INCOME TAX ACT, 1961

Section 36(1)(viia)

Business deduction under section 36(1)(viia) - Bad debts - Allowability - No provision for bad and doubtful debts made in books of account

Tribunal allowed appeal of assessee claiming deduction towards bad and doubtful debts without making provision for the same. Revenue contended that in order to claim deduction under section 36(1)(viia), a provision for bad and doubtful debt should be made in accounts of the assessee. Assessee contended that section 36(1)(vii) and section 36(1)(viia) operate in different fields. Further, provision in taxing Statute granting incentive for promoting growth and development should be construed literally.Held: The condition precedent for claiming deduction under section 36(1)(viia) is that a provision for bad and doubtful debt should be made in accounts of the assessee. The said section mentions the maximum amount for which such a provision should be made. If a provision is made in excess of the limits prescribed under the section, the assessee would not be entitled to deduction of the excess amount. Once a provision is made and the amount of deduction is within the limit prescribed under the Act, the assessee would be entitled to deduction of the amount for which provision is made in the books of account. Therefore, the Tribunal was not justified in allowing appeal of the assessee claiming deduction towards bad and doubtful debts without making provision for the same

REFERRED :

FAVOUR : Against the assessee.

A.Y. :

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