Income Tax Appellate Tribunal - Pune
Bosch Chassis Systems India Private ... vs The Assistant Commissioner Of Income ... on 20 April, 2026
IN THE INCOME TAX APPELLATE TRIBUNAL
PUNE BENCH "A", PUNE
BEFORE SHRI R. K. PANDA, VICE PRESIDENT
AND
Ms. ASTHA CHANDRA, JUDICIAL MEMBER
ITA Nos.1387 & 1388/PUN/2025
Assessment years : 2016-17 & 2017-18
Bosch Chassis Systems India Pvt Ltd ACIT, Circle 1(1),
Gat No.306, Nanekarwadi, Chakan S.O, Vs. Pune
Chakan, Pune - 410501
PAN: AAACK7312E
(Appellant) (Respondent)
Assessee by : Shri Nikhil Pathak
Department by : Shri Madhan Thirmanpalli (virtually)
Date of hearing : 13-04-2026
Date of pronouncement : 20-04-2026
ORDER
PER R.K. PANDA, VP:
The above 2 appeals filed by the assessee are directed against the separate orders dated 27.03.2025 of the Ld. CIT(A) / NFAC, Delhi relating to assessment years 2016-17 and 2017-18 respectively. Since identical grounds have been raised by the assessee in both the appeals, therefore, for the sake of convenience, these were heard together and are being disposed of by this common order.ITA No.1387/PUN/2025 ( A.Y. 2016-17):
2. Grounds raised by the assessee are as under:
1. The learned CIT(A) erred in confirming disallowance of INR 68,28,934 in respect of expenses incurred in relation to exempt income under section 14A of the Act by invoking rule 8D income-tax Rules 1962 (the Rules). In doing so, the learned CIT(A):2
ITA Nos.1387 & 1388/PUN/2025 a. failed to objectively examine the Appellant's claim that there was no nexus between general or administrative expenses incurred and the exempt income earned by the Appellant.
b. erred in concluding that the learned AO had objectively recorded his dissatisfaction about the amount of disallowance under section 14A of the Act, suo motu offered by the Appellant in its return of Income.
c. erred in equating the working of disallowance under section 14A of the Act read with rule 8D of the Rules (submitted by the Appellant to the learned AO on "without prejudice" basis) with acceptance of applicability of rule 8D of the Rules by the Appellant.
d. erred in simply brushing aside the judicial precedents relied on by the Appellant as "of no relief to the Appellant", without any rationale for such an opinion.
2. The learned CIT(A) erred in confirming that the amount of disallowance under clause (1) of Explanation 1 to section 115JB(2) of the Act would be equal to the amount of disallowance under section 14A of the Act considered by the learned AO in the computation of income as per the normal provisions of the Act in the assessment order.
3. The learned CIT(A) erred in confirming disallowance of the weighted deduction of INR 1,21,500 claimed by the Appellant under section 35(2AB) of the Act, without appreciating that the Appellant was entitled to reagitate the claim, originally given up during the assessment proceedings under misapprehension of law, as held amongst others by the Hon'ble Supreme Court in Kamala Mills Ltd. v. State of Bombay Interveners KS.
Venkataraman & Co (P.) Ltd. (57 ITR 643) and in its 65 report dated 23 March, 1978 by the Public Accounts Committee of the Ministry of Law
4. The appellant craves leave to add, alter, amend, substitute and/or modify in any manner whatsoever all or any of the foregoing shove grounds of appeal at or before the hearing of the appeal.
3. The Ld. Counsel for the assessee at the time of hearing did not press ground of appeal No.3 for which the Ld. DR has no objection. Hence, the said ground of appeal is dismissed as 'not pressed'. Ground of appeal No.4 being general in nature, is dismissed.
3
ITA Nos.1387 & 1388/PUN/2025
4. In ground of appeal No.1 the assessee has challenged the order of the Ld. CIT(A) / NFAC in confirming the disallowance of Rs.68,28,934/- made by the Assessing Officer u/s 14A of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') r.w.s. Rule 8D of the Income Tax Rules, 1962 (hereinafter referred to as 'the Rules').
5. Facts of the case, in brief, are that the assessee is a limited company in which public is substantially interested and is engaged in the business of manufacturing brake system aggregates primarily for passenger cars and multi passenger sports utility vehicles including lower weight range of commercial vehicles and three wheelers. It filed its return of income on 28.11.2016 declaring total income of Rs.22,58,46,600/-. The return was processed u/s 143(1) of the Act accepting the returned income. Subsequently the case was selected for scrutiny. Accordingly, statutory notice u/s 143(2) of the Act was issued and served on the assessee. Thereafter, notice u/s 142(1) of the Act along with a questionnaire was issued and served on the assessee.
