Sec 41(1) Remission of liability – Unless the remitted amount was allowed and deducted from

income in an earlier year

BANK OF TOKYO LTD. vs. JCIT

ITAT, Calcutta

ITA Nos. 1249/Cal/1997 & 480//2000

Asst. yrs. 1992-93 & 1993-94

Decided on 24th July, 2009

Gist of decision :

It is seen that the assessee had made the gross provision of Rs. 1,582.88 lakhs
for bad and doubtful debts, in its profit and loss account for the year under
consideration. It has also written back an amount of Rs. 623.45 lakhs in the P&L
a/c, from the aggregate credit balance of the assessee lying in the said account.
While computing the income chargeable as profits and gains from business or
profession, the assessee had offered the said provisions for bad and doubtful
debts. The amount of Rs. 623.45 lakhs written back included a contra entry of
Rs. 502.09 lakhs. The actual write back of the provision for bad and doubtful
debts, as such, was only of Rs. 102.49 lakhs. The AO, in the original
assessment, however, included the amount of Rs. 623.45 lakhs as the
assessee\'s income. The issue was set aside by the CIT(A). While giving effect to
the CIT(A)\'s order, the AO accepted the assessee\'s contention regarding contra
entry of Rs. 502.29 lakhs. It is, however, held that the balance amount of Rs.
102.49 lakhs, being the actual write back of the provisions of bad and doubtful
debts, constituted the income of the assessee for the reason that the said
amount had earlier been allowed as a deduction under s. 36(1)(viia). The CIT(A)
correctly held that in the absence of a specific provision in the Act, an amount of
liability written back cannot be taxed as income. Huge provisions remained
outstanding. No deductions under s. 36(1)(viia) had been allowed to the
assessee with regard thereto, in the earlier years. The amount of Rs. 102.49
lakhs had, therefore, been actually written back out of such funds made in the
earlier years. The Act does not provide for any specific provision for taxing the
write back of the amount made for bad and doubtful debts in respect of
allowance/deduction allowable under s. 36(1)(viia). Moreover, so as to bring to
tax the amount written back in the accounts, the Department nowhere brought on
record anything to show that an allowance or deduction regarding any particular
amount written back had been allowed in the earlier years. As such, the write
back on account of the provisions for bad and doubtful debts could not be
charged to tax. Further, the provisions for bad and doubtful debts were offered by
the assessee for tax. Deduction under s. 36(1)(viia) is a statutory deduction
which is allowed on certain percentage of advances or total income assessed, on
an ad hoc basis. This, obviously, cannot be linked with any specific amount of
provision for bad and doubtful debts written back. Therefore, there is no error in
the order of the CIT(A). Further, it is trite that unilateral entries in the books of
account concerning write back of provisions of bad and doubtful debts cannot
amount to recovery of any due or any part thereof. As such, the same is not
taxable.