The Tax Publishers2021 TaxPub(DT) 0172 (Pune-Trib)


Section 36(1)(vii)

Where assessee created provision for bad debts but did not claim any deduction there of at the time of creation of provision then the same amount cannot be brought to tax at the time when such provision is reversed

Bad debts - Provision for bad debts - Assessee had made provision for bad and doubtful debts in earlier years but did not claim any deduction -

The assessee, a co-operative bank, debited Rs. 5.00 crore on account of Bad and Doubtful Reserve (being Provision). A sum of Rs. 1,67,64,206 was simultaneously reduced from the above amount. The net amount of Rs. 3,32,35,794 was debited by the assessee in its Profit & Loss account. In the computation of income, the assessee added back Rs. 3.32 crore. The AO came to hold that the amount of provision of Rs. 1.67 crore reversed by the assessee was liable to be separately considered as income. He, therefore, made addition for the same, which came to be deleted in the first appeal. Held: The assessee had made a provision for bad and doubtful debts and then added back the same amount while computing its total income, in the same way in which the provision for the instant year at Rs. 5.00 crore, after adjustment of Rs. 1.67 crore, was debited to the Profit & Loss Account and also added back in the computation of income. In other words, the assessee eventually did not claim any deduction at the time of creation of provision for bad and doubtful debts. This mode of debiting the Profit and loss account and then adding back the same amount in computation of total income is tax-neutral. Once the creation of provision did not render reduction in the income, its later reversal, equally, cannot also lead to generation of taxable income notwithstanding the manner of depiction in the accounts.


FAVOUR : In assessee's favour.

A.Y. : 2011-12