6. During the course of assessment proceedings the Assessing Officer noticed from the computation of taxable income that the assessee has received dividend of Rs.11,52,20,689/- which has been claimed as exempt u/s 10(34) and 10(35) of the Act. He observed that the assessee has incurred certain expenditure such as interest, administrative expenses and other indirect expenses. According to the Assessing Officer as per the provisions of section 14A expenditure in relation to income which does not form part of total income cannot be allowed as deduction. 4
ITA Nos.1387 & 1388/PUN/2025 Although the assessee has suo motu disallowed expenses amounting to Rs.6,00,566/- in relation to the above exempt income, however, he noted that the said disallowance was not worked out in accordance with Rule 8D of the Rules as prescribed u/s 14A of the Act. He, therefore, confronted the same to the assessee in response to which the assessee filed a detailed explanation. However, the Assessing Officer was not satisfied with the arguments advanced by the assessee and computed the disallowance @ 1% of annual average of the monthly averages of the opening and closing balance of investments and computed the said disallowance at Rs.74,29,500/-. After considering the suo motu disallowance offered by the assessee of Rs.6,00,566/-, he made addition of Rs.68,28,934/-.
7. In appeal, the Ld. CIT(A) / NFAC confirmed the disallowance made by the Assessing Officer. While doing so, he held that the amendment to Rule 8D of the Rules introduced w.e.f. 02.06.2016 is applicable for assessment year 2016-17. For the above proposition he relied on the decision of the Pune Bench of the Tribunal in the case of Poonawala Shares & Securities Pvt Ltd vs. ACIT vide ITA No.380/PUN/2020.
8. Aggrieved with such order of the Ld. CIT(A) / NFAC, the assessee is in appeal before the Tribunal.
9. The Ld. Counsel for the assessee submitted that Rule 8D of the I T Rules has been amended w.e.f. 02.06.2016 which provides for disallowance @ 1% of the 5 ITA Nos.1387 & 1388/PUN/2025 annual average of the monthly averages of the opening and closing balance of investments. Prior to the said amendment, Rule 8D(2)(iii) of the Rules provided for 0.50% of the average value of tax free investments. He submitted that the said amendment in Rule 8D of the Rules, which has been introduced w.e.f. 02.06.2016, is applicable for assessment year 2017-18 and onwards and not to assessment year 2016-17. Relying on various decisions he submitted that the law as on the 1st day of the assessment year is to be considered. For the above proposition, he relied on the decision of Hon'ble Kerala High Court in the case of CIT vs S A Wahab reported in (1990) 182 ITR 464 (Kerala) wherein it has been held that the amendment to the Act or Rule which comes into force after the 1 st day of the financial year would not apply to the concerned assessment year.
10. Referring to the decision of the Hon'ble Supreme Court in the case of CIT vs. Essar Teleholdings Ltd. reported in (2018) 401 ITR 445 (SC), he submitted that the Hon'ble Supreme Court in the said decision has held that the amendment brought in Rule 8D of the Rules w.e.f. 02.06.2016 is prospective in operation.
11. Referring to the decision of the Hyderabad Bench of the Tribunal in the case of Prasad Film Laboratories Pvt Ltd vs. ACIT vide ITA No.1133/Hyd/2019 order dated 22.02.2022 for assessment year 2016-17, he submitted that the Tribunal in the said decision has held that the amendment to Rule 8D would be applicable from assessment year 2017-18 onwards.
6
ITA Nos.1387 & 1388/PUN/2025
12. So far as the decision of the coordinate Bench of the Tribunal in the case of Poonawalla Shares & Securities vs. ACIT (supra) relied on by the Ld. CIT(A) / NFAC is concerned, he submitted that the Tribunal has not considered the decision of Hon'ble Supreme Court in the case of CIT vs. Essar Teleholdings Ltd. (supra) and therefore, the view laid down is in contravention to the decision of Hon'ble Supreme Court. He accordingly submitted that the order of the Ld. CIT(A) / NFAC be modified and the Assessing Officer be directed to work out the disallowance at 0.50% of the annual average of the monthly averages of the opening and closing balance of investments as per amended Rule 8D of the Rules.
13. The Ld. DR on the other hand heavily relied on the order of the Ld. CIT(A) / NFAC.
14. We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and Ld. CIT(A) / NFAC and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. The only dispute to be decided in the impugned ground is regarding the computation of disallowance u/s 14A r.w.s. 8D. While the Assessing Officer in the instant case has computed the disallowance @ 1% of annual average of the monthly averages of the opening and closing balance of investments. It is the submission of the Ld. Counsel for the assessee that the same should be computed @ 0.50% of annual average of tax free investments since the amendment to Rule 7 ITA Nos.1387 & 1388/PUN/2025 8D of the Rules w.e.f. 2nd June, 2016 is prospective in nature and applicable to assessment year 2017-18 and onwards.
