HIGH COURT OF KERALA ON SECTION 143, read with section 36(1)

FACTS For the relevant assessment year while processing the return of the assessee, which is a banking company, under section 143(1)(a), the Assessing Officer made addition of certain amount representing provision towards bad debt. On appeal, the Commissioner (Appeals) as well as the Tribunal upheld the addition made by the Assessing Officer. On appeal to the High Court, the assessee contended that it being a scheduled bank was bound to create provision for bad debt in terms of the RBI guideline was and, therefore, unlike the case of other business concerns, its claim for bad debt should be allowed. The assessee also contended that eligibility for deduction of provision for bad debt was a debatable issue and was ceased to be so only by virtue of Explanation introduced to section 36(1)(vii) by Finance Act, 2001 with effect from 1-4-1989 and, therefore, for the relevant assessment year, the provision for bad debt could not be disallowed in proceedings under section 143(1)(a). HELD It could not be said that the assessee being a schedule bank, its claim under section 36(1)(vii) had to be treated differently, because from the regular assessment made under section 143(3) for the relevant assessment year, it was found that the assessee had made separate claim under section 36(1)(vii)(a) in terms of the RBI guidelines pertaining to advances made in rural areas. Even in the regular assessment, the very same amount of provision for bad debt had been disallowed just because it was provision and assessee did not have a case that it was really written off. In other words, the provision for bad debt claimed by the assessee had not been written off in the accounts entitling it for a deduction under section 36(1)(vii). The claim being only a provision for bad debt was prima facie inadmissible under section 36(1)(vii), as the section does not authorise granting of deduction of any debt unless it has been written off in the accounts for the previous year. Therefore, the claim was rightly treated as prima facie inadmissible and no enquiry or hearing was required to disallow the claim because assessee itself had no case that the amount had been written off in the accounts which only could qualify it for deduction under section 36(1)(vii). Further, the Explanation introduced to section 36(1)(vii) by the Finance Act, 2001 with effect from 1-4-1989 is to effect that bad debt or a part thereof written off as irrecoverable shall not include any provision for bad and doubtful debts made in the accounts of the assessee. This Explanation is only clarificatory in nature as it does not add any new meaning or dimension to the main provision which provides for deduction of bad debt only when it is written off as irrecoverable in the accounts of the assessee for the previous year. Therefore, the Explanation was thoroughly unnecessary and, probably, it would have been introduced only to avoid any chance of litigation. Therefore, the proceedings issued under section 143(1)(a) pertaining to the addition of provision for bad debt was perfectly in order and, consequently, the assessee’s appeal deserved to be dismissed.