BAJAJ AUTO FINANCE LTD. Vs. COMMISSIONER OF INCOME TAX
LAWS(BOM)-2018-2-178
HIGH COURT OF BOMBAY
Decided on February 23,2018

BAJAJ AUTO FINANCE LTD. Appellant
VERSUS
COMMISSIONER OF INCOME TAX Respondents

JUDGEMENT

M.S.SANKLECHA,J. - (1.) This Reference under Section 256(1) of the Income Tax Act, 1961 (the Act) at the instance of the applicant assessee seeks our opinion on the following question of law:- (i) Whether on the facts and in the circumstances of the case and in law, the Tribunal was right in holding that the Assessing Officer was justified in making an adjustment u/s 143(1)(a) relating to disallowance of the claim for bad debts under Section 36(1)(viii) in respect of a sum of Rs.1,69,37,818/- representing "provision for doubtful overdue installments under hire purchase finance agreements"?
(2.) This Reference relates to Assessment Year 1993-94. The facts leading tot he present Reference as set out in the Statement of Case are as under :- "2. The assessee company had debited in its profit and loss account a sum of Rs.1,69,37,818/- representing "provision for doubtful overdue installments under Hire Purchase Finance Agreements". In its return of income, the assessee claimed the said provision as bad debts u/s 36(1)(vii) of the Income Tax Act . In the Notes on computation of total income submitted with the return, it was clarified that the said amount was claimed as a deduction, relying on the decision of the Gujarat High Court in the case of Vithaldas H.Dhanjibhai Bardanwala (130 ITR 95). The Assessing Officer disallowed the claim u/s 141(1)(a) on the ground that the amount represented mere provision for doubtful debts and, as such, could not be treated as bad debts. The assessee filed an application u/s 154 for deletion of the adjustment. It was contended before the Assessing Officer that the adjustment could not be made in respect of a provision for doubtful installments, as its allowability was a debatable issue. The Assessing Officer rejected the application u/s 154.
(3.) It was contended before the learned C.I.T.(A) that since the "provision for doubtful overdue installments under Hire Purchase Agreement" had been debited to the profit and loss account, the assessee should be treated to have satisfied the conditions laid down u/s 36(1)(vii) read with Sec.36(2). In this regard, reliance was placed on the decision in the case of Vithaldas H. Dhanjibhai Bardanwala V. Commissioner of Income Tax, (130 ITR 95 - Guj.) and Industrial Credit & Investment Corporation of India Ltd. V. IAG (32 ITD 315 - Bom.Trib). It was further contended that since the courts have held that once the condition for 'writing off' is satisfied and the concerned amount has been debited to the profit and loss account and credited to Bad Debt Reserve account, it was not necessary to actually write off the concerned bad debt in the ledger account of the concerned parties. In view of this, the question whether "provision for overdue installments" was an allowable deduction or not was a debatable issue and accordingly could not be made the subject matter of adjustment u/s 143(1)(a) of the Act. According to the assessee, since the Assessing Officer was not competent to examine the claim of deduction of 'provision' without conducting further enquiries in the matter, which was permissible only after issuing a notice u/s 143(2), he was not competent to issue intimation of adjustment and reject the assessee's prayer made for rectification u/s 154.;


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