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Case Law Details

Case Name : The Kannur Dist. Co-op Bank Ltd. Vs. ACIT (ITAT Cochin)
Appeal Number : I.T.A. No. 323/Coch/2010
Date of Judgement/Order : 23/03/2012
Related Assessment Year : 2007-08
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In this appeal, the only issue urged by the assessee is whether the AO was justified in netting the provision made for bad and doubtful debts, i.e. netting of new provision made during the year under consideration and the provision of earlier years written back during the year. As stated earlier, it will only be an academic exercise to address this issue.

Nevertheless, since both the tax authorities have dealt with this issue, we also proceed to decide the same. During the year under consideration, the assessee created net provision of Rs.7.35 crores, i.e., it created a new provision for bad and doubtful debts to the tune of Rs.35.27 crores and also wrote back a sum of Rs.27.92 crores from out of the opening balance of Provision for bad and doubtful debts. The assessee claimed a sum of Rs.35.27 crores under section 36(1)(viia) of the Act. However the AO took the view that the net amount of Provision for bad and doubtful debts debited to the Profit and Loss account, i.e., Rs.7.35 crores (Rs.35.27 crores less Rs.27.92 crores) should be treated as the provision for bad and doubtful debts, for the purpose of sec. 36(1)(viia) of the Act. The said view of the AO was upheld by Ld CIT(A).

Both the parties have failed to furnish the break up details or the modalities followed for creating the “Provision for bad and doubtful debts”. Prima facie, in our view, there is merit in the contention of the assessee. The decision to create a Provision for bad and doubtful debts is taken on the basis of the quality of “Advances and debts” as are available at the end of a particular year. Similarly the decision to write back the provision or reverse the provision that were created in earlier years is taken on the basis of the recovery pattern of the “Advances and debts”, against which the provision was created in earlier years. Thus both the decisions are taken on the basis of different set of facts and hence both the decisions constitute independent decisions, which are not related to each other. Hence, we agree with the contention of the assessee that the provision for bad and doubtful debts newly created during the year under consideration should not be netted against the amount written back or reversed. However, there might be a situation that the provision created for a particular debt needs enhancement and in that situation, only the enhanced amount should be treated as the new provision for the purpose of sec. 36(1)(viia) of the Act.

INCOME TAX APPELLATE TRIBUNAL, COCHIN

I.T.A. No. 323/Coch/2010 -Assessment Year : 2007-08

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