15. We find some force in the above arguments of the Ld. Counsel for the assessee. A perusal of the provisions of law shows that Rule 8D has been amended w.e.f. 02.06.2016 which provides for disallowance @ 1% of the annual average of the monthly averages of the opening and closing balance of the tax free investments. Prior to the said amendment, Rule 8D(2)(iii) of the Rules provided for 0.50% of the average value of tax free investments. It has been held in various decisions that the law as on the 1st day of the assessment year is to be considered.
16. We find the Hon'ble Kerala High Court in the case of CIT vs. S A Wahab (supra) has held that the amendment to the Act or Rule which comes into force after the 1st day of the financial year would not apply to the concerned assessment year. The relevant observations of the Hon'ble High Court from paras 6 to 7 read as under:
"6. We are of the opinion that though the subject of the charge is the income of the previous year, the law to be applied is the law that is in force in the assessment year, unless the law is changed. In fact, what has to be looked into is the law of income-tax. The provisions of the Income-tax Act as they stand on the 1st April of a financial year must apply for that year. Further, since the law that has to be applied is the law as it stands on the 1st April of a financial year, any amendments in the Act, which come into force after 1st April of a financial year, would not apply to the assessment for that year, even if the assessment is actually made after the amendments came into force. This position has been made clear by the Supreme Court in CIT v. Scindia Steam Navigation Co. Ltd. [1961] 42 ITR 589 and Karimtharuvi Tea Estate Ltd. v. State of Kerala [1966] 60 ITR 262.
7. Approving CIT v. Scindia Steam Navigation Co. Ltd. [1961] 42 ITR 589 (SC) and Karimtharuvi Tea Estate Ltd. v. State of Kerala [1966] 60 ITR 8 ITA Nos.1387 & 1388/PUN/2025 262 (SC), the Supreme Court observed in Reliance Jute and Industries Ltd.
v. CIT [1979] 120 ITR 921, 923, that "It is a cardinal principle of the tax law that the law to be applied is that in force in the assessment year unless otherwise provided expressly or by necessary implication". Any deviation from this cardinal principle and a claim made deviating from this fundamental basis underlying every income-tax assessment have to be rejected as misconceived."
17. We find the Hon'ble Supreme Court in the case of CIT vs. Essar Teleholdings Ltd. (supra) in the context of applicability of Rule 8D has considered the amendment brought in w.e.f. 02.06.2016 and in para 46 of the order has held that the said amendment is prospective in operation. The relevant observations of Hon'ble Supreme Court read as under:
"46. The method for determining the amount of expenditure brought in force w.e.f. 24.03.2008 has been given a go-bye and a new method has been brought into force w.e.f. 02.06.2016, by interpreting the Rule 8D retrospective, there will be a conflict in applicability of 5th & 14th Amendment Rules which clearly indicates that the Rule has a prospective operation, which has been prospectively changed by adopting another methodology."
18. Similar view has been taken by the Hyderabad Bench of the Tribunal in the case of Prasad Film Laboratories Pvt Ltd vs. ACIT (supra).
19. So far as the decision of the coordinate Bench of the Tribunal in the case of Poonawalla Shares & Securities vs. ACIT (supra) is concerned, the said decision cannot be followed especially in view of the decision of Hon'ble Supreme Court and Hon'ble Kerala High Court cited (supra). The order of the Ld. CIT(A) / NFAC is accordingly set aside and the Assessing Officer is directed to compute the disallowance u/s 14A read with Rule 8D by taxing 0.5% of the average value of investments. Ground of appeal No.1 by the assessee is accordingly partly allowed. 9
ITA Nos.1387 & 1388/PUN/2025
20. In ground of appeal No.2 the assessee has challenged the order of the Ld. CIT(A) / NFAC in confirming the action of the Assessing Officer in computing the MAT liability u/s 115JB(2) of the Act after adjusting the disallowance.
21. After hearing both the sides we are of the considered opinion that no disallowance u/s 14A r.w.s. 8D can be made while computing the book profits u/s 115JB of the Act in view of the decision of the Special Bench of the Tribunal in the case of Vereet Investment Pvt. Ltd. reported in 165 ITD 27 [Mumbai-Trib (SB)]. We find, following the above decision of the Special Bench, the Mumbai Bench of the Tribunal in the case of Reliance Natural Resources Ltd. reported in 166 ITD 385) has held that there is no reason to make the disallowance u/s 14A r.w.s. 8D while computing the book profits u/s 115JB of the Act. Ground No.2 raised by the assessee is accordingly allowed.
