(VII) MAKES IT CLEAR THAT BAD DEBTS WR ITTEN-OFF SHALL NOT INCLUDE ANY PROVISION FOR BAD AND DOUBTFUL DEBTS. THE ASSESSIN G OFFICER THEREFORE CONCLUDED THAT THE ASSESSEE HAD NOT WRITTEN-OFF DEBTS IRREVOC ABLY FROM THE BOOKS OF ACCOUNT AND THEREFORE THE ESSENTIAL PRE-CONDITIONS STIPULAT ED UNDER SECTION 36(1)(VII) WAS NOT FULFILLED AND THEREFORE ASSESSEES CLAIM FOR DE DUCTION CANNOT BE ALLOWED. HE ACCORDINGLY DISALLOWED THE CLAIM OF DEDUCTION OF RS .15 02 86 161/-. AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER THE ASSESSEE CA RRIED THE MATTER BEFORE THE LD. CIT(A) WHO DECIDED THE ISSUE IN FAVOUR OF THE ASSE SSEE BY HOLDING AS UNDER :- 3.6 I HAVE CONSIDERED THE SUBMISSION MADE BY THE A PPELLANT AND PERUSED MATERIAL ON RECORD. THE ONLY ISSUE CONTESTED BY THE APPELLANT RELATES TO THE DISALLOWANCE OF BAD DEBTS WRITTEN OFF U/S. 36(1)(VI I) AMOUNTING TO RS. 15 02 86 161/- CHARGED TO THE PROFIT AND LOSS ACCOUNT. THE APPELLA NT IS A REGISTERED STPI UNIT A PVT LTD. COMPANY CARRYING ON THE BUSINESS OF EXPORTING SOFTWARE TO NEVIS NETWORK INC WHICH IS A HOLDING COMPANY OF THE APPELLANT COMPANY . THE SAID COMPANY I.E. NEVIS NETWORK INC HAS FILED FOR BANKRUPTCY IN USA AND CON SEQUENTLY HAD NOT PAID THE DUES OF THE APPELLANT AND AS THE SAID AMOUNT IS NO LONGER RECEIVABLE TO THE APPELLANT THE SAME HAS BEEN WRITTEN OFF BY THE APPE LLANT. THE APPELLANT'S DUES BEING RELATED TO EXPORT TRANSACTIONS HENCE HAD TO G ET THE APPROVAL FROM THE RBI BEFORE WRITING OFF THE SAID RECEIVABLES AND HENCE I N CONSEQUENCE FILED THE APPLICATION FOR THE APPROVAL FROM THE RBI HOWEVER THE SAME COULD NOT BE RECEIVED UNTIL THE FINALIZATION OF ACCOUNTS. THE APPELLANT H OWEVER REFLECTED THE SAID WRITE OFF AS A PROVISION FOR BAD AND DOUBTFUL DEBTS INSTEAD O F SHOWING THE SAME AS WRITTEN OFF IN ITS AUDITED FINANCIAL STATEMENTS. THUS SO F AR AS THE PRESENTATION OF THE DEBTS AS A PROVISION IN THE FINANCIAL STATEMENTS IN PRINC IPLE FINDS SUPPORT BY THE DECISION OF THE APEX COURT IN VIJAYA BANK VS CIT CITED SUPRA. T HE LAW REQUIRES THAT A BAD DEBT SHOULD BE WRITTEN OFF IN THE ACCOUNTS. THE CREATION OF A RESERVE FOR THE PURPOSE BY DEBIT TO THE PROFIT AND LOSS ACCOUNT HAD BEEN CONSI DERED ADEQUATE FOR THE PURPOSE IN SOME EARLIER DECISIONS FOLLOWED IN CIT VS GIC SU PRA ALSO RELIED UPON BY THE APPELLANT BUT THE SAID DECISION WAS RENDERED PRIOR TO THE AMENDMENT TO S. 36(1)(VII) BY THE FINANCE ACT 2001 WITH RETROSP ECTIVE EFFECT FROM APRIL 1ST 1989. THE PRESENT LAW EFFECTIVE FROM A.Y. 1989-90 ALLOWS ANY DEBT 'WHICH IS WRITTEN OFF' AS