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[2010] 190 Taxman 257 (SC)/[2010] 323 ITR 166 (SC)/[2010] 231 CTR 209 (SC) [2010] 190 TAXMAN 257 (SC) SUPREME COURT OF INDIA Vijaya Bank v. Commissioner of Income-tax S.H. KAPADIA AND SWATANTER KUMAR, JJ. CIVIL APPEAL NOS. 3286-3287 OF 2010 APRIL 15, 2010 Section 36(1)(vii) of the Income-tax Act, 1961 - Bad debts - Assessment years 1993-94 and 1994-95 - Whether where assessee bank had written off impugned bad debt in its books by way of a debit to profit and loss account, simultaneously reducing corresponding amount from loans and advances to debtors depicted on assets side in balance sheet at close of year, assessee was entitled to deduction under section 36(1)(vii) and for that purpose, it was not necessary for it to close individual account of each of its debtors in its books - Held, yes FACTS For the relevant assessment year, the Assessing Officer disallowed the amount which the assessee-bank had reduced from loans and advances or debtors on the ground that the impugned bad debts had not been written off in an appropriate manner as required under the accounting principles. According to him, write off of each and every individual account under the head 'loans and advances' or debtors was a condition precedent for claiming deduction under section 36(1)(vii). On appeal, the Commissioner (Appeals) held that it was not necessary for the purpose of writing off of bad debts to pass corresponding entries in the individual account of each and every debtor; and that it would be sufficient if the debit entries were made in the profit and loss account and corresponding credit was made in the 'bad debt reserve account'. On the revenue's appeal, the Tribunal affirmed the view taken by the Commissioner (Appeals) on the following three grounds: Firstly, according to the Tribunal, the assessee had rightly made a provision for bad and doubtful debt by debiting the amount of bad debt to the profit and loss account so as to reduce the profits of the year. Secondly, the provision account so created was debited and simultaneously, the amount of loans and advances or debtors stood reduced and, consequently, the provision account stood obliterated. Lastly, according to the…

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