22. The appeal filed by the assessee is accordingly partly allowed. ITA No.1388/PUN/2025 (A.Y. 2017-18)
23. Grounds raised by the assessee are as under:
1. The learned CIT(A) erred in confirming disallowance of INR 24,19,736 in respect of expenses incurred in relation to exempt income under section 144 of the Act by invoking rule 8D Income-tax Rules 1962 ('the Rules'). In doing so, the learned CIT(A):
a. failed to objectively examine the Appellant's claim that there was no nexus between general or administrative expenses incurred and the exempt income earned by the Appellant.10
ITA Nos.1387 & 1388/PUN/2025 b. erred in concluding that the learned AO had objectively recorded his dissatisfaction about the amount of disallowance under section 144 of the Act suo motu offered by the Appellant in its return of income.
c. erred in equating the working of disallowance under section 14A of the Act read with rule 8D of the Rules (submitted by the Appellant to the learned AO on "without prejudice" basis) with acceptance of applicability of rule 8D of the Rules by the Appellant.
d. erred in simply brushing aside the judicial precedents relied on by the Appellant as "of no relief to the Appellant", without any rationale for such an opinion.
2. The learned CIT(A) erred in a. confirming that the amount of disallowance under clause (f) of Explanation 1 to section 115JB(2) of the Act would be equal to the amount of disallowance under section 14A of the Act considered by the learned AO in the computation of income as per the normal provisions of the Act in the assessment order; and b. confirming the consequent reduction in the amount of set-off of Minimum Alternate Tax ('MAT") credit.
3. The learned CIT(A) erred in summarily brushing aside, without adjudicating on merits, the Appellant's claim of deduction towards reversal of the provision for deferred tax allowable under clause (viii) of the Explanation 1 to section 115JB(2) of the Act.
4. The CIT(A) erred in confirming disallowance of INR 2,06,29,784 made by the learned AO under section 36(1)(vi) of the Act, without following the decision of the Hon'ble Supreme Court in Vijaya Bank V. CIT & Another (323 ITR 166 (SC)
5. The learned CIT(A) erred in:
a. not adjudicating the additional ground filed by the Appellant regarding allowance under section 40(a)(ia) of the Act, and b. consequently not granting allowance amounting to INR 2,54,66,857 under section 40(a)(ia) of the Act, out of the total disallowance of INR 5,36,56,918 in AY 2012-13, AY 2013-14 and AY 2014-15, even though the corresponding TDS was deducted and paid by the Appellant company in AY 2017-18
6. The appellant craves leave to add, alter, amend, substitute and/or modify in any manner whatsoever all or any of the foregoing above grounds of appeal at or before the hearing of the appeal.11
ITA Nos.1387 & 1388/PUN/2025
24. The assessee has raised the following additional grounds:
7. Without prejudice to ground 1, the learned Commissioner of income-tax (Appeals) ['CIT(A)'] erred in computing disallowance under section 14A read with rule 8D by not restricting the computation only to those investments which have actually earned exempt income during the captioned AY.
8. Without prejudice to the ground 4, the learned CIT(A) erred in not following the principle of judicial discipline and not relying on earlier orders of the CIT(A) and Income Tax Appellate Tribunal in the Appellant's own case.
25. The Ld. Counsel for the assessee referring to the above additional grounds submitted that the additional grounds raised are purely legal in nature which go to the root of the matter and all the necessary facts are already available on record. Referring to the decision of Hon'ble Supreme Court in the case of the National Thermal Power Co. Ltd. v. CIT [1998] 229 ITR 383 (SC) and in the case of Jute Corporation of India Ltd vs Commissioner Of Income Tax And Anr (1991) 187 ITR 688 (SC) he submitted that the additional grounds raised by the assessee should be admitted.
26. The Ld. DR on the other hand strongly objected to the admission of the additional grounds raised by the assessee.
27. After hearing both the sides and considering the fact that the additional grounds raised by the assessee are purely legal in nature and all the material facts are already available on record and no new facts are required to be investigated, therefore, in view of the decision of Hon'ble Supreme Court in the case of the National Thermal Power Co. Ltd. v. CIT (supra) and in the case of Jute 12 ITA Nos.1387 & 1388/PUN/2025 Corporation of India Ltd vs Commissioner Of Income Tax And Anr (supra), the additional ground raised by the assessee is admitted for adjudication.
