The division bench of Madras High Court has held that, Bad Debt of NBFC is Deductible from Computing the Income under Income Tax Act though the Assessee maintains Two Seperate Set of Books.
The Assessee M/s. Shriram Transport Finance is a Domestic Company and a Non Banking Financial Institution (NBFC).
The Assessee maintains books of accounts in accordance with the provisions of Companies Act and the mandate of the Reserve Bank of India as applicable to an NBFC. Parallelly, it maintains books in accordance with the provisions of the Income Tax Act 1961 for the purpose of computation of income there under. Adverting to the first issue, the Assessee, in finalizing its corporate accounts made a provision in respect of debts advanced by it that were not realizable.
For the purpose of Income Tax, the bad debts were written off in the Profit and Loss Account and claimed as a deduction in the computation of income in terms of section 36(1)(vii) of the Income Tax Act. The claim was disallowed by the assessing officer, but allowed by the Commissioner of Income Tax (Appeal) and the Tribunal.
The Appellants questioned the maintenance of two sets of book, one for the purposes of the Companies Act and the other for the purposes of the Income Tax Act reflecting different treatment of bad debts. According to him, this difference amounts to an anomaly and results in distortion of the relevant facts and figures.
The appellants also contended that, the method of write off of a debt adopted by the Assessee was not in accordance with the prescription by the Supreme Court in the cases of Southern Technologies vs. The Joint Commissioner of Income Tax, Coimbatore.
While rejecting the appellants contentions, the division bench comprising of Justice Nooty Ramamohana Rao and Justice Anita Sumanth observed that, the maintenance of two separate sets of books, one for purposes of the Companies Act and the other for Income Tax, is perfectly in order and there is no embargo against the same.
While dismissing the appeal, the division bench cited catena of Judgments and observed that, it is clear that the claim of bad debts relates to debts actually written off and not a provision made in this regard. The Supreme Court in the case of Vijaya Bank vs. Commissioner of Income Tax explaining the methodology for proper write-off set out in accordance with the Judgment of the Supreme Court in Southern Technologies vs. The Joint Commissioner of Income Tax, Coimbatore.
Read the full text of the Judgment below.