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G.E. Veerabhadrappa, Vice President

1. There being a difference of opinion between the Members constituting the Division Bench, the Hon'ble President has referred, under Section 255(4) of the I.T. Act, 1961, the following point of difference to me as a Third Member to resolve the controversy:

Whether, under the facts and circumstances of the case, the provisions for bad and doubtful debts of Rs. 10,99,552/- claimed by the assessee and allowed Under Section. 143(3) proceedings by the Assessing Officer, can be disallowed by invoking the provisions contained Under Section 154 of the Income Tax Act, 1961, and basing on the amendment made to Section 36(1), Clause -(7), which was amended by Finance Act, 2001?
(i) The learned Judicial Member has proceeded (para.3 of his order) on the assumption that the notice Under Section 154 was issued by the AO to rectify the assessment order by disallowing "...a sum of Rs. 10,99,552/- on account of provision for bad and doubtful debtsand loans and advances...." (emphasis supplied). The learned Judicial Member has carried that assumption further and observed in para.4 of his order that the "...learned CIT(A) after hearing the assessee passed the impugned order wherein it was held that the provision for bad and doubtful debtsis not allowable deduction...." (emphasis supplied). In para.6 of his order, the learned Judicial Member has further observed: "...it is clear that the provision for bad and doubtful debts/loans and advances is allowable or not is to be decided...." (Emphasis supplied). It was not even submitted by the assessee at any stage of the proceedings either before us or before the Departmental authorities that it was claiming allowance in respect of 'provision for bad and doubtful debts', as assumed in the order proposed by the learned Brother. Thus the learned Judicial Member has proceeded to decide the matter on the assumption that it was a claim amounting to Rs. 10,99,552/- for 'bad and doubtful debts' which was disallowed by the AO and confirmed by the learned CIT(A). Perusal of the order passed by the AO Under Section 154 and the appellate order passed by the learned CIT(A) confirming the order of the AO shows that it was not the claim for 'bad and doubtful debts' that was disallowed by the AO and confirmed by the learned CIT(A). The correct factual position, as explained in succeeding paragraphs of this order, is that the assessee had claimed not only bad debts written off as irrecoverable but also, in addition to the aforesaid, a further sum of Rs. 10,99,552/as 'provision for doubtful debts'. Claim of the assessee for bad debts written off was neither disallowed by the AO nor was the same a subject matter of rectification Under Section 154 nor was there any question of any appeal being filed against the same before the CIT(A). The subject matter of rectification Under Section 154 was the 'provision for doubtful debts' not written off as irrecoverablein the accounts of the assessee for the relevant previous year and not the 'provision for bad and doubtful debts' as assumed by the learned Judicial Member in his order.

(Certain grammatical mistakes in last two lines of the order have been corrected)

6. Facts as stated in the order passed by the AO including the aforesaid Table given therein were not disputed by the assessee at the time of hearing before us.

7. Following facts clearly emerge on perusal of the order passed by the AO Under Section 154.

(i) The assessee was seeking allowance of Rs. 10,99,552/- Under Section 36(1)(vii), being provision for doubtful debts, over and above the allowance for bad debt which it had written off as irrecoverable in its accounts for the relevant previous year. During the year, the assessee showed addition of Rs. 11,21,751/- to doubtful debts/advances out of which the amount actually written off as irrecoverable was shown at Rs. 22,200/-only. It is quite apparent from the assessee's own details that a sum of Rs. 22,200/-alone was written off as irrecoverable in the accounts of the assessee. Thus, the assessee itself treated the amount of bad debts written off as irrecoverable as separate and distinct from the provision for doubtful debts/advances amounting to Rs. 10,99,552/-

31. In view of the above, the appeal filed by the assessee is dismissed.

ORDER D.K. Srivastava, Accountant Member

1. On a difference of opinion between the Members constituting this Bench, following point of difference was referred under Section 255(4) of the Income-tax Act, 1961:

Whether, under the facts and circumstances of the case, the provisions for bad and doubtful debt of Rs. 10,99,552/- claimed by the assessee and allowed Under Section 143(3) proceedings by the Assessing Officer, can be disallowed by invoking the provisions contained Under Section 154 of the Income-tax Act, 1961, and basing on the amendment made to Section 36(1), Clause (viii), which was amended by Finance Act, 2001?