28. Ground of appeal No.1 raised by the assessee relates to the order of the Ld. CIT(A) / NFAC in confirming the disallowance of Rs.24,19,716/- u/s 14A r.w.s. 8D.
29. The Ld. Counsel for the assessee at the outset submitted that the Assessing Officer worked out the disallowance u/s 14A by considering all the investments. However, such disallowance u/s 14A has to be computed by taking only those investments which have yielded exempt income in the year under consideration.
30. We find merit in the above arguments of the Ld. Counsel for the assessee. It has been held in various decisions that only those investments which have yielded exempt income in the year under consideration should be considered while calculating disallowance u/s 14A. We find the Delhi Special Bench of the Tribunal in the case of ACIT vs. Vireet Investment Pvt. Ltd. [2017] 165 ITD 27 (Delhi - Trib) (SB) has held that for computing the average value of investment under Rule 8D(2)(iii), only those investments which have actually earned exempt income during the year and not those investments, which did not yield any exempt income during the year should be considered. Therefore, respectfully following the decision of the Special Bench of the Tribunal cited (supra), we hold that only the shares which have yielded dividend income be included for calculating the 13 ITA Nos.1387 & 1388/PUN/2025 average investment. The Assessing Officer is directed accordingly. The ground of appeal No.2 raised by the assessee is accordingly allowed for statistical purposes.
31. Grounds of appeal No.2 and 3 raised by the assessee relate to the order of the Ld. CIT(A) / NFAC in confirming the disallowance made while computing the book profits u/s 115JB of the Act.
32. After hearing both the sides, we find the above two grounds are identical to the ground of appeal No.2 raised in assessment year 2016-17. We have already decided the issue and allowed the ground of appeal in assessment year 2016-17. Following similar reasonings, we allow the grounds of appeal No.2 and 3.
33. Ground of appeal No.4 raised by the assessee relates to the order of the Ld. CIT(A) / NFAC in confirming the disallowance of Rs.2,06,29,784/- made by the Assessing Officer u/s 36(1)(vii) of the Act without following the decision of Hon'ble Supreme Court in the case of Vijaya Bank vs. CIT & Anr reported in 323 ITR 166 (SC).
34. Facts of the case, in brief, are that the Assessing Officer during the course of assessment proceedings noted that the assessee has debited provision for doubtful debts of Rs.2,06,29,784/- to the Profit and Loss Account for the relevant previous year. On being questioned by the Assessing Officer, the assessee submitted that pursuant to the Explanation (1) to section 36(1)(vii) of the Act, a mere provision 14 ITA Nos.1387 & 1388/PUN/2025 for bad debts is not entitled to deduction u/s 36(1)(vii). However, when besides debited the Profit and Loss Account and creating a provision for bad debts, the assessee has also obliterated the said provision by reducing the corresponding amount from the debtors account in the Balance Sheet, thus showing the debtors in Balance Sheet net of provision for bad debts. For the above proposition, the assessee relied on the decision of Hon'ble Supreme Court in the case of Vijaya Bank vs. CIT & Anr reported in 323 ITR 166 (SC). However, the Assessing Officer was not satisfied with the arguments advanced by the assessee and rejected the claim holding that the assessee has merely created a provision in its books of account. Therefore, in view of the Explanation (1) to section 36(1)(viii) of the Act, it is not entitled for deduction u/s 36(1)(vii) of the Act. No actual write off of debtors has been made during the year. He, therefore, disallowed the same.
35. In appeal, the Ld. CIT(A) / NFAC upheld the action of the Assessing Officer by observing as under:
15
ITA Nos.1387 & 1388/PUN/2025 16 ITA Nos.1387 & 1388/PUN/2025 17 ITA Nos.1387 & 1388/PUN/2025 18 ITA Nos.1387 & 1388/PUN/2025
36. Aggrieved with such order of the Ld. CIT(A) / NFAC, the assessee is in appeal before the Tribunal.
19
ITA Nos.1387 & 1388/PUN/2025
37. The Ld. Counsel for the assessee submitted that the claim made by the assessee is in accordance with the principles laid down by the Hon'ble Supreme Court in the case of Vijaya Bank vs. CIT & Anr (supra). In that case, the Hon'ble Supreme Court has held that where the assessee creates a provision for doubtful debts and besides debiting the Profit and Loss Account the assessee had also obliterated the said provision by reducing the corresponding amount from the debtors account in the balance sheet, it amounts to write off and the deduction u/s 36(1)(vii) is allowable. He submitted that similar claim for assessment year 2011- 12 was made and the Ld. CIT(A) following the decision of Hon'ble Supreme Court in the case of Vijaya Bank vs. CIT & Anr (supra), allowed the claim, copy of which is placed at pages 129 to 142 of the paper book. Referring to the order of the Tribunal, copy of which is placed at pages 180 to 194 of the paper book, he submitted that although the Revenue had filed the appeal before the Tribunal on other issues, however, did not challenge this issue before the Tribunal.
38. Referring to the order of the Ld. CIT(A) / NFAC for assessment year 2012- 13, copy of which is placed at pages 143 to 158 of the paper book, he submitted that in assessment year 2012-13 also the assessee had made a claim which was allowed by the Ld. CIT(A). Referring to the decision of the Tribunal for assessment year 2012-13, copy of which is placed at pages 195 to 199 of the paper book, he submitted that although the Revenue has filed appeal on other issues, however, it has not challenged the order of the Ld. CIT(A) granting relief in respect of deletion of disallowance u/s 36(1)(vii) of the Act. 20
ITA Nos.1387 & 1388/PUN/2025
39. Referring to the decision of Hon'ble Supreme Court in the case of Radhasoami Satsang reported in 193 ITR 321 (SC), he submitted that once the department has accepted the claim for assessment years 2011-12 and 2012-13, there is no reason for the Revenue to adopt a different view for the impugned assessment year when the facts are similar. He accordingly submitted that the order of the Ld. CIT(A) / NFAC be set aside and the grounds raised by the assessee be allowed.
40. The Ld. DR on the other hand heavily relied on the orders of the Assessing Officer and the Ld. CIT(A) / NFAC.
41. We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and Ld. CIT(A) / NFAC and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the assessee in the instant case has made a provision for doubtful debts of Rs.2,06,29,784/- which was debited to the Profit and Loss Account. Further, the assessee had also obliterated the said provision by reducing the corresponding amount from the debtors account in the Balance Sheet. We find the Assessing Officer disallowed the claim on the ground that the assessee has created a provision and there is no actual write off of the debtors which has been upheld by the Ld. CIT(A) / NFAC, the reasons of which have already been in the preceding paragraphs. It is the submission of the Ld. Counsel for the assessee that the said claim is made by the assessee in accordance with the principles laid down 21 ITA Nos.1387 & 1388/PUN/2025 by Hon'ble Supreme Court in the case of Vijaya Bank vs. CIT & Anr (supra). It is also his submission that identical disallowance made by the Assessing Officer for assessment years 2011-12 and 2012-13 was deleted by the Ld. CIT(A) / NFAC and although the Revenue has challenged the orders of the Ld. CIT(A) / NFAC before the Tribunal on other issues for both the years, however, it has not challenged the order of the Ld. CIT(A) / NFAC in granting relief with respect to deletion of disallowance u/s 36(1)(vii) of the Act. Therefore, in view of the rule of consistency also, the order of the Ld. CIT(A) / NFAC being not in accordance with law, has to be set aside.
42. We find some force in the above arguments of the Ld. Counsel for the assessee. We find the Hon'ble Supreme Court in the case of Vijaya Bank vs. CIT & Anr (supra) has observed as under:
"5. At the outset, we may state that, in these civil appeals, broadly, two questions arise for determination. The first question which arises for determination concerns the manner in which actual write off takes place under the Accounting principles. The second question which arises for determination in these civil appeals is, whether it is imperative for the assessee-Bank to close the individual account of each debtor in it's Books or a mere reduction in the "Loans and Advances Account" or Debtors to the extent of the provision for bad and doubtful debt is sufficient?
6. The first question is no more res integra. Recently, a Division Bench of this Court in the case of Southern Technologies Limited vs. Joint Commissioner of Income Tax, reported in [2010] 320 ITR 577, [in which one of us [S.H. Kapadia,J.] was a party] had an occasion to deal with the first question and it has been answered, accordingly, in favour of the assessee vide Paragraph (25), which reads as under:
"Prior to April 1, 1989, the law, as it then stood, took the view that even in cases in which the assessee(s) makes only a provision in its accounts for bad debts and interest thereon and even though the amount is not actually written off by debiting the profit and loss account of the assessee and crediting the amount to the account of the debtor, the assessee was still 22 ITA Nos.1387 & 1388/PUN/2025 entitled to deduction under section 36(1)(vii). [See CIT v. Jwala Prasad Tiwari (1953) 24 ITR 537 (Bom) and Vithaldas H. Dhanjibhai Bardanwala vs. CIT (1981) 130 ITR 95 (Guj)] Such state of law prevailed up to and including the assessment year 1988-89. However, by insertion (with effect from April 1, 1989) of a new Explanation in section 36(1)(vii), it has been clarified that any bad debt written off as irrecoverable in the account of the assessee will not include any provision for bad and doubtful debt made in the accounts of the assessee. The said amendment indicates that before April 1, 1989, even a provision could be treated as a write off. However, after April 1, 1989, a distinct dichotomy is brought in by way of the said Explanation to section 36(1)(vii). Consequently, after April 1, 1989, a mere provision for bad debt would not be entitled to deduction under Section 36(1)(vii). To understand the above dichotomy, one must understand `how to write off'. If an assessee debits an amount of doubtful debt to the profit and loss account and credits the asset account like sundry debtor's account, it would constitute a write off of an actual debt. However, if an assessee debits `provision for doubtful debt' to the profit and loss account and makes a corresponding credit to the `current liabilities and provisions' on the liabilities side of the balance-sheet, then it would constitute a provision for doubtful debt. In the latter case, the assessee would not be entitled to deduction after April 1, 1989."
