Industrial Development Bank of India Vs DCIT (Bombay High Court)
Bombay High Court held that the deduction on account of provision for bad and doubtful debts u/s. 36(1)(viia) of the Income Tax Act is distinct and independent of the provisions of section 36(1)(vii) of the Income Tax Act relating to allowance of the bad debts.
Facts- The appellant is a Scheduled Commercial Bank, which has rural branches as defined in clause (ia) of Explanation to Section 36(1) (viia) of the Income-tax Act. The assessee follows the practice of writing off in its books of accounts, bad debts during the course of the year as well as making provisions on the last day of the accounting year. The provision that may be made u/s. 36(1)(viia) is a percentage of the total income and another percentage of the advances made during the year, which necessarily means that it can only be computed at the end of the year.
In assessing the income of the assessee, AO was of the view that not only the opening balance in the ‘provision account’ at the beginning of the year should be taken into account, but also the provision made at the end of the year be reduced, along with bad debts being an amount of Rs.1,11,79,936/- and allowed only the balance amount of bad debts.