IRRECOVERABLE IN THE ACCOUNT OF THE ASSESSEE FOR THE PREVIOUS YEAR.' S. 36(1)(VII) REQUIRES A BAD DEBT TO BE ACTUALLY WRITTEN OFF AND IT SHOULD BE 'WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE FOR T HE PREVIOUS YEAR'. THE MANNER IN WHICH SUCH WRITE OFF HAS TO BE MADE HAS NOT BEEN SP ELT OUT IN THE STATUE. THE ISSUE BEING WHETHER IT COULD BE DONE ONLY BY SQUARING UP THE ACCOUNT OF THE DEBTOR OR 4 ITA NO.134/PN/2015 WHETHER IT COULD BE DONE BY ANY MEANS OTHER THAN MA KING A MERE PROVISION IN THE ACCOUNTS. THE KARNATAKA HIGH COURT IN CIT VS VIJAYA BANK (2010) 323 ITR 163 (KAR) HELD THAT A MERE PROVISION OF NON- PERFORMING ASSETS OUT OF ADVANCES BY SHOWING IT AS A DEDUCTION FROM THE DEBTOR IN THE AS SET SIDE OF THE BALANCE SHEET AND CREDITING RESERVES FOR THE BAD DEBTS WITH CORRESPON DING BOOK ENTRIES DID NOT AMOUNT TO WRITING OFF. THIS DECISION HOWEVER HAS BEEN RE VERSED BY THE APEX COURT IN VIJAYA BANK VS CIT CITED SUPRA. THE TRIBUNAL HAD HE LD IN THIS CASE THAT IT IS NOT IMPERATIVE TO CLOSE EACH AND EVERY ACCOUNT OF THE D EBTORS IN ITS BOOKS OF ACCOUNT FOLLOWING THE DECISION IN VITHALDAS H. DHANJIBHAI B ARDANWALA VS CIT (1981) 130 ITR 95(GUJ) HOWEVER THE HIGH COURT FOUND THAT THE DEC ISION RELIED UPON BY THE TRIBUNAL WAS RENDERED PRIOR TO INSERTION OF EXPLANATION TO S . 36(1)(VII) BY THE FINANCE ACT 2001 WITH EFFECT FROM 01/04/1990 RULING OUT DEDUCTI ON OF A MERE PROVISION FOR BAD AND DOUBTFUL DEBTS. THE SUPREME COURT IN THE DECISI ON OF SAID CASE POINTED OUT THAT THIS ISSUE HAS ALREADY BEEN DEALT WITH BY THE COURT IN SOUTHERN TECHNOLOGIES LTD. VS JCIT(2010) 320 ITR 577(SC) AFFIRMING THE DECISION O F THE MADRAS HIGH COURT WHEREIN THE APEX COURT POINTED OUT THAT THOUGH A ME RE PROVISION COULD NOT BE TREATED AS WRITE OFF AFTER THE 'EXPLANATION' THERE COULD BE OTHER MODES OF WRITE OFF WITHIN THE MEANING OF S. 36(1)(VII) OF THE ACT. IN VIJAYA BANK'S CASE IT WAS FOUND BY THE SUPREME COURT THAT THE BANK HAD CORRESPONDING / SIMULTANEOUSLY OBLITERATED THE SAID PROVISION FOR BAD DEBT FROM THE ACCOUNTS BY RE DUCING THE CORRESPONDING AMOUNT FROM LOANS AND ADVANCES / DEBTORS ON THE ASS ET SIDE OF THE BALANCE SHEET THEREBY NETTING THE ASSET OF LOANS AND ADVANCE. IT IS IN THE CONTEXT THAT THE WRITE OFF WAS FOUND TO MERIT DEDUCTION U/S. 36(1)(VII). THE A PEX COURT FURTHER CLARIFIED THAT IT IS NOT NECESSARY TO SQUARE UP EACH INDIVIDUAL ACCOUNT AND POINTED OUT THAT WHERE THERE IS RECOVERY IN RESPECT OF AN ACCOUNT WHICH HA S BEEN WRITTEN OFF IT WILL NECESSARILY HAVE TO BE CREDITED TO THE PROFIT AND L OSS