7. One point needs to be clarified. According to Shri Bishwajit Bhattacharya, learned Additional Solicitor General appearing for the Department, the view expressed by the Gujarat High Court in the case of Vithaldas H. Dhanjibhai Bardanwala [supra] was prior to the insertion of the Explanation vide Finance Act, 2001, with effect from 1st April, 1989, hence, that law is no more a good law. According to the learned counsel, in view of the insertion of the said Explanation in Section 36(1)(vii) with effect from 1st April, 1989, a mere debit of the impugned amount of bad debt to the Profit and Loss Account would not amount to actual write off. According to him, the Explanation makes it very clear that there is a dichotomy between actual write off on the one hand and a provision for bad and doubtful debt on the other. He submitted that a mere debit to the Profit and Loss Account would constitute a provision for bad and doubtful debt, it would not constitute actual write off and that was the very reason why the Explanation stood inserted. According to him, prior to Finance Act, 2001, many assessees used to take the benefit of deduction under Section 36(1)(vii) of 1961 Act by merely debiting the impugned bad debt to the Profit and Loss Account and, therefore, the Parliament stepped in by way of Explanation to say that mere reduction of profits by debiting the amount to the Profit and Loss Account per se would not constitute actual write off. To this extent, we agree with the contentions of Shri Bhattacharya. However, as stated by the Tribunal, in the present case, besides debiting the Profit and Loss Account and creating a provision for bad and doubtful debt, the assessee-Bank had correspondingly/simultaneously obliterated the said provision from it's accounts by reducing the corresponding amount from Loans and Advances/debtors on the asset side of the Balance Sheet and, consequently, at the end of the year, the figure in the loans and advances or the debtors on the asset side of the Balance Sheet was shown as net of the provision "for impugned bad debt". In the judgement of the Gujarat High Court in the case 23 ITA Nos.1387 & 1388/PUN/2025 of Vithaldas H. Dhanjibhai Bardanwala [supra], a mere debit to the Profit and Loss Account was sufficient to constitute actual write off whereas, after the Explanation, the assessee(s) is now required not only to debit the Profit and Loss Account but simultaneously also reduce loans and advances or the debtors from the asset side of the Balance Sheet to the extent of the corresponding amount so that, at the end of the year, the amount of loans and advances/debtors is shown as net of provisions for impugned bad debt. This aspect is lost sight of by the High Court in it's impugned judgement. In the circumstances, we hold, on the first question, that the assessee was entitled to the benefit of deduction under Section 36(1)(vii) of 1961 Act as there was an actual write off by the assessee in it's Books, as indicated above.
8. Coming to the second question, we may reiterate that it is not in dispute that Section 36(1)(vii) of 1961 Act applies both to Banking and Non-Banking businesses. The manner in which the write off is to be carried out has been explained hereinabove. It is important to note that the assessee-Bank has not only been debiting the Profit and Loss Account to the extent of the impugned bad debt, it is simultaneously reducing the amount of loans and advances or the debtors at the year-end, as stated hereinabove. In other words, the amount of loans and advances or the debtors at the year-end in the balance-sheet is shown as net of the provisions for impugned debt. However, what is being insisted upon by the Assessing Officer is that mere reduction of the amount of loans and advances or the debtors at the year-end would not suffice and, in the interest of transparency, it would be desirable for the assessee-Bank to close each and every individual account of loans and advances or debtors as a pre-condition for claiming deduction under Section 36(1)(vii) of 1961 Act. This view has been taken by the Assessing Officer because the Assessing Officer apprehended that the assessee- Bank might be taking the benefit of deduction under Section 36(1)(vii) of 1961 Act, twice over. [See Order of CIT (A) at Pages 66, 67 and 72 of the Paper Book, which refers to the apprehensions of the Assessing Officer]. In this context, it may be noted that there is no finding of the Assessing Officer that the assessee had unauthorisedly claimed the benefit of deduction under Section 36(1)(vii), twice over. The Order of the Assessing Officer is based on an apprehension that, if the assessee fails to close each and every individual account of it's debtor, it may result in assessee claiming deduction twice over. In this case, we are concerned with the interpretation of Section 36(1)(vii) of 1961 Act. We cannot decide the matter on the basis of apprehensions/desirability. It is always open to the Assessing Officer to call for details of individual debtor's account if the Assessing Officer has reasonable grounds to believe that assessee has claimed deduction, twice over. In fact, that exercise has been undertaken in subsequent years. There is also a flip- side to the argument of the Department. Assessee has instituted recovery suits in Courts against it's debtors. If individual accounts are to be closed, then the Debtor/Defendant in each of those suits would rely upon the Bank statement and contend that no amount is due and payable in which event the suit would be dismissed."
24
ITA Nos.1387 & 1388/PUN/2025
43. We further find similar disallowance was made by the Assessing Officer in assessment years 2011-12 and 2012-13 which has been deleted by the Ld. CIT(A) / NFAC, copies of which are placed at pages from 129 to 142 of the paper book for assessment year 2011-12 and from 143 to 158 of the paper book. Although the Revenue has filed separate appeals against the orders of the Ld. CIT(A) / NFAC on other issues, however, a perusal of the order of the Tribunal for assessment years 2011-12 and 2012-13, copies of which are placed at pages 180 to 194 of the paper book and 195 to 199 of the paper book respectively shows that the Revenue has not challenged the order of the Ld. CIT(A) / NFAC with respect to the deletion of disallowance u/s 36(1)(vii) of the Act for the above two years. We, therefore, following the rule of consistency, hold that the Ld. CIT(A) / NFAC was not justified in confirming the action of the Assessing Officer in making disallowance u/s 36(1)(vii) of the Act. The order of the Ld. CIT(A) / NFAC is accordingly set aside and the grounds raised by the assessee are allowed.
44. In ground of appeal No.5 the assessee has challenged the order of the Ld. CIT(A) / NFAC in not adjudicating the additional ground filed by the assessee regarding allowance u/s 40(a)(ia) of the Act.
45. After hearing both the sides, we find the assessee has filed an additional ground before the Ld. CIT(A) / NFAC according to which the assessee has requested for allowing the deduction u/s 40(a)(ia) of the Act on account of disallowance made in earlier years. However, the Ld. CIT(A) / NFAC has not 25 ITA Nos.1387 & 1388/PUN/2025 adjudicated this issue. We, therefore, at the consent of both the parties, deem it proper to restore this issue to the file of the Ld. CIT(A) / NFAC with a direction to adjudicate the additional ground raised before him. The ground of appeal No.5 raised by the assessee is accordingly allowed for statistical purposes.
46. In the result, both the appeals filed by the assessee are partly allowed for statistical purposes.
Order pronounced in the open Court on 20th April, 2026.
Sd/- Sd/-
(ASTHA CHANDRA) (R. K. PANDA)
JUDICIAL MEMBER VICE PRESIDENT
पुणे Pune; दिन ां क Dated : 20th April, 2026
GCVSR
Gajjala Chinna Digitally signed by Gajjala Chinna
Venkata Subba Reddy
Venkata Subba Reddy Date: 2026.04.21 17:28:06 +05'30' आदे श की प्रतितिति अग्रे तिि/Copy of the Order is forwarded to:
1. अपील र्थी / The Appellant;
2. प्रत्यर्थी / The Respondent
3. The concerned Pr.CIT, Pune
4. DR, ITAT, 'A' Bench, Pune
5. ग र्ड फ ईल / Guard file.
आदे शानुसार/ BY ORDER, // True Copy // Assistant Registrar आयकर अपीलीय अदिकरण ,पुणे / ITAT, Pune 26 ITA Nos.1387 & 1388/PUN/2025 S.No. Details Date Initials Designation 1 Draft dictated on 16.04.2026 Sr. PS/PS 2 Draft placed before author 20.04.2026 Sr. PS/PS Draft proposed & placed before 3 JM/AM the Second Member Draft discussed/approved by 4 AM/AM Second Member Approved Draft comes to the 5 Sr. PS/PS Sr. PS/PS 6 Kept for pronouncement on Sr. PS/PS 7 Date of uploading of Order Sr. PS/PS 8 File sent to Bench Clerk Sr. PS/PS Date on which the file goes to 9 the Office Superintendent Date on which file goes to the 10 A.R. 11 Date of Dispatch of order