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| The Tax Publishers2020 TaxPub(DT) 2026 (Coch-Trib) INCOME TAX ACT, 1961
Section 263
Where AO, without examining the issue allowed provision for bad debts as deduction though it was not written off by crediting to individual accounts of parties concerned in books. Pr. CIT was justified in exercising his power under section 263 so as to reconsider allowbaility of bad debts claimed by assessee because unless bad debt is written off by debiting to P&L account condition as contemplated under section 36(1)(vii) is not satisfied.
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Revision under section 1263 - Erroneous and prejudicial order - AO allowed deduction of bad debt under section 36(1)(vii) without writing off of bad debts by debiting to P&L account -
Pr.CIT held assessment order as erroneous and prejudicial to the interest of revenue. On the ground that AO without examining the issue allowed provision for bad debts as deduction though it was not written off by crediting to individual accounts of parties concerned in books of accounts of assessee so as to claim deduction under section 36(1)(vii). Assessee contended that AO had duly verified accounts of assessee and allowed deduction and also here was no mandate to write off bad debts by debiting to P&L account so as to claim deduction under section 36(1)(vii). Also, assessee contended that when bad debt is recovered, there is provision for assessment of same under section 41. Held: Profit and loss account is the final computation of profit made by assessee based on which assessment is to be framed. Unless bad debt is written off by debiting to P&L account which necessarily means that debtors' account should be credited or so much of the amount debited in the profit and loss account should be written off from the amount due from the debtors, the condition as contemplated under section 36(1)(vii) is not satisfied. Even safety provision under section 41 could not entitle assessee to claim bad debt as a deduction without satisfying the conditions contained in section 36(1)(vii). Accordinlgy, Pr. CIT was justified in exercising his power under section 263 so as to reconsider allowbaility of bad debts claimed by assessee.
Supported by:Sampanna Kuries Pvt. Ltd. v. DCIT (2012) 249 CTR 210 (Ker) : 2012 TaxPub(DT) 1912 (Ker-HC), Art Leasing Ltd. v. CIT (2010) 229 CTR 272 (Ker) : 2010 TaxPub(DT) 817 (Ker-HC) and State Industrial Development Corporation Ltd. v. CIT 281 ITR 413, Travancore Tea Estates Co. Ltd. v. CIT (1992) 102 CTR (Ker) 253 : (1992) 197 ITR 528 (Ker) : 1992 TaxPub(DT) 0998 (Ker-HC), Travancore Tea Estates Co. Ltd. v. CIT (1999) 151 CTR (SC) 231 : (1998) 233 ITR 203 (SC) : 1998 TaxPub(DT) 1070 (SC) and CIT v. Coates of India Ltd. (1998) 150 CTR (Cat) 311 : (1998) 232 ITR 324 (Cal) : 1998 TaxPub(DT) 1207 (Cal-HC) and CIT v. Hotel Ambassador 253 ITR 430. Distinguished:Vijaya Bank Ltd. (2010) 323 ITR 166 (SC) : 2010 TaxPub(DT) 1825 (SC).
REFERRED :
FAVOUR : Against the assessee.
A.Y. : 2014-15
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