ACCOUNT EVEN IF INDIVIDUAL ACCOUNT HAD BEEN WRITTEN OFF. THUS THE OBSERVATION OF THE AO IN THE PRESENT CASE THAT THE AFORESAID DECISION OF THE APEX COURT IN VI JAY BANK'S CASE (SUPRA) IS NOT APPLICABLE IS NOT CORRECT AS THE APPELLANT HAS ALRE ADY REDUCED THE RECEIVABLES IN ITS ACCOUNTS. HENCE THE CONTENTION RAISED BY THE APPELL ANT WITH RESPECT TO THE MANNER OF PRESENTATION OF THE WRITE-OFF AS 'PROVISION FOR BAD AND DOUBTFUL DEBTS; INSTEAD OF SHOWING THE SAME AS 'WRITTEN OFF ' IS FOUND TO BE T ENABLE ON FACTS AND LAW. 3.7 HOWEVER THIS BRINGS US TO THE SECOND ISSUE WIT H RESPECT TO APPROVAL TO BE SOUGHT FROM THE RBI TO WRITE OFF THE SAID RECEIVABL ES FROM THE BOOKS OF ACCOUNT. THE AO'S OBSERVATION IN THIS REGARD IS THAT WITHOUT THE RECEIPT OF THE APPROVAL FROM THE RBI THE AMOUNT IN QUESTION CANNOT BE CLASSIFIE D AS BAD DEBTS AND CONSEQUENTLY CANNOT BE WRITTEN OFF IN BOOKS OF ACCO UNT. THE APPELLANT COMPANY IS CARRYING ON THE BUSINESS OF EXPORTING SOFTWARE TO N EVIS NETWORK INC HOWEVER THE SAID CONCERN I.E. NEVIS NETWORK INC HAS FILED FOR B ANKRUPTCY IN USA AND IN CONSEQUENCE NOT PAID THE DUES TO THE APPELLANT. THE APPELLANT COMPANY HAS WRITTEN OFF THE SAID AMOUNT WHICH HAS BEEN DEEMED TO BE NO LONGER RECEIVABLE TO THE PROFIT AND LOSS ACCOUNT. HOWEVER AS THE AFORESAID TRANSAC TION RELATES TO EXPORT THE APPELLANT WAS REQUIRED TO GET THE APPROVAL FROM THE RBI BEFORE WRITING OFF THE SAID RECEIVABLE AND THE APPELLANT HAD ACTUALLY FILED ON APPLICATION FOR APPROVAL FROM RBI HOWEVER THE SAID APPROVAL HAS NOT YET BEEN RECEIVE D BY THE APPELLANT SO FAR HENCE THE SAID AMOUNT HAS BEEN SHOWN AS A PROVISION BY TH EM IN ITS ACCOUNTS. THE APPELLANT HAS PLACED RELIANCE ON THE DECISION OF TH E DELHI HIGH COURT IN THE CASE OF CIT VS SMT NILOPHER I. SINGH CITED SUPRA FOR THE PR OPOSITION THAT THE DATE OF PERMISSION BY THE RBI HAS NO RELEVANCE SO AS TO CLA IM THE DEDUCTION FOR BAD DEBTS U/S. 36(1)(VII). THE APPELLANT HAS SHOWN THE AFORES AID DEBT AS A PROVISION BECAUSE OF THE APPROVAL HAVING NOT BEING RECEIVED FROM THE RBI. IN ANY CASE APPROVAL FROM RBI IS NOT MANDATORY CONDITION FOR WRITING OFF UND ER THE PROVISIONS OF THE ACT AND IF ANY RECOVERY AS SUCH IS MADE WITH RESPECT TO THE AM OUNT WRITTEN OFF IT WILL NECESSARILY HAVE TO BE CREDITED TO THE PROFIT AND L OSS ACCOUNT. THERE IS ALSO NO MATERIAL ON RECORD TO SUGGEST THAT THE RBI HAS REFU SED THE SAID PERMISSION TO THE APPELLANT. THE INSOLVENCY I BANKRUPTCY PETITION HAS ALREADY BEEN FILED BY THE APPELLANT'S CUSTOMER NEVIS NETWORK INC AS IS EVIDEN T FROM THE COPY OF THE BANKRUPTCY APPLICATION FILED BY THE APPELLANT. THE MATERIAL ON RECORD INDICATE THE AMOUNT TO HAVE BECOME IRRECOVERABLE AND IN CONSEQUE NCE THE APPELLANT HAS DULY 5 ITA NO.134/PN/2015 WRITTEN OFF THE DEBTS IN ITS BOOKS OF ACCOUNT AND T HE SAME IS ALSO EVIDENT FROM THE COPY OF THE LEDGER ACCOUNT AND HAS ALSO DULY APPLI ED FOR THE APPROVAL FROM RBI WHICH IS PENDING. IN THIS CONTEXT THE DECISION RELI ED UPON BY THE APPELLANT OF THE DELHI HIGH COURT IN THE CASE OF CIT VS NILOPHER I. SINGH SUPRA BECOMES RELEVANT AND WHICH HAS HELD THAT THE DATE OF PERMISSION BY T HE RBI HAS NO RELEVANCE SO AS TO CLAIM THE DEDUCTION FOR BAD DEBTS U/S. 36(1)(VII ) AS ALL THAT THE ASSESSEE HAD TO DO WAS TO WRITE OFF THE DEBT AS IRRECOVERABLE IN ITS A CCOUNTS OF THE RELEVANT PREVIOUS YEAR. IN THE LIGHT OF THE ABOVE FACTS AND THE LEGAL VIEW IN THE MATTER THE CONTENTION RAISED BY THE APPELLANT IS FOUND TO BE TENABLE AND HENCE THE DISALLOWANCE MADE BY THE AO IS LIABLE TO BE DELETED. 4. AGGRIEVED BY THE ORDER OF LD. CIT(A) REVENUE IS NOW IN APPEAL BEFORE US. BEFORE US LD. DR TOOK US OBSERVATION OF ASSESSING OFFICER AND SUBMITTED THAT SINCE ASSESSEE HAS MADE THE PROVISION OF BAD AND DOUBTFUL DEBTS THE CLAIM OF DEDUCTION IS NOT ALLOWABLE. HE THUS SUPPORTED THE ORDER OF A SSESSING OFFICER. 5. THE LD. AR ON THE OTHER HAND REITERATED THE SU BMISSIONS MADE BEFORE THE ASSESSING OFFICER AND LD. CIT(A) AND FURTHER SUBMIT TED THAT AMOUNT IN QUESTION WAS IRRECOVERABLE AS THE CUSTOMER HAD FILED FOR BANKRUP TCY AND DUES WERE NOT RECOVERABLE AND THEREFORE ASSESSEE HAD WRITTEN-OFF THE AMOUNT AND HAD APPLIED FOR APPROVAL FROM RBI. HE FURTHER SUBMITTED THAT THOUG H NOMENCLATURE USED BY THE ASSESSEE IS PROVISION FOR BAD DEBTS BUT IN REALIT Y THE ASSESSEE HAS WRITTEN-OFF OF THE AMOUNT HAS REDUCED THE DEBTS AND THE AMOUNT HAS BEEN DEBITED TO PROFIT & LOSS ACCOUNT. IN SUPPORT OF HIS CONTENTION HE POI NTED TO THE COPY OF LEDGER ACCOUNT OF THE CUSTOMER AND THE BAD DEBTS ACCOUNT P LACED IN THE PAPER BOOK. HE FURTHER SUBMITTED THAT THE ACT OF ASSESSEE WAS IN-F ACT WRITING-OFF OF BAD DEBTS AND IN SUPPORT OF THE SAME BEING AN ACCEPTED METHOD OF ACC OUNTING HE PLACED RELIANCE ON THE DECISION OF THE HONBLE APEX COURT IN THE CA SE OF VIJAYA BANK VS. CIT REPORTED IN (2010) 323 ITR 163. HE THUS SUPPORTED THE ORDER OF LD. CIT(A). 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT CASE IS WITH RESPECT TO DE DUCTION OF PROVISION FOR BAD DEBTS. THE ASSESSING OFFICER HAD DENIED THE CLAIM OF DEDUCTION FOR THE REASON THAT 6 ITA NO.134/PN/2015 ASSESSEE HAD NOT WRITTEN-OFF THE AMOUNT AS BAD DEBT S BUT HAD MADE PROVISION FOR BAD DEBTS. ON THE CONTRARY IT IS ASSESSEES SUBMI SSION THAT THOUGH THE NOMENCLATURE USED BY ASSESSEE IS PROVISION FOR BAD DEBTS BUT IN-FACT IT IS WRITE-OFF OF BAD DEBTS AS THE ASSESSEE HAS DEBITED THE AMOUNT TO THE PROFIT & LOSS ACCOUNT AND HAS ALSO REDUCED THE AMOUNT FROM THE DEBTORS AC COUNT. WE FIND THAT THE LD. CIT(A) IN THE LIGHT OF DECISION OF HONBLE APEX COU RT IN THE CASE OF VIJAYA BANK (SUPRA) HAS GIVEN A FINDING THAT ASSESSEE HAD REDUC ED THE RECEIVABLE IN ITS ACCOUNTS AND THE RATIO OF DECISION OF HONBLE APEX COURT IN THE CASE OF VIJAYA BANK (SUPRA) WAS SQUARELY APPLICABLE TO THE FACTS OF THE PRESENT CASE. FROM THE COPY OF THE ACCOUNTS BOOK THAT HAS BEEN PLACED BY THE ASSES SEE ON RECORD IT IS SEEN THAT IN THE BALANCE SHEET ASSESSEE HAD REDUCED THE PROVI SION FOR BAD DEBTS WHICH REPRESENTED THE AMOUNT DUE FROM NEVIS NETWORKS INC. USA AND THE NET AMOUNT WAS SHOWN AS RECEIVABLE. WE FURTHER FIND THAT IN T HE LEDGER ACCOUNT I.E. PLACED BY THE ASSESSEE ON RECORD THE AMOUNT HAS BEEN SHOWN A S BAD DEBTS WRITTEN-OFF. ON THE ISSUE THAT WHEN THE ASSESSEE HAS DEBITED THE PR OFIT & LOSS ACCOUNT AND HAS SIMULTANEOUSLY REDUCED THE CORRESPONDING AMOUNT FRO M THE DEBTORS ON THE ASSET SIDES OF BALANCE SHEET IT WOULD AMOUNT TO WRITE-OFF HAS BEEN CONSIDERED BY THE HONBLE APEX COURT IN THE CASE OF VIJAYA BANK (SUPR A). THE RELEVANT PORTION OF THE SAID ORDER READS AS UNDER :- 7. ONE POINT NEEDS TO BE CLARIFIED. ACCORDING TO S HRI BISHWAJIT BHATTACHARYA LEARNED ADDITIONAL SOLICITOR GENERAL APPEARING FOR THE DEPARTMENT THE VIEW EXPRESSED BY THE GUJARAT HIGH COURT IN THE CASE OF VITHALDAS H. DHANJIBHAI BARDANWALA [SUPRA] WAS PRIOR TO THE INSERTION OF TH E EXPLANATION VIDE FINANCE ACT 2001 WITH EFFECT FROM 1ST APRIL 1989 HENCE THAT LAW IS NO MORE A GOOD LAW. ACCORDING TO THE LEARNED COUNSEL IN VIEW OF THE IN SERTION OF THE SAID EXPLANATION IN SECTION 36(1)(VII) WITH EFFECT FROM 1ST APRIL 1989 A MERE DEBIT OF THE IMPUGNED AMOUNT OF BAD DEBT TO THE PROFIT AND LOSS ACCOUNT W OULD NOT AMOUNT TO ACTUAL WRITE OFF. ACCORDING TO HIM THE EXPLANATION MAKES IT VER Y CLEAR THAT THERE IS A DICHOTOMY BETWEEN ACTUAL WRITE OFF ON THE ONE HAND AND A PROV ISION FOR BAD AND DOUBTFUL DEBT ON THE OTHER. HE SUBMITTED THAT A MERE DEBIT TO THE PROFIT AND LOSS ACCOUNT WOULD CONSTITUTE A PROVISION FOR BAD AND DOUBTFUL DEBT I T WOULD NOT CONSTITUTE ACTUAL WRITE OFF AND THAT WAS THE VERY REASON WHY THE EXPLANATIO N STOOD INSERTED. ACCORDING TO HIM PRIOR TO FINANCE ACT 2001 MANY ASSESSEES USE D TO TAKE THE BENEFIT OF DEDUCTION UNDER SECTION 36(1)(VII) OF 1961 ACT BY M ERELY DEBITING THE IMPUGNED BAD DEBT TO THE PROFIT AND LOSS ACCOUNT AND THEREFORE THE PARLIAMENT STEPPED IN BY WAY OF EXPLANATION TO SAY THAT MERE REDUCTION OF PR OFITS BY DEBITING THE AMOUNT TO 7 ITA NO.134/PN/2015 THE PROFIT AND LOSS ACCOUNT PER SE WOULD NOT CONSTI TUTE ACTUAL WRITE OFF. TO THIS EXTENT WE AGREE WITH THE CONTENTIONS OF SHRI BHATT ACHARYA. HOWEVER AS STATED BY THE TRIBUNAL IN THE PRESENT 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 IT'S ACCOUNTS BY REDUCING THE CORRESPONDING AMOUNT FROM LOANS AND AD VANCES/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 DEB T. IN THE JUDGEMENT OF THE GUJARAT HIGH COURT IN THE CASE OF VITHALDAS H. DHAN JIBHAI BARDANWALA [SUPRA] A MERE DEBIT TO THE PROFIT AND LOSS ACCOUNT WAS SUFFI CIENT TO CONSTITUTE ACTUAL WRITE OFF WHEREAS AFTER THE EXPLANATION THE ASSESSEE(S) IS NOW 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 SHEE T TO THE EXTENT OF THE CORRESPONDING AMOUNT SO THAT AT THE END OF THE YEA R THE AMOUNT OF LOANS AND ADVANCES/DEBTORS IS SHOWN AS NET OF PROVISIONS FOR IMPUGNED BAD DEBT. THIS ASPECT IS LOST SIGHT OF BY THE HIGH COURT IN IT'S IMPUGNED JUDGEMENT. IN THE CIRCUMSTANCES WE HOLD ON THE FIRST QUESTION THAT THE ASSESSEE W AS ENTITLED TO THE BENEFIT OF DEDUCTION UNDER SECTION 36(1)(VII) OF 1961 ACT AS T HERE WAS AN ACTUAL WRITE OFF BY THE ASSESSEE IN IT'S BOOKS AS INDICATED ABOVE. 7. BEFORE US REVENUE HAS NOT PLACED ANY MATERIAL O N RECORD TO POINT OUT ANY FALLACY IN THE FINDINGS OF THE LD. CIT(A) NOR HAS P LACED ON RECORD ANY CONTRARY BINDING DECISION. BEFORE US REVENUE HAS ALSO NOT DEMONSTRATED AS TO HOW THE RATIO OF THE DECISION OF HONBLE APEX COURT IN THE CASE OF VIJAYA BANK (SUPRA) WOULD NOT BE APPLICABLE TO THE FACTS OF THE PRESENT CASE. IN VIEW OF THE AFORESAID FACTS WE ARE OF THE VIEW THAT NO INTERFERENCE TO THE ORDER O F LD. CIT(A) IS CALLED FOR AND THUS THIS GROUND OF THE REVENUE IS DISMISSED. 8. IN THE RESULT THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED ON THIS 7 TH DAY OF OCTOBER 2016. SD/- SD/- ( SUSHMA CHOWLA ) ( ANIL CHATURVEDI ) / JUDICIAL MEMBER $ / ACCOUNTANT MEMBER PUNE ; DATED : 7 TH OCTOBER 2016. 8 ITA NO.134/PN/2015 & ' (!)* +*! / COPY OF THE ORDER IS FORWARDED TO : 1) THE ASSESSEE; 2) THE DEPARTMENT; 3) THE CIT(A)-II PUNE; 4) THE CIT-II PUNE; 5) THE DR B BENCH I.T.A.T. PUNE; 6) GUARD FILE. & / BY ORDER ' # //TRUE COPY// $ %& # '( / SR. PRIVATE SECRETARY ) '* / ITAT PUNE