Provision for doubtful debts and MAT adjustment: such debit entries against debtors may fall outside Section 115JB add-back.

Provision for bad and doubtful debts, when debited to the profit and loss account and reflected by reducing debtors on the assets side of the balance sheet, was treated as a diminution in the value of assets rather than a provision for liability. On that basis, the adjustment under the Explanation to Section 115JB was held inapplicable, following Karnataka High Court authority. The result was that the addition to book profits was not sustainable, and the relief granted to the assessee was upheld. The text also records that the Revenue's attempt to disturb that relief on the same footing failed.

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Issues: Whether provision for bad and doubtful debts was required to be added back while computing book profits under Section 115JB, and whether the Revenue could disturb the CIT(A)'s relief on that basis.

Analysis: The provision for doubtful debts had been debited to the profit and loss account and reduced from the gross debtors in the balance sheet, showing the amount as a diminution in the value of assets rather than as a provision for liability. On those facts, the adjustment contemplated by the Explanation to Section 115JB was held not to apply. The Tribunal followed the Karnataka High Court view that a provision of this nature, when reflected against debtors on the assets side, does not fall within the mischief of the MAT adjustment provision.

Conclusion: The addition to book profits was not sustainable and the assessee's relief was